A.1 Agriculture and fisheries

Various agricultural land uses are possible in addition to crops and livestock. Abattoirs and slaughterhouses might be valued using a comparison or replacement cost method depending on the degree of specialisation. Comparison might be based on the value of similar industrial buildings for example. Game farms include facilities such as runs, pens, hatcheries and ancillary buildings, and these might be valued using either a comparison or cost approach. Grain silos are likely to be valued using a cost approach. Livestock markets can generate revenue from several sources so a comparison approach or profits method might be appropriate. The number and size of boxes, size of the yard, ancillary facilities and access would influence the value of a stud farm, and a valuation might be undertaken using a comparison or cost approach or profits method. Stables include boxes, yard, tack rooms, feed stores, barns and other stores. A comparison method is likely to be possible. Finally, there might be farm diversification into leisure activities, and these would most likely be valued using the profits method.

A.2 Forests and woodland

Trees and perennial crops (non‐orchard trees with long growing periods) may be valued by estimating the value of one year's produce and capitalising that figure at a rate of return that will be influenced by the nature and lifecycle of the tree or crop. Larger areas can be divided by crop type, age, species, composition or condition and valued separately. Two valuation methods predominate. First, sales comparison; this involves comparing prices achieved for similar forests with similar‐growing stock per hectare. Care is needed due to paucity of sales and heterogeneity of forests. This approach is more useful for small amenity woods. Second, income capitalisation; here, land and standing timber would be valued separately. Land can be valued as ‘planting land’ using comparable evidence, and the income approach can be used to value standing timber. The method might depend on the age of the trees at the valuation date: ‘Present Market Value’ should be used to value mature or nearly mature woods (the volume of standing timber is assessed and then multiplied by the standing timber price), whereas an ‘Expectation Value’ should be used to value crops that are not yet mature (the volume yield from thinnings and final crop is forecast, multiplied by the appropriate unit values based on standing timber prices at relevant points in time, and then then discounted to present value at an appropriate discount rate).

A.3 Natural resource extraction – water, minerals and other materials

The value of onshore oil and gas fields usually comprises a royalty payment applied to the quantity of oil and gas produced, a land value for the site and the value of site improvements (buildings, plant and machinery). The site value can be estimated using a comparison method and the site improvements using the replacement cost method.

A.4 Recreation and leisure

Outdoor amenity and open space are most likely valued using a profits method. There may be multiple sources of income, including licences and concessions, all of which must be accounted for when using the profits method to estimate a net profit prior to capitalization. For some uses, rental and sales evidence may exist so a comparison approach may be possible and preferable to the profits method. Some leisure attractions, such as museums, art galleries, libraries and historic properties, rarely make a profit and are usually valued using the replacement cost method. Sports facilities and grounds can be valued using a comparison method if there is sufficient rental or sales evidence; otherwise they are likely to be valued using the profits method. If facilities are non‐profit making – either they are owned/operated by charitable organisations or the state (usually local government) – then the replacement cost method would be appropriate. Hostels, holiday centres and outdoor activity centres would be valued using the profits method.

A.5 Utilities and infrastructure

The way in which utilities are valued will depend to a large extent on how they are owned and operated. In some countries, the water suppliers, power generators and the power distribution networks may be privately owned and can be valued using the profits method. In other countries they may be state owned and so, alongside infrastructure that includes a large amount of plant such as sewage treatment works, oil refineries and pipelines, they may be valued using the replacement cost method.

With regard to water supply, there may be a statutory requirement for water to be supplied to consumers within defined geographical areas. There may also be private water supply on a discretionary basis, perhaps to farmers or large industrial facilities. This is likely to be from wells, boreholes, springs, watercourses or lakes. Valuation assumptions are likely to address title, licencing, infrastructure and quality, quantity and surety of course and supply. Special assumptions may also be appropriate in respect of charging, future regulation, environmental impacts, branding and reputation and alternative uses. The profits method can be used to value these non‐statutory undertakings or the replacement cost method as a last resort.

The sales comparison method could be used to value refuse disposal facilities, as could the income approach, capitalising actual/notional royalties over the life of the resource/void space. Plant and equipment would usually be valued using the replacement cost method. This method is also appropriate for valuing post and telecommunication facilities, cemeteries and burial grounds. Crematoria, on the other hand, are capable of being operated at a profit and so the profits method can be used.

Transport infrastructure should be valued using the replacement cost method. Car parks, vehicle (other than cars) storage, toll roads and bridges including ferries, moorings, marinas, boat yards and anchorages are more likely to be valued using a comparison method or the profits method if they are capable of making a profit.

A.6 Residential

Dwellings can usually be valued using a sales or rental comparison method because there is sufficient transaction evidence available and adequate homogeneity in the stock. Hotels, self‐catered holiday accommodation, serviced apartments and student accommodation can be valued using rental comparison. Residential property that has been purpose‐built for renting is usually valued using the income approach, having regard to parties' obligations, length of tenancies, any rent reviews and breaks (RICS 2018). The way that affordable housing is valued depends on its tenure. Social rent, affordable rent and intermediate rent dwellings are valued by capitalising the net rental income (RICS 2016). The net social/affordable/intermediate rent may be derived by reducing an estimate of net market rent by a suitable proportion. Equity share dwellings are valued by adding the initial equity sale to future staircasing receipts. Shared ownership dwellings are valued by adding the capital value of the proportion sold¹ to the capitalised value of the estimated rental income on the unsold part.² For example, assume a dwelling is estimated to have a market rent of £300 per week (£15 600 per annum) and a market value of £300 000. If this dwelling were to be let at a social rent, this would be, say £145 per week gross (£7540 per annum) based on average incomes. To arrive at a net rent, deduct say 10% for management and maintenance, 2.5% for voids and bad debts and 5% for a repair fund. This produces a net rent of £6221 per annum. If this is capitalised at a yield of 6%, the capital value is £103 675 (35% of market value). If this dwelling were to be let at an affordable rent, this would be say 80% of market rent or £240 per week (£12 480 per annum) gross. The net rent would be £10 296 per annum after 5% for management and maintenance, 2.5% for voids and debts and 5% for repairs. Capitalised at a yield of 6% produces a capital value of £71 600 (57% of market value). Finally, if the dwelling were to be valued on a shared ownership basis, assume 35% (£105 000) was sold on day one, and the remainder was let to the occupier at a rent that represents a return of 2.75% on the remaining equity of £195 000, i.e. £5363 per annum gross. With 5% management costs and 2% for voids and debts, this produces a net rent of £4988 per annum. Capitalised at a 6% yield, this equates to £83 133, which, when added to the £105 000 of initial capital, produces a value of £188 133 (63% of market value).

A.7 Community services

Community services are not run as profitable entities and therefore the replacement cost method is appropriate. For medical and health care services such as hospices, hospitals and health care facilities, the replacement cost method is appropriate, although if the facilities are privately run, then a profits method may be used. Similarly, the replacement cost method is appropriate for valuing nurseries, schools, colleges, universities and other education facilities. Once again, if they are privately run, the profits method may be appropriate.

A.8 Land and buildings with (Re)development potential

The residual method is used to value development potential in land and property.

References

1. RICS (2016). Valuation of Land for Affordable Housing. Guidance Notes, 2e. Royal Institution of Chartered Surveyors April, 2016.
2. RICS (2018). Valuing Residential Property Purpose Built for Renting. Guidance Note, 1e. Royal Institution of Chartered Surveyors July 2018.