Types of Valuations

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 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.

Probate matters are invariably sad times for estate beneficiaries. Many times, a valuation will be required to ascertain the worth of the deceased’s assets. He may have died intestate, there may be a dispute on the value of an asset, or a value may need to be placed on an asset offered for sale by the estate. These valuations must be in the correct format and be admissible as evidence in court if needed.

A forced sale is self-described and cannot be considered 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 regarding market constraints should be clearly identified and noted. Sales in a falling or inactive market are only necessarily forced if there is a time constraint where the seller has a deadline.

A stand-alone valuation may be different from an asset that forms part of a group. Thus, the group’s overall worth may vary with the individual asset’s valuation. If a mining plant relies on its specific components to work in harmony and removing one particular component stops production, its value as a component may differ from the same component as a standalone entity and the plant itself being minus that asset will have a lower value.

Investment value is an asset’s value to an asset’s owner or prospective purchaser for investment or operational objectives.

Fair value is the estimated price an asset or liability may change hands for, considering all parties’ interests. Fair value and market value are sometimes described as the same. HOWEVER, fair value can be defined as the advantage the participants of a transaction may gain or lose due to that transaction. The asset may be unique. Market valuation excludes these advantages.

Further, fair value is a broader concept, and determination will consider special advantages one or more parties gain that may be specific and disregarded in assessing market value. Examples include determining a higher price achieved by purchasing a shareholding that creates a market advantage within that sphere, producing a value different from the achievable price on an open market if shares were on the open market. A purchaser needs 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 value is where an asset gives unique advantages to a prospective purchaser.
Special value occurs when the asset is recognised as such by a purchaser, whereas Market value requires disregard for this uniqueness.

It must be reported and clearly distinguished from market value when identifying special value.

Replacement Cost – Replacement using new materials.

Cost to create a virtual replica of an existing entity using the same design and similar materials. Note: cost and value are distinct in the definition

An asset may have a diminished value due to several 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 are identifiable, then the purchaser may be disadvantaged during resale. So, if two identical vehicles were offered for sale and one had a record of repair, then preference in purchase would be given to the car without repair. In this instance, the purchaser has a diminished value in his asset.

Depreciation is the lessening of an asset’s value over its useful life. An estimate of depreciation can be calculated by taking a number of factors, sometimes asset-specific, into account.

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 considered when writing off the asset as a tax deduction.

Entity-specific value is the present value of cash flow derived from a specific asset. Property, plant, and equipment are tangible entities used in production, for hire, or for administrative purposes.