Various Kinds of Values

The Association recognizes that different kinds of assets may have different kinds of values depending on the particular attendant circumstances and, further, that there are both basic and subordinate kinds of values.

Good professional practice requires that the valuer describe in sufficient detail, in each case, the nature and meaning of the specific value that he is determining.

Selection of Valuation Method

The procedure and method for determining the particular value in question is a matter for the valuer himself to determine; he cannot be held responsible for the result unless he has a free hand in selecting the process by which that result is to be obtained. However, good valuation practice requires that the method selected be adequate for the purpose, embrace considerations of all the factors that have a bearing on the value, and be presented in a clear and logical manner.

Fractional Valuations

Certain classes of assets (real estate, business enterprise, collections of goods/ materials, etc.) can be considered as made up of components. If an element is considered as an integrated part of the whole asset, its value, in general, is different from the value the same element has if considered as a fraction separated from the whole asset.

A valuation of an element of a whole asset, considered by itself and ignoring its relation to the rest of the whole asset, is called a "fractional valuation." There are legitimate uses for fractional valuations (valuation of buildings for fire insurance purposes; valuation to determine the value of land as if cleared of existing improvements: etc.) but good practice requires that a fractional valuation be labeled as such and that the limitations on its use by the client and/or third parties be clearly stated.

Contingent and Limiting Conditions Affecting a Valuation

In many instances the validity of the valuer's conclusions as to the value of a subject asset is contingent upon the validity of statements, information, and/or data upon which he has relied, supplied to him by member of other professions or secured by him from official sources. Such material may be obtained, for example, from architects, engineers, lawyers, accountants, government officials, government agencies, etc. It is proper for the valuer to rely upon and use such material provided (1) he states in his report that he has done so, (2) he stands ready to make his sources and/or the material itself available for any required verification, and (3) he does not pass to others the responsibility for matters that are, or should be, within the scope of his own professional knowledge.

In many instances the validity of the valuer's conclusions as to the value of a subject asset is contingent upon the validity of statements, information, and/or data upon which he has relied, supplied to him by member of other professions or secured by him from official sources. Such material may be obtained, for example, from architects, engineers, lawyers, accountants, government officials, government agencies, etc. It is proper for the valuer to rely upon and use such material provided (1) he states in his report that he has done so, (2) he stands ready to make his sources and/or the material itself available for any required verification, and (3) he does not pass to others the responsibility for matters that are, or should be, within the scope of his own professional knowledge.

Standard valuation practice requires that the valuer state any other contingent or limiting conditions which affect the valuation, such as, for example, that the value is contingent upon the completion of projected public or private improvements, etc.

A hypothetical valuation is a valuation based on assumed conditions which are contrary to fact or which are improbable of realization or consummation. The Association takes the position that there are legitimate uses for some hypothetical valuations, but that it is improper and unethical to issue a hypothetical valuation report unless (1) the value is clearly labeled as hypothetical (2) the legitimate purpose for which the valuation was made is stated, and (3) the conditions which were assumed contrary to fact are set forth.

A hypothetical valuation showing the value of a company which it is proposed to form by merging two existing companies would he deemed to serve a legitimate purpose.

Valuations In Which Access to Pertinent Data is Denied

Situations sometimes occur in which data that the valuer considers pertinent to the making of a valid valuation are in existence but access to them is denied to the valuer, either by the client or some other party. In such a case, the valuer, at his option, may properly decline to carry out the assignment. In the event he considers such data essential to the making of a valid valuation, he may not properly proceed with the assignment.

Ranges of Value or Estimated Cost and Reliability Estimates

Some valuation engagements call for the determination of a probable range of values or estimated costs, either with or without a collateral statement of the most probable figure within that range. It is entirely within the scope of good valuation practice to give a range of values or estimated costs.

In as much as the valuer's determination of the amount of a value or an estimated cost cannot, by its very nature, be exact, it is good valuation practice to append to such numerical results a statement as to the degree of reliability to be accorded thereto. Such reliability estimates are usually expressed as plus and minus percentages.

Values or Estimated Costs Under Different Hypotheses

The objective of a valuation undertaking may be the determination of different values or different cost estimates based on different hypotheses. It is entirely within the scope of good valuation practice to give such differing numerical results, provided the valuer adheres to the principles set forth earlier. (Refer Sec. 3.1 and Sec. 6.5)

Inspection, Investigation, Analysis, and Description of Subject Asset

The valuation of assets is a procedure based on an analysis of all the characteristics of the assets which contribute to or detract from its value; good valuation practice requires that the valuer's inspection, investigation, and study be thorough enough to uncover all of the pertinent characteristics.

The valuation of assets is a procedure based on an analysis of all the characteristics of the assets which contribute to or detract from its value; good valuation practice requires that the valuer's inspection, investigation, and study be thorough enough to uncover all of the pertinent characteristics.

identification of the asset

statement of the legal rights and restrictions comprised in the ownership, and the characteristics of the asset which contribute to or detract from its value.

In the case of land and prospective real estate improvements, identification is particularly important in order to prevent unscrupulous persons from representing the valuation as applying to substituted inferior assets.

In the case of land and prospective real estate improvements, identification is particularly important in order to prevent unscrupulous persons from representing the valuation as applying to substituted inferior assets.

The physical condition of land plots or real estate is an element contributing to or detracting from their value; good valuation practice requires adequate inspection and investigation to determine it.

Collaboration Between Valuers and Utilization of the Services of Members of Other Professions

In some cases, the nature of the valuation undertaking calls for special professional knowledge and abilities in addition to those possessed by the valuer. In such an instance, it is both necessary and proper for the valuer to employ other valuers and/or members of other professions to obtain data and derive conclusions relative to specific parts of the work. The principal valuer builds his final conclusions, in part, on these contributions, taking responsibility for the final result but subject to the validity of the underlying or constituent contributions.