The Comparison Method
• The MarketApproach or Comparative Method
i.
Direct Approaches - used as a method on its own
right.
ii.
ii. Indirect Approaches – as a component within
the other method • Valuation basis – comparison like a like ; similar
properties sold in the past are used as the evidence to assess the value of
property in consideration.
The Comparison Method
• Important notes on comparison method
1.
Capital values or rent are the transaction price
based on
genuine transaction, a willing
seller/landlord and willing buyer/tenant
no relation between
seller/landlord and buyer/buyer
not a forced transaction not
a special party or special price/rent
normal negotiation being
carried out within the stable economic situation
2. Similar properties are properties of similar types
located within the same location.
3. recently been sold or let means the market evidence need
to be much more recent for it to be a good comparable. Time of sale which
took place a month or a year earlier. If no sale transaction in the recent
past year, valuer may be able to get guidance from considering market evidence
over a period of earlier years
The Comparison Method
The less the comparable property complies with these
requirements, the less valid will be the comparison.
• The property is unique
they can never be totally alike. Hence, make allowance for
such differences.
adjustment to be made to the comparable to fit the
property being valued
Some differences may be unimportant, where others
differences may be very important
• The property is heterogeneous
Observed any special factors affected the market value of
the comparable and the property being valued.
• The property is unique
• may be very important
• they can never be totally alike. Hence, make allowance for
such differences.
• adjustment to be made to the comparable to fit the
property being valued
• Some differences may be unimportant, where others
differences
• The property is heterogeneous
• Observed any special factors affected the market value of
the comparable and the property being valued.
The valuation process comprise seven (7) steps 1 st steps :
compile transaction data and details of the comparable properties. Commonly
refered to sale evidences data 2 nd steps : critically observe the factors
affecting the sale transaction 3 rd steps : analyse the similarities and
differences between the comparable property and the property being valued
The Comparison Method
4 th
steps : divide the comparable property into suitable
comparable units 5 th steps : ascertain suitable market value as a comparable
unit 6 th steps : make allowances (quantum allowance), where possible. 7 th
steps : valuation computation
The Comparison Method
Adjustment Factors to be factored in a. Market conditions; •
stable or volatile • demand and supply b. Time; • the most recent evidence on
transaction, ‘old’ evidence less reliable. • adjust evidence according to
market over time • requires judgement c. Tenure; • freehold vs leasehold
The Comparison Method
d. Location and locality; prime, subprime, central, urban,
rural, thriving neighbourhood main road frontage, cul-de-sac, remote
intermediate, end, corner plots floor level [multi-story building] public
facilities & amenities e. Size and Accommodation Layout Land size and
extra land available Building area [Built-up/floor Area] Extension and
renovation Numbers of rooms including bedrooms, living, kitchen, dining,
bathrooms, porch, store and etc.
The Comparison Method
• Parking facilities e. Fixtures & fittings; •
air-conditioning system/pipe water system • Electrical wiring – two phase /
three phase • Built-in Kitchen cabinet & Wardrobe f. Age & Design •
newly completed, standard, obsolete buildings • old design, modern design, standard
architect design, individually design
The Comparison Method
g. Construction; • permanent , semi permanent, traditional,
temporary • high cost, medium cost, medium low cost, low cost • material use
for floors, walls, roof, doors, windows h. Cultivation [for agricultural land]
• palm oil – age & yield • rubber – age & yield • Orchard – types of
fruit trees • padi – once or twice a year harvesting
“Zoning” Method
• the method in general use for obtaining rental values
for valuing shops • distinguish more valuable part of the
premises by splitting the depth of shop into zones • allows for the progressive
decrease in value, the process is known as “halving back” • analysis of rent
paid for premises
The method of “Zoning”
• overall zone : rental (RM) ÷ floor space (sq feet)
• natural zone : commonly use for standardize terrace shops
• arithmetic zone : most suitable method, priority given to
the areas that attracts more customers and this areas becomes the prime areas.
“Halving back” principle
1.
horizontal zoning approaches
• zones the premises up to three(3) zones
and a remainder
• depth of each zoning varies according to
the circumstances and the opinion of a valuer
• ground floor shops , the front area is
most valuable and is worth maximum figure.
• The value decreases as the distance away
from the front to the rear.
• The frontage is therefore more valuable
than the rear
The Comparison Method
• common practice, devide the shop into consistent zones of
6.1 metres (20 feet) depths. • Generally, the values of zone are • Zone Ais at
the front of the shop = x, • Zone B is the next 20 feet zone = x/2 [worth 50%
of Zone A] , • Zone C is the next 20 feet zone after Zone B = x/4 [worth 25% of
Zone A] , • Zone Reminder = x/8 [worth 12.5% of Zone A] , [the Zone A
principle]
The Comparison Method
2. Vertical zoning approaches • zones the premises
vertically • commonly use to compare and value building without lift
services/walk up building • varies according to the level it is located, the
types and use of premises and the opinion of a valuer • ground floor [as shops]
is most valuable and is worth maximum figure. • The value decreases as the
level/floor go higher.
The Comparison Method EXERCISE 1 – DIRECT COMPARISON
Value the freehold interest in a parcel of agricultural land
cultivated with palm oil with an acreage of 10 acres (4.46 hectares). The palm
oil is about 7 years of age. In overall, the subject site is well maintain with
proper drainage system. The subject property is identified as Lot 1078 within
the Mukim of Dengkil and District of Sepang, Selangor. The land has a direct
frontage to the main road. It is sited approximately 5 kms from Pekan Dengkil.
The Comparison Method
The comparable data available as follows :a. Lot 1127 within
the same mukim and district were transacted between mother and son for
RM100,000 on 11 November 2015. It has an area measuring 5 acres (2.02hectares).
Cultivated with 10 years old rubber. The land enjoys a main road frontage. b.
Lot 1087 within the same mukim and district measuring 8 acres (3.23 hectares)
were transacted on market price for RM1,280,000 on 4 January 2016. The site is
cultivated with 5 years old palm oil. The land enjoys a main road frontage. The
site appears to be a well maintained land.
The Comparison Method
c. Lot 2060 located in the same mukim and district were
transacted for RM154,000.00 per acre on 8 December 2012. The 10-acres site is
cultivated with 15 years old rubber trees. The land is a second layer lot to
the road frontage.
The Comparison Method EXERCISE 2 – ZONING METHOD
A market rental of a ground floor shop with a frontage of
7.3 metres and a depth of 21.3 metres in Balakong Trade Center was recently let
on all exclusive lease terms for RM5,500 per month.
Analyse this rent to calculate the annual rental value of a
similar shop in the same locality, having a frontage of 6.68 metres and depth
of 22.79 metres
