How Property Valuation Is Determined

Valuation is an important step in a property dispute and it will depend on the circumstances of the case. There are various methodologies that can be used in putting a value on a property. There is usually no problem when valuing real estate property or the accumulation of superannuation funds.

However, issues almost always arise when valuing a business interest or trust because the process involved is more complex. Whenever valuing a business interest or trust, the following methodologies may be used:

• 1. Discounted cash flow method;
• 2. Capitalisation of Future Maintainable Earnings
• 3. Value of Net Tangible Assets
• 4. Notional Realization Assets
• 5.Future Maintainable Dividends methodology

Discounted cash flow method

This method is used to project the profitability of the business for up to ten years. So, the present valuation of the business includes that of the projected income for the next ten years including the interests and risks associated with the business. The projection also includes the terminal value of the business at the end of the 10 year period.

2) Capitalisation of Future Maintainable Earnings.

This method is used in valuing a minority interest in a business or the right to receive dividends. This method is appropriate where the owner has no control or influence over the business, the income patterns of the business have been relatively consistent over the years and are expected to stay consistent in the future.

3) Value of Net Tangible Assets (Going Concern Business) 

This method is applicable where the capital value of the maintained assets does not exceed the net tangible assets used to generate profits. The business is earning but because it does not generate sufficient profits there is no goodwill.

4) Notional Realization Assets 

This is used in the business will most likely not continue in the future. The value of the business will depend then on how assets will be realized through sale and liquidation.

5) Future Maintainable Dividends methodology

This is used in the case of minority stockholders who have no access to undistributed retained earnings but a pattern of dividends is already established.

A shadow expert 

A shadow expert conducts investigations based on the single expert report. The interested party will then be able to intelligently comment on the single expert report and ask questions during the cross-examination of the single expert in court. Unlike the single expert, the shadow expert will not be giving a report and will not be giving evidence before the Court. The main purpose of hiring a shadow expert is to help a party understand the valuation process involved in his case.

In determining the value of a property, the court will consider the evidence and applicable principles. Hence, if there are conflicting valuations the judge will not just come up with an average value but must consider all the evidence presented by the parties. If the judge still cannot determine the value of the property, he can order that thing to be sold.