Property valuation is a service to a client by a professional valuer. But, more than that, it is an objective exercise to provide a price estimate for property in the current market. A valuer provides a valuation in accordance with professional standards. In teh UK, valuations are carried out in accordance with the RICS Valuation – Professional Standards UK (Red Book - January 2014) which themselves have adopted the International Valuation Standards of the International Valuation Standards Council (IVSC). 

However, there has been little written on the appropriate use of valuation approaches and methods in market valuations. This paper looks at this issue in the UK in relation to the RICS' Red Book and follows the convention noted below:

APPROACHES (IVSC Para 56)

1. Income

The income approach provides an indication of value by converting future cash flows to a single current capital value.

2. Cost

The cost approach provides an indication of value using the economic principle that a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or by construction.

3. Market

The market approach provides an indication of value by comparing the subject asset with identical or similar assets for which price information is available.

METHODS

1. Comparable Method (Market)

2. DRC/Construction Method (Cost)

3. Investment Method (Income)

4. Residual Method (Income)

5. Profits Method (Income)

TECHNIQUES (IVSC Para 61) 

For example, with the Investment Method, the valuer can choose an implicit or explicit model.  

Through an extensive survey of valuers and users of valuations, this paper looks at the importance of identifying the appropriate approach to be adopted in market valuations and conveying this information to the client.