Valuation of development rights: Current practice and limitations
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Valuations play an important role for transactions decisions regarding properties and should indicate the most probably price for the object if sold on the open market. There are different valuation approaches and methods generally summarized as the comparable sales method and the investment method.The object of this thesis is to find out the general practical approach among appraisers when appraising development rights.The methodology used for answering the thesis question is based on a theoretical background of market value definitions, valuation methods, investment theory, and fundamentals of land development, together with an empirical section analyzing valuation reports and interviews held with leading valuation companies in Sweden. Development rights valuations have in this work been characterized by having few comparables. This work has also found that there are many difficulties estimating an appropriate risk regarding how long the development process will take and how the market will look like when property is completed. Due to the lack of available market data, there is also a high uncertainty regarding the variables used as inputs in the valuation. This thesis has found that the preferred approach among appraisers is to use the comparable sales method, trying to find comparable objects that are in the same phase in the development and planning process as the subject property. The residual method, using an investment calculation and then subtract all costs identified as necessary for completing the property, is identified the second best preferred choice. But a conclusion of this thesis is also that many variables assumed are not necessarily derived from the market, but rather from appraisers own experience and general knowledge as well as second hand information given from other actors like property owner expectations, information of municipalities and developer´s own beliefs and perceptions.The risk within the valuations is also concluded to be handled by very diverse approaches by the appraisers and there is a wish to make deeper research about how this could be more ultimately handled by the valuation core in the future.
Place, publisher, year, edition, pages
2011. , 61 p.
Market value, development rights, planning process, valuation uncertainty
IdentifiersURN: urn:nbn:se:kth:diva-48733OAI: oai:DiVA.org:kth-48733DiVA: diva2:458424
Subject / course
Master of Science - Real Estate Management