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Valuation Schools and the Evolution of the Income Approach. An Evaluation of Change Trends

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  • Kucharska-Stasiak Ewa

    (Department of Investment and Real Estate, University of Lodz)

Abstract

The income approach is the subject of debates conducted by academics and practitioners as one of the most controversial approaches in valuation practice. It is also somewhat differently understood by the three historically shaped valuation schools (US, British and German). This article compares the main assumptions underpinning the income approach’s investment method between the three schools in order to: 1) determine why the assumptions change and in what direction; 2) assess the advantages and disadvantages of explicit cash flows; and 3) evaluate the advisability of incorporating explicit cash flows into Polish valuation methodology. A thesis is formulated that, in Poland, the investment method should use implicit cash flows for estimating the market value of properties. There is a need to include explicit cash flow in university programs, but their use should be limited to valuations undertaken to determine the investment value of a property or the market value of portfolio properties, as well as valuations carried out for the purposes of financial reporting as required by EU legislation (MSSF 13 and MSR 40).The article was prepared based on the review and analysis of the relevant literature.

Suggested Citation

  • Kucharska-Stasiak Ewa, 2019. "Valuation Schools and the Evolution of the Income Approach. An Evaluation of Change Trends," Real Estate Management and Valuation, Sciendo, vol. 27(2), pages 66-76, June.
    • Handle: RePEc:vrs:remava:v:27:y:2019:i:2:p:66-76:n:6
    DOI: 10.2478/remav-2019-0016
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    References listed on IDEAS

    as
    1. Waldo L. Born & Stephen A. Pyhrr, 1994. "Real Estate Valuation: The Effect of Market and Property Cycles," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 455-486.
    2. Kerry D. Vandell, 2007. "Expanding the academic discipline of real estate valuation," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 25(5), pages 427-443, August.
    3. Lasse Bork & Stig V. Møller, 2018. "Housing Price Forecastability: A Factor Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 46(3), pages 582-611, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    real property valuation; valuation standards; income approach;
    All these keywords.

    JEL classification:

    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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