Glossary
- Ad valorem tax
- a tax where the assessed amount is based on the value of a transaction or of property.
- Asset
- an item of property owned by a person or company, regarded as having value.
- Asset stripping
- the practice of taking over a company in financial difficulties and selling each of its assets separately at a profit without regard for the company's future.
- Assessed value
- usually a statutorily defined basis of value for tax purposes, sometimes referred to as cadastral value.
- Betterment tax
- levied on any increase in value attributable to public infrastructure investment or the granting of land‐use rights.
- Break‐up value
- the value of individual land and property assets that are sold following the closure of a business or enterprise.
- Capital gains tax
- accrues to assets that have appreciated in value over time and is payable on sale or transfer.
- Capital value
- capitalised Rental Value (see below).
- Conflict of interest
- include a valuer acting for both buyer and seller of a property in the same transaction, valuing on behalf of a lender while providing advice to the borrower, or valuing a property recently valued for another client. Should such a conflict arise, the valuer must decide whether to accept the valuation instruction. If the instruction is accepted the valuer should inform the client about the possibility and nature of the conflict, recommend that independent advice is sought and agree how the conflict is to be managed.
- Contingent valuation
- a method of estimating value based on an assumption that users of the product can accurately reveal their perception of value by stating willingness to pay a certain amount for the product.
- Cost
- the expense of producing something (a building on a piece of land for example); it is a production‐related concept and an important component of many valuations.
- Customary tenure
- generally understood to refer to the local rules, institutions and practices governing land, fisheries and forests that have, over time and use, gained social legitimacy and become embedded in the fabric of a society. Although customary rules are not often written down, they may enjoy widespread social sanction and may be generally adhered to by members of a local population. Customary tenure systems are extremely diverse, reflecting different ecosystems, economies, cultures and social relations.
- Deliberative and inclusionary process (DIP)
- a set of methodological approaches aimed at creating better‐informed decisions that are owned by and have the broad consent of all relevant actors and stakeholders. The process includes participatory appraisal, focus groups, Delphi approach, consensus conferences and citizen's juries. DIPs seek to build a process of defining and redefining interests that stakeholders introduce as the collective experience of participation evolves. As participants become more empowered, i.e. more respected and more self‐confident, they may become more ready to adjust, to listen, to learn and to accommodate a greater consensus.
- Development value
- the value of a site assuming it is developed or redeveloped to its highest and best use.
- Discount rate
- reflects time preference (the preference for current rather than future consumption) and perceived risk.
- Externality
- side effect from one activity, which has consequences for another activity, but is not reflected in market prices – these effects may be beneficial (positive externalities) or detrimental (negative externalities) for which there is no payment through the markets – e.g. cost to society of pollution for which an entity does not pay.
- Fair value
- ‘…the estimated price for the transfer of an asset or liability between identified knowledgeable, and willing parties that reflects the respective interests of those parties’. (IVSC)
- the value of the land with no improvements. Improved land value is the value of land plus improvements to the land. Sometimes, the distinction between unimproved and improved land can be difficult to discern. For example, unimproved land may include certain improvements, such as clearing and drainage, which have merged into the land and so are valued with it.
- Highest and best use
- the use that maximises potential while being possible, permissible and financially feasible.
- Inheritance tax
- charged on the value of property owned at death.
- Income approach
- a valuation approach that is used to value properties held as investments. Such properties generate a rental income and capital value is estimated as a multiple of this income.
- Informal tenure
- may be described as tenure rights that are neither derived from statute nor any customary tenure regime. People living in informal settlements often do not purport to claim legal ownership of the land from either customary tenure systems or from statutes but rather rely on their investment in the land for the time being.
- International Property Measurement Standards
- a standardised and globally applicable method for measuring property (www.ipms.org).
- Investment method
- an application of the income approach applied to investment properties that are widely held as investments such as shops, office and industrial properties. More specialised properties are valued using the profits method (see below).
- Investment value
- ‘…the value of an asset to the owner or prospective owner for individual investment or operational objectives’. (IVSC)
- Market
- a forum in which buyers and sellers interact. An ‘open’ market is one that has few barriers to entry, information and trading. A market is often defined in terms of its geographical extent, the type of commodity being traded (farmland, dwellings or office space for example) or the characteristics of the buyers and sellers (such as investors, occupiers or developers) but can be defined in very specific terms – commercial mining operations in the Pacific islands for example. Markets vary in terms of access to information and the costs associated with buying and selling. Poor access to information and high transaction costs can constrain market activity. Markets in tenure rights that relate to land, fisheries and forests are different to markets in other tradable commodities, mainly due to their diversity, geographical distribution, degree of state intervention and opacity of trading activity. This has a detrimental impact on the level of access to market information, particularly transaction prices.
- Market rent
- ‘… the estimated amount for which a property, or space within a property, should lease on the date of valuation between a willing lessor and a willing lessee on appropriate lease terms, in an arm's‐length transaction, after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion’. (IVSC)
- Market value
- synonymous with the concept of exchange value, this is ‘… the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after property marketing wherein the parties had each acted knowledgeably, prudently and without compulsion’. (IVSC)
- Mass valuation
- also known as mass appraisal, this refers to the valuation of large numbers of land and property units for taxation purposes, usually conducted using algorithms and statistical models.
- Non‐market value
- an intrinsic value that can be attributed to the social and environmental benefits that a property may offer.
- Occupation tax
- a recurrent tax usually assessed with reference to the value of land or the value of land and improvements, payable by occupiers or owners of land and property.
- Ownership tax
- see occupation tax.
- Participatory valuation
- a method of estimating value of non‐market assets that involves key stakeholders discussing and deciding on quanta of value.
- Premium
- a capital sum in lieu of rent payments, usually paid at the start of a lease.
- Price
- an exchange‐related concept that refers to the amount requested, offered or paid for something. It is an exchange‐related concept and, once paid, a fact. Price relies on the existence of a market in which commodities are exchanged. In a single transaction there might be an asking price advertised by the seller, a bid price offered by the potential buyer and finally, usually after some period of negotiation, an agreed exchange or sale price at which the property is transacted.
- Profit rent
- the difference between the actual rent paid by a tenant and the rent that the tenant could receive if the tenure rights were sublet at market rent. A profit rent can be notional if the tenant chooses not to sublet, i.e. the financial benefit of paying a rent below market levels is internalised.
- Profits method
- an application of the income approach that is used to value specialised trade‐related properties. They are valued by considering rent as surplus payable out of net profit.
- Property
- a word that has many meanings depending on context. It is used in this book principally to refer to physical land and buildings owned or occupied by an individual or an entity.
- Real estate
- land, infrastructure, buildings and other improvements, minerals and other subterranean natural resources.
- Receipts and expenditure method
- see profits method.
- Rental value
- an estimate of annual payment for the holding of tenure rights.
- Reversionary value
- the value that may be realisable by the holder of tenure rights when subsidiary rights in the same real estate asset (a leasehold for example) end.
- Risk‐free discount rate
- rate of return that a person can expect on a completely riskless asset. Most people normally use a government bond rate as a risk‐free rate, because it is perceived to have very little risk, if any. Consequently, such a rate can be thought of as representing the time value of money or pure time preference.
- Roll
- the list of taxable units of land and property held and maintained by a state.
- Sales tax
- see transfer tax.
- Social discount rate (SDR)
- a rate used to capitalise the annual value of non‐market assets in order to try and reflect long‐term value to present and future generations. It reflects society's relative valuation of today's well‐being versus wellbeing in the future. It is a discount rate used in computing the value of funds spent on social projects. Choosing an appropriate SDR is crucial for cost–benefit analysis and thus has important implications for resource allocations. Used in estimating, inter alia, the value of enforcing environmental protection. A higher SDR implies greater risks to the assumption that the benefits will materialise.
- Solatium
- a form of compensation for emotional rather than physical or financial harm.
- Special value
- ‘…an amount that reflects particular attributes of an asset that are only of value to a special purchaser’. (IVSC)
- Synergistic value
- ‘…an additional element of value created by the combination of two or more assets or interests where the combined value is more than the sum of the separate values’. (IVSC)
- Transfer tax
- is assessed as a percentage of reported price on transfer of ownership.
- Valuation
- the process of forming an opinion of value.
- Value
- an estimate of price that can be based on various definitions or bases.
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