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Overview of Advanced Valuation in Real Estate
What is the purpose of the HKU Scholars Hub?
To provide access to research and academic resources.
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Overview of Advanced Valuation in Real Estate
Where can you find Professor K.W. Chau's profile?
On ResearchGate and LinkedIn.
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Definitions of Key Valuation Terms
What does the transaction price represent in real estate?
The amount of money transferred from buyer to seller in exchange for rights over an asset.
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Definitions of Key Valuation Terms
What is equitable value?
The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties.
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Basis of Value in Real Estate Valuation
What is the basis of value in an open market?
The most probable price that would be achieved in a hypothetical exchange in a free and open market.
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Cost Approach to Valuation
What is the cost approach in real estate valuation?
An approach that indicates value based on the principle that a buyer will pay no more than the cost to obtain an asset of equal utility.
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Cost Approach to Valuation
What is included in the production cost of a real estate asset?
Money paid for land, building design, and construction.
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Definitions of Key Valuation Terms
What is the definition of Worth/Investment Value?
The value of an asset to the specific owner or a prospective owner for individual investment or operational objectives.
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Definitions of Key Valuation Terms
What does equitable value reflect?
The respective interests of the parties involved in the transaction.
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Definitions of Key Valuation Terms
What is the definition of market value in real estate?
The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction.
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Valuation Methods and Approaches
What are the three main approaches to real estate valuation?
The three main approaches are the Cost Approach, the Income Approach, and the Market Approach.
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Cost Approach to Valuation
What factors must be considered in the cost approach?
Physical deterioration and economic obsolescence.
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Market Approach to Valuation
What is the direct market comparison approach?
An approach that indicates value by comparing the subject asset with identical or similar assets for which price information is available.
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Income Approach to Valuation
What does the income approach indicate?
It provides an indication of value by converting future cash flows to a single present capital value (Present Value).
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Definitions of Key Valuation Terms
Who defines equitable value in the context of valuation standards?
RICS (Royal Institution of Chartered Surveyors).
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Cost Approach to Valuation
What is the Cost Approach in real estate valuation?
A method that estimates the value based on the cost to replace or reproduce the property.
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Basis of Value in Real Estate Valuation
What is the definition of specific value in real estate?
The benefits that a specific person or entity enjoys from ownership of an asset, which may not be relevant to market participants in general.
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Income Approach to Valuation
What model is used in the income approach?
Discounted Cash Flow (DCF) model.
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Cost Approach to Valuation
What is the term for the value derived from the cost approach?
Depreciated replacement cost.
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Transaction Costs in Real Estate
What are some examples of monetary transaction costs?
Agency fees, legal charges, and transfer taxes (stamp duties).
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Market Approach to Valuation
What is the Market Approach in real estate valuation?
A method that compares the property to similar properties that have recently sold.
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Overview of Advanced Valuation in Real Estate
What does 'The End' signify in the context of the course?
It indicates the conclusion of the course material.
p.26
Cost Approach to Valuation
Why is the cost approach considered the least preferred method?
It is mainly used for special properties.
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Basis of Value in Real Estate Valuation
What is meant by 'Specific Equitable' in real estate valuation?
It refers to a valuation approach that considers the unique circumstances and fairness of a property transaction.
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Cost Approach to Valuation
What are other names for the cost approach?
Replacement cost method and contractor’s method.
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Definitions of Key Valuation Terms
What is the IFRS definition of fair value?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
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Basis of Value in Real Estate Valuation
What is the basis of value in real estate valuation?
It refers to the underlying principle or standard used to determine the worth of a property.
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Cost Approach to Valuation
What is the relationship between cost and price when transaction costs are negligible?
Cost and price are similar for newly recreated real estate assets.
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Purposes of Real Estate Valuation
How does real estate valuation assist in investment?
It aids in investment decision making.
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Definitions of Key Valuation Terms
What is equitable value?
The value that reflects the fair share of ownership in a property.
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Basis of Value in Real Estate Valuation
What is a basis of value in valuation?
A statement of the fundamental measurement assumptions of a valuation.
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Basis of Value in Real Estate Valuation
How does the purpose of valuation affect the basis of value?
The appropriate basis will vary depending on the purpose of the valuation.
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Definitions of Key Valuation Terms
What does LA stand for in the context of land acquisition?
Consultant fee and transaction cost for land acquisition (as a percentage of LV).
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Valuation Methods and Approaches
What are the three main approaches to real estate valuation?
Market Approach, Income Approach, Cost Approach.
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Transaction Costs in Real Estate
Are monetary and non-monetary transaction costs mutually exclusive?
No, they are not mutually exclusive.
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Income Approach to Valuation
In which type of assets is the income approach commonly used?
Income producing assets with very little transactions, such as hotels and shopping malls.
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Overview of Advanced Valuation in Real Estate
What types of real estate does modern portfolio theory apply to?
Both direct and indirect real estate.
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Valuation Methods and Approaches
What should be considered regarding the asset when conducting a valuation?
The nature of the asset and the purpose of the valuation.
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Purposes of Real Estate Valuation
How is real estate valuation related to mortgage lending?
It helps determine the value of the property for loans.
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Purposes of Real Estate Valuation
What is one purpose of real estate valuation related to leases?
Lease modification premium assessment.
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Definitions of Key Valuation Terms
What does LC refer to in the residual valuation formula?
Legal and compliance costs (as a percentage of GDV).
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Basis of Value in Real Estate Valuation
What is another term for specific value?
Investment value or value in use.
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Definitions of Key Valuation Terms
How is the transaction price characterized?
It is directly observable.
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Definitions of Key Valuation Terms
What conditions are assumed in the definition of market value?
Proper marketing, knowledgeable and prudent parties, and no compulsion.
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Cost Approach to Valuation
What does the Cost Approach in real estate valuation focus on?
It focuses on the cost to replace or reproduce the property, minus depreciation.
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Transaction Costs in Real Estate
What are the rights included in full private property rights?
Rights to transfer, rights to exclude other users, and rights to receive income.
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Purposes of Real Estate Valuation
What is a reserve price in real estate valuation?
It is the minimum price set for tender or auction sales.
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Purposes of Real Estate Valuation
What tax purposes does real estate valuation serve?
Assessment of rates, government rent, and property tax.
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Definitions of Key Valuation Terms
What does DP represent in the residual valuation formula?
Development profit (as a percentage of GDV).
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Market Approach to Valuation
What are comparables in the context of the market approach?
Similar transactions used to assess the value of the subject asset, taking into account differences in characteristics.
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Definitions of Key Valuation Terms
How does fair value relate to market value?
Fair value is similar to market value in a liquid and well-functioning market.
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Income Approach to Valuation
What additional factors does the income approach rely on?
Comparable rental and market yields.
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Basis of Value in Real Estate Valuation
What does equitable value reflect in a transaction?
The specific advantages or disadvantages of ownership to the parties involved.
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Basis of Value in Real Estate Valuation
Can the parties involved in determining equitable value be unconnected?
Yes, they may be unconnected and negotiating at arm’s length.
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Purposes of Real Estate Valuation
What role does real estate valuation play in property investment?
Monitoring of property investment performance.
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Valuation Methods and Approaches
What happens if limitations are not agreed upon in the terms of engagement?
The valuation will be provided after appropriate investigations.
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Direct vs. Indirect Real Estate Valuation
What are real estate derivatives?
Financial instruments that derive their value from real estate.
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Definitions of Key Valuation Terms
What does CF represent in the residual valuation formula?
Design consultant fees (as a percentage of construction cost).
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Definitions of Key Valuation Terms
What rights are typically included in the transaction price for real estate?
Rights to exclude other users, transfer, and derive income.
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Basis of Value in Real Estate Valuation
What does 'Open Market' refer to in the context of real estate valuation?
It refers to a market where properties are bought and sold freely without restrictions.
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Purposes of Real Estate Valuation
What is one purpose of real estate valuation?
Real estate development appraisal.
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Income Approach to Valuation
What is the Income Approach used for in real estate valuation?
It is used to estimate the value of a property based on the income it generates.
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Basis of Value in Real Estate Valuation
Is the asset necessarily exposed in the market when determining equitable value?
No, the asset is not necessarily exposed in the market.
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Definitions of Key Valuation Terms
How is fair value defined?
The estimated worth of an asset based on current market conditions.
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Transaction Costs in Real Estate
What are transaction costs?
Expenses incurred during the buying or selling of a property, including fees and taxes.
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Transaction Costs in Real Estate
What are transaction costs in real estate?
Costs involved in realizing a transaction, including both monetary and non-monetary costs.
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Transaction Costs in Real Estate
What are some examples of non-monetary transaction costs?
Information cost, search and matching cost, contracting and enforcement cost.
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Income Approach to Valuation
What does the Income Approach focus on in real estate valuation?
The potential income generated by the property.
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Overview of Advanced Valuation in Real Estate
What are the two main parts of the RECO4006 course?
Valuation of physical real estate asset and Modern portfolio theory and its application in real estate investment.
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Definitions of Key Valuation Terms
What is the definition of market value?
The price at which a property would sell in a competitive and open market.
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Definitions of Key Valuation Terms
What does investment value refer to?
The value of a property to a particular investor based on individual investment criteria.
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Valuation Methods and Approaches
What topic is covered in 1 session of the course?
Rating and statutory valuation.
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Transaction Costs in Real Estate
How does transaction cost change without full private property rights?
Transaction cost is higher.
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Basis of Value in Real Estate Valuation
What do different bases correspond to in valuation?
Different definitions of 'value'.
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Market Approach to Valuation
In what type of market is the direct market comparison approach most commonly used?
In relatively active and homogeneous markets, such as residential properties.
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Market Approach to Valuation
What statistical methods are often used in the market approach for mass valuation?
Statistical methods such as regression.
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Overview of Advanced Valuation in Real Estate
What is the significance of the number '29' in the course?
It may refer to a specific lesson or module number.
p.4
Direct vs. Indirect Real Estate Valuation
What is Indirect Real Estate?
Securitized Real Estate, or Public Real Estate.
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Basis of Value in Real Estate Valuation
What does the price agreed upon in an equitable value transaction reflect?
It may reflect specific advantages or disadvantages rather than the market at large.
p.16
Basis of Value in Real Estate Valuation
What factors are considered in determining the basis of value?
The nature of the hypothetical transaction, the relationship and motivation of the parties, and the extent to which the asset is exposed to the market.
p.27
Valuation Methods and Approaches
What are the three main approaches to valuation mentioned?
Market approach, Income approach, and Cost approach.
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Cost Approach to Valuation
What does 'Cost' refer to in real estate?
The amount of money required to create or produce a real estate asset, including costs for land, building design, and construction.
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Valuation Methods and Approaches
What is a Hybrid Approach in real estate valuation?
A combination of the Market, Income, and Cost Approaches.
p.14
Transaction Costs in Real Estate
Why do values diverge in the real world?
Due to high transaction costs.
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Definitions of Key Valuation Terms
What does cost refer to in real estate valuation?
The total expenditure incurred to acquire or improve a property.
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Valuation Methods and Approaches
How is Land Value (LV) calculated in residual valuation?
LV = GDV – CC – CF – FC – MC – LC – TA – DP - LA.
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Income Approach to Valuation
How can the discount rate be estimated in the income approach?
From the capital market, for example, using the capital asset pricing model.
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Cost Approach to Valuation
What is the implicit assumption of the cost approach?
That cost and price are similar for newly recreated real estate assets.
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Transaction Costs in Real Estate
What type of markets still experience high transaction costs?
Even in developed markets with full private property rights.
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Definitions of Key Valuation Terms
What does MC stand for in the context of land valuation?
Marketing and agency costs (as a percentage of GDV).
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Definitions of Key Valuation Terms
What are TA in the context of land valuation?
Taxes (stamp duties) for disposal of property (as a percentage of GDV).
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Valuation Methods and Approaches
What is typically required before providing a valuation?
An inspection and further investigations and enquiries.
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Cost Approach to Valuation
What type of data is needed for the cost approach?
Data on building construction costs.
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Direct vs. Indirect Real Estate Valuation
Name two other examples of Indirect Real Estate.
Listed property companies and real estate investment funds.
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Purposes of Real Estate Valuation
How does real estate valuation relate to land resumption?
It is used for compensation assessments.
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Market Approach to Valuation
How does the Market Approach determine property value?
It compares the property to similar properties that have recently sold in the market.
p.4
Direct vs. Indirect Real Estate Valuation
What is an example of Indirect Real Estate?
Real Estate Investment Trust (REIT).
p.27
Valuation Methods and Approaches
What is the hybrid approach in real estate valuation?
It combines different valuation methods, such as residual valuation of land.
p.21
Purposes of Real Estate Valuation
Why is real estate valuation important for financial reporting?
It is used for IPOs and REITs.
