Does anybody know what the Layer method of valuation is?

[ben10]

In relation to commercial property valuation.

I have left my university coursework quite late and now I am rushing round like a loon trying to find out what the layer method of valuation is.


Thanks to anyone who can help.

[groak]

This method became popular in the 1970s following the Inflation Reduction Act of 1972. This legislation introduced “a rent freeze”. It forced valuers to consider the relative vulnerability of reversionary income as opposed to income that was already being paid - core income. The layer approach basically capitalises these two elements of present rent paid and future reversionary income separately. The top slice i.e. reversionary income is discounted at a higher rate to reflect its greater risk.

Illustration? :

Valuation
Bottom Slice
Rent Paid £200,000
YP in perp @ 7.5% 13.3333
£2,666,667

Top Slice
OMVR £250,000
Rent Passing £200,000
Top Slice £50,000
YP in perp @ 8.5% 11.6447
PV 3 years @ 8.5% 0.7829
£455,831.75
Total = £3,122,498.45
Valuation (gross of costs) = £3,100,000

Edited by groak on Saturday 20th November 10:36

[ben10]

groak said:

This method became popular in the 1970s following the Inflation Reduction Act of 1972. This legislation introduced “a rent freeze”. It forced valuers to consider the relative vulnerability of reversionary income as opposed to income that was already being paid - core income. The layer approach basically capitalises these two elements of present rent paid and future reversionary income separately. The top slice i.e. reversionary income is discounted at a higher rate to reflect its greater risk.

Illustration? :

Valuation
Bottom Slice
Rent Paid £200,000
YP in perp @ 7.5% 13.3333
£2,666,667

Top Slice
OMVR £250,000
Rent Passing £200,000
Top Slice £50,000
YP in perp @ 8.5% 11.6447
PV 3 years @ 8.5% 0.7829
£455,831.75
Total = £3,122,498.45
Valuation (gross of costs) = £3,100,000

Edited by groak on Saturday 20th November 10:36

Top Man!

Did you type that out yourself or take it from a source? - I only ask because if you just wrote it yourself then I can use it in my essay or if you took it from a source please could you send me a link?

Sorry to be pathetic and want to use it word for word but I am slowly sinking in this valuation stuff. I am quite good at the umbers side of it (apart from the Layer method - which I don't think we have been taught) but really bad at putting it all into words


Thanks for your help

[ben10]

Never mind, I have found your source by googling a sentence from what you Provided me with, i shall put that in and reference it accordingly

Thanks again for the help.

[groak]

ben10 said:

Never mind, I have found your source by googling a sentence from what you Provided me with, i shall put that in and reference it accordingly

Thanks again for the help.

No prob. I could have replied "google is your friend" but I was interested to find out what it was myself.

[ben10]

groak said:

ben10 said:

Never mind, I have found your source by googling a sentence from what you Provided me with, i shall put that in and reference it accordingly

Thanks again for the help.

No prob. I could have replied "google is your friend" but I was interested to find out what it was myself.

I had been googling for a while and also using our lecturer's slide shows but it wasn't making sense. ( perhaps i was being defeatist and not trying hard enough to find the answer amongst all the gibberish.)

After copying and pasting what you gave me and then comparing it to another method of valuation that it is related to i think i have managed to work out what it is and how it works.