Valuation Method One - Part One - Comparing Rural Property

The Comparison method is based on comparisons derived from the current market evidence to find rental or capital values directly...goodnight everybody.

Well alright, there is a bit more about this subject. It is the simplest and most reliable method of valuation, but when comparing properties, use the acronym PLR (Property, Location & Recent). The three main requirements of property comparables are that they should be of a similar property type, a similar location and obtain recent evidence (this may be the last six weeks or the last six months but mainly dependent on the market - bullish where the values are increasingly rapidly or bearish where the values are increasing slowly). The market may not be as transparent as you hope, so you may not get all the information you want. Please ensure that the figures mentioned are completed transactions and not just offers.

Heterogeneous - diverse in character or content, so take into account that property is not the same, so use your experience in and around the market in deciding allowances or adjustments.

The comparison method can be used to calculate freehold capital values, market rent values and freehold all risks yields:

Market Value (MV) = Market Rent (MR) x 100 /All Risk Yield (ARY)
MV = MR x Years Purchase (YP) in perp @ ARY
ARY = MR x 100/MV
MR = ARY x MV/100
MR = MV/YP perp @ ARY
YP perp = 100/ARY
YP perp = MV/MR

Generally, according to Blackledge's Introducing Property Valuation, properties with relatively small total areas will produce higher values per unit of area measurement than will substantially larger properties. A bit like women's clothing, I am guessing. Suitable adjustments, with market evidence, in terms of deduction or additions should thus be made to the comparable evidence before applying the figure to the subject property.

Agricultural Property
The rural estate market is highly localised, land can be bought for prestige or for convenience and with this local rivalry and competition can help to raise sale prices. Rents obtained from tenanted farmland are secure as they are comparatively low (compared to other types of land use) and long tenancies where investment is also viewed in the long term. Farming requires heavy investment in capital and time.

It is suggested that capital and rental value are measured in £/hectare or acre. This usually includes buildings and smaller farms will have more buildings. Any notable buildings should be valued separately

Agricultural Property Valuation Parameters include location and its space within the human landscape; topography; climate and weather; size of the farm; the land (both class and soil); type of farm; water supply; roads and approaches; fences and gates; mains services; the farm house and cottages; the farm buildings (a farm of 50 acres and may have 10 acres whereas a farm of 500 acres may have 50 buildings) and the state of repair of the farm.

Special characteristics of farms include sporting rights and commercial woodlands (what do you call a fish with no eyes? FSH - Fishing, Shooting and Hunting). The yield on sporting rights are normally higher than on the farm due to the greater uncertainty of the income due to the specialised nature of the market and the possible disruption from PDP (Pollution, Development & Poaching). Commercial woodlands must be valued separately, it is a combination of the value of the land on which the trees grow as well as the value of the timber. This is highly specialised and the value depends on size, age and type of timber.

The RICS has carefully put together a Valuation Information Paper (No.5) on valuing agricultural property, this includes the suggested minimum headings for a comparable schedule:

Address; date of transaction; source of information; land of area (ha or acres); type of farm; description of buildings; other information (sporting rights, commercial woodlands, etc.); rent per annum exclusive (agreed or asking); freehold capital value (paid or asking); freehold all risks yield; rent per annum exclusive per ha (or acre); capital value per ha (or acre).

Never use comparable evidence to calculate an average

Always try to explain your assumptions