In this post we briefly look at the valuation methodologies used for assets other than real estate.

Collateral Valuation approaches for other assets i. Farm Product and Inventory

Such collateral is valued on a market price basis. In determining the value the appraiser will consider or undertake the following: 

Interview major buyers Review dealer listings and market sales reports The liquidity in the market The market size The volatility in the market The nature of the products, whether… Premium Courses Derivatives Pricing - Package$40.00Pricing Interest Rate Options – Module III$14.49ICAAP – Overview & Core Concepts$59.00How to utilize results of a Black Derman Toy Model – EXCEL Example$42.99

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The Cost Approach is another valuation methodology for real estate. The post provides a step by step process of how the Cost approach works and presents situations where it should or should not be used. It also covers the type of data and data sources used for carrying out the analysis.

Cost Approach a. Methodology

The value of the property is equal to the Cost of the Land + the Current cost…

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The Income Capitalization Approach is another valuation methodology for real estate. The post provides a step by step process of how the income capitalization approach works and presents situations where it should or should not be used. It also covers the type of data and data sources used for carrying out the analysis.

Income Capitalization Approach a. Methodology

The income capitalization approach follows the steps below: 

Step 1: Estimate the annual gross income

One…

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Sales Comparison Approach

The Sales comparison approach is an estimation methodology for valuing real estate. The post details how the sales comparison approach works and presents situations where it should or should not be used.

a. Methodology

The sales comparison approach provides a good estimate of the value of the property when the property to be valued is similar to properties which have been recently sold within the same city, town or…

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We discuss the two-step process of real estate valuations in this post. We also briefly review the criteria that appraisers use for selecting the most appropriate valuation approach.

There are two basic steps in the valuation of real estate: 

The first step involves estimating a price/ rent/ cost per square meter/ feet (or other acceptable unit of measure) of the property. This may be carried out using either one or more…

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Before moving on to the specific techniques for valuing collateral we will consider some of the general principles of undertaking a valuation.

The purpose of collateral valuation is not to find an accurate or single unique solution to the price but rather to find one that would be considered realistic, practical and acceptable to ordinary market participants. 

Further collateral should be evaluated based on the market value rather than the book…

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Just as important as the existence of sufficient collateral sources is, it is also essential that collateral valuation methods are accurate. In this post we consider how collateral valuation impacts capital and profits.

Valuing collateral accurately ensures a more enhanced form of credit risk management. Collateral value is used in the estimation of loss given default (LGD). If collateral was not valued correctly a larger loan loss on default than…

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Earlier we considered how collateral helps with financial intermediation. However the extent to which it can help or play its role is dependent of the collateral law applicable. The next section covers what is meant by collateral law and what facets of collateral would normally be impacted by collateral law. It also compares the effectiveness of modern collateral law systems against the restrictions of unreformed traditional systems. 

Impediments to financial…

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