Glossary.
The concepts of valuation, defined simply.
Market value
The estimated amount for which a property should exchange, on the valuation date, between a willing seller and a willing buyer who are both informed, after proper marketing, neither party acting under compulsion. It is the reference value for estates, gifts, financing and IFI declarations, not to be confused with an asking price or with an isolated transaction price.
Market rental value
The rent at which a property could reasonably be let on the valuation date, on the usual terms of the market concerned. It differs from the rental value established under the criteria of the French Commercial Code (Articles L.145-33 et seq.), which is used to set and renew commercial rents and follows its own rules.
Eviction compensation
The sum owed by the landlord to the tenant under a commercial lease when renewal is refused without serious and legitimate grounds. It comprises a main compensation (the value of the business or, if the customer base survives the move, the value of the leasehold right) and ancillary compensation: removal, relocation, transfer duties, business disruption.
Comparison method
Determining the value of a property from comparable transactions involving similar properties, adjusted for differences in location, extent, condition and date. Its reliability depends entirely on the quality of the comparables selected and the rigour of the weightings; that is where the difference between an estimate and a valuation lies.
Capitalisation method
Determining the value of an income-producing property by dividing its income (actual rent or rental value) by a capitalisation rate that reflects the risk, liquidity and prospects of the market concerned. The choice of rate and of income base must be reasoned.
Discounted cash flow (DCF) method
Determining the value of an asset by discounting its projected cash flows over an analysis period, plus an exit value. Suited to complex income-producing assets, evolving lease structures and business valuations, it requires every assumption to be made explicit: rents, vacancy, works, rates.
Residual method (developer's appraisal)
A method for valuing land or a redevelopable building: you start from the projected revenue of the planned scheme, then deduct all costs (construction, fees, finance costs, the developer's margin) to obtain the acceptable land cost, in other words what a developer can pay for the land.
Joint-ownership discount
An allowance applied to the value of an undivided share in a property, to reflect the restricted freedom to dispose of it and the difficulty of selling a share. Its rate is assessed case by case (nature of the property, number of co-owners, exit prospects) and must be reasoned, because it is regularly challenged by the tax authorities.
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