Valuation Fundamentals

36100 — Valuation Fundamentals

Components: 5 · Property Valuation (Technical) (36000)

Overview

Node 36100 addresses the fundamental principles and core methodologies that underpin Australian property valuation practice. Every valuation, regardless of property type or purpose, is built on a common set of definitional foundations — the meaning of market value, the valuation date, and the concept of highest and best use — applied through one or more of five recognised valuation methods selected according to the nature of the property and the market evidence available.

The five core methods are the sales comparison, or direct comparison, method, which derives value from analysis of comparable sales; the income capitalisation method, which derives value from a property’s income-producing capacity; the discounted cash flow method, which derives value from the present value of projected future cash flows; the cost, or summation, method, which derives value from the cost of land and improvements; and the hypothetical development method, which derives value from a feasibility analysis of a property’s development potential. Each method is addressed in detail in its own subordinate node.

This node serves as the foundational reference for parties seeking to understand how a valuation opinion is formed, before proceeding to the detailed methodology addressed in nodes 36110 through 36150.

Scope & Boundaries

This node addresses the fundamental principles of market value, valuation date, and highest and best use, and provides an overview of the five core valuation methods. It does not address the detailed application of each method, addressed in nodes 36110, 36120, 36130, 36140, and 36150, nor the professional standards and registration frameworks governing valuation practice, addressed in node 36200.

It does not address sector-specific valuation considerations, addressed in node 36300, nor the specific methodology applied in compulsory acquisition compensation, addressed in node 36500.

Scope Note

This node describes generally applicable valuation principles as at the time of writing. The specific method or combination of methods appropriate to a given property should be determined by a suitably qualified valuer having regard to the property type, purpose of the valuation, and available market evidence.

Key Concepts

Market Value

The estimated amount for which a property should exchange between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing, reflecting the internationally recognised definition applied in Australian valuation practice.

Highest and Best Use

The reasonably probable and legally permissible use of a property that is physically possible, appropriately supported, financially feasible, and that results in the highest value, forming the analytical foundation for most valuation methods.

Valuation Date

The specific date as at which a valuation opinion is expressed, distinct from the date the report is prepared, and central to the selection of comparable evidence and market assumptions applied.

The Five Valuation Methods

The sales comparison, income capitalisation, discounted cash flow, cost, and hypothetical development methods, each suited to different property types and market evidence conditions, and frequently applied in combination or cross-checked against one another.

Special Assumptions

An assumption made by a valuer that departs from the facts existing at the valuation date — for example, that a development approval has been obtained — clearly identified and agreed with the instructing party, distinguishing the resulting value from an unqualified market value opinion.

Regulatory & Legal Framework

Valuation of Land Act

State Valuers-General

(state-based, for example the Valuation of Land Act 1916 (NSW) and equivalent legislation in other states) establishes the statutory basis for market value assessment for rating, land tax, and related statutory purposes.
API/IVSC Professional Practice Standards

Australian Property Institute & International Valuation Standards Council

Establish the definitional and methodological standards, including the market value definition, applied in Australian valuation practice.
Corporations Act 2001 (Cth)

Australian Securities and Investments Commission

Requires an independent valuation prepared to a defined standard in connection with related party transactions and other corporate dealings involving property assets.

Practical Application

The method or combination of methods applied by a valuer reflects the property type, the purpose of the valuation, and the market evidence available at the valuation date.

Scenario	Application	Outcome
A residential property is offered for sale and requires a pre-sale appraisal	The valuer applies the sales comparison method using recent comparable sales in the same locality	The appraisal informs the vendor’s pricing strategy or a purchaser’s due diligence
A specialised income-producing asset, such as a hotel, is valued for refinancing	The valuer applies the income capitalisation or discounted cash flow method, reflecting the asset’s income-producing capacity	The valuation supports the refinancing decision and lending terms
A development site is assessed for acquisition feasibility	The valuer applies the hypothetical development method, addressed in detail in node 36150	The resulting residual land value informs the acquisition price the developer can sustain