Types of Valuations
Introduction
The most common type of valuation required in arbitration or determination of the value of an asset is Market Valuation. Other types are required for specialist issues, you must determine the type of valuation you require, we have listed a comprehensive valuation guide below. We are ready to advise you on the type of valuation you need and help you decide if you need our services.
Market valuation.
Market Value is defined by the International Valuation Standards Committee (referred to as “IVS”) as the estimated amount for which an asset or liability should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.
Customs valuations for determination of duty on imported cars.
Generally an appraisal of the realizable value at landed cost on the wharf needs to be obtained by the importer provided by an expert valuer who will not take into account any modification charges, fee, taxes or duty on the vehicle. Various other factors are taken into account as where a vehicle is imported at a fraction of the cost of available vehicles in Australia or conversely where there may be a ‘grey import stigma’ on the vehicle.
Grey Imports.
Grey imports are vehicles that duty has been paid on and may or may not have been modified to conform to Australian design and safety regulations. Although these vehicles are the same in appearance as their Australian delivery counterparts they will generally have less realizable value.
Carnet de Passages valuation.
The Carnet allows travellers to temporarily import or export their vehicles, or other items of value such as broadcasting equipment, without having to leave a cash deposit at the border.[1] It is, in essence, an international guarantee for payment of customs duties and taxes to a government should the vehicle or item not be re-exported from that country. Persons who temporarily import their vehicles or items into countries where the Carnet is required must agree to obey the laws and regulations of that country and particularly the conditions of temporary importation.
The Carnet contains relevant information about the items or vehicle – make, model, colour, engine capacity, seating capacity, registration number, owner and value.
In order to obtain a carnet, the owner of the items is required to provide a security based on the age and market value of the items. Generally three types of security are acceptable from motoring organisations:
- Cash bond
- Banker’s letter of indemnity
- Insurance policy.
Agreed Valuation.
Agreed valuations are generally performed when an insurer requires an independent valuation of an asset where a client has specified that such asset has more value than ascertained by reference to a price guide for whatever reason, modification, added equipment etc.
Forced Sale Valuation.
Forced sale is self-described and cannot be taken as a general valuation. It occurs when for whatever reason an asset cannot be marketed to its fullest extent. Forced sale is a description of circumstance, not a basis of value. If a forced sale price indication is required all circumstances as to market constraints should be clearly identified and noted. Sales in a falling or inactive market are not necessarily forced sales unless there is a time constraint where the seller has a deadline.
Stand Alone Valuation.
A stand alone valuation may be different to that of an asset that forms part of a group. Thus the overall worth of the group may vary the valuation of the individual asset. If a mining plant relies on its specific components to work in harmony and the removal of one particular component stops production, its value as a component may differ to the same component as a standalone entity and the plant itself being minus that asset will have a lower value.
Investment Valuation.
Investment value is the value of an asset to an owner or prospective purchaser of an asset for investment or operational objectives.
Fair Valuation.
Fair value is the estimated price an asset or liability may change hands for, that considers the interests of all parties. Fair value and market value are sometimes described as the same, HOWEVER, fair value can be described as the advantage the participants of a transaction may gain or lose as the result of that transaction. The asset may be unique. Market valuation excludes these advantages. Further, fair value is a broader concept and determination will take into account special advantages gained by one or more parties that may be of a specific nature and disregarded in an assessment of market value. Examples may include determination of a higher price that may be achieved by the purchase of a shareholding that creates a market advantage within that sphere producing a different value than the achievable price on an open market – if shares were on the open market and a purchaser needed to obtain a certain number to create a controlling interest that may reap benefits via that purchase then the shares could be valued at a higher price than may have been achievable previously because of that advantage.
Special Valuation.
Special value is where an asset gives unique advantages to a prospective purchaser.
Special value is where the asset is recognised as such to a purchaser whereas Market value requires a disregard to this uniqueness.
When special value is identified it must be reported and clearly distinguished from market value.
Replacement Cost Valuation.
Replacement Cost – Replacement using new materials.
Reproduction Cost Valuation, Entity Specific Valuation.
Cost to create a virtual replica of an existing entity using the same design and similar materials. Note; cost and value are distinct in definition
Diminished Value.
An asset may have a diminished value due to a number of circumstances. When purchased new it may have a defect or defects that although repaired under warranty are determinable. In the case of a new vehicle if these defects were noted on the service record or identifiable then the purchaser may be disadvantaged at time of resale. So in essence if two identical vehicles were offered for sale and one had a record of repair then it would be expected that preference in purchase would be given to the vehicle without repair. In this instance the purchaser has a diminished value in his asset.
Depreciating Valuation.
Depreciation is the lessening of value of an asset over its useful life. An estimate of depreciation can be calculated by taking a number of factors sometimes asset specific into account.
Tool of Trade Valuation.
An example of a tool of trade is a taxi. In Melbourne a taxi has a use by date of 74 months from new, its value as a car after three years as a taxi with some 200,000 kms. travelled will be negligible, but as a working unit with say, 36 months working life left, a valuation must consider it working value as “a tool of trade’ so if the vehicle were written off a valuation has to take into account the residual working life of the vehicle. In conjunction with an officer of the R.A.C.V. I have worked out a table that is indisputable and has resolved most cases where it has been introduced where there has been dispute over the value of a taxi. This has absolutely nothing to do with the assessment of damage to the vehicle. Assessors ARE NOT Valuers unless qualified and Valuers are not assessors unless qualified.
Residual Valuation.
Residual Value is the value of an asset at the end of its useful life, as a tool of trade where the asset may be redeployed, where the asset can be scrapped, or where it may have value for whatever reason and offset against the value of the original price of that asset. It should be taken into account when finally writing off the asset as a tax deduction.
Entity Specific Valuation.
Entity specific value is the present value of cash flow derived from a specific asset. Property, plant and equipment are tangible entities that are used in production, for hire or for administrative purposes.