Il68 RURAI< ECONOMICS 



RURAI. ECONOMICS. 

 905 - Discussion as to the Method of Effecting Valuations. — albani Giuseppe., in // 



Miinitoii I fcnico, XXIInd Year, Xo. 7, pp. i;7-ioci ; Xo. 8, pp. 117-120. Milan, March 10 

 and 20, 11)1 6. 



An examination of the fundamental principles which prove the util- 

 ity of the analytic method in valuation, and determine the limits of accu- 

 racy between which theories of valuation may be accepted in practice. 



Valuation considers real estate as wealth in the strict sense of the word 

 (static aspect) or as capital, that is to say, wealth tending to reproduce 

 wealth (dynamic aspect) . 



Valuation can only estimate the value of real estate at a given econo- 

 mic moment, because the unit of measurement, currency, changes in va- 

 lue, i. e. in potentiality of exchange, in the course of time. 



One of the practical fields for the application of the science of valuation 

 is the market, where real estate wealth is exchanged for currency' wealth 

 which takes the name of price; but according to the writer, the field of 

 action of the market has different limits from those of valuation, because all 

 properties which cannot be alienated and for which a value but not a price 

 might be fixed are outside the market limits. Moreover, on the market, where 

 the exchange of real estate is actually carried out, the status of the contract- 

 ing parties has a great influence upon the particular market value in this 

 case, while valuation, which is impersonal, does not allow for these influences. 

 In practice, a valuation is often required for the purpose of estimating the 

 selling value, thus compelling the valuer to base his judgment on that likely 

 to be given by the market. 



Market and valuation only deal with real estate considered as capital, 

 and can therefore only be estimated b}' capitalisation either directly or 

 indirectly of the revenues and material advantages which it produces. 



At an}' given moment, in each locality, the value of all the real estates 

 furnishing equal revenues will be equal (provided of course that all forms 

 of positive and negative revenue are calculated) . In view of the difficult}' of 

 valuing immaterial revenues, it is customary in practice to divide the revenues 

 of real estate into material and immaterial revenues ; the corresponding 

 rate of interest is also divided into 2 parts, one being ascribed to the material 

 and the other to the immaterial revenues. Then, only the material revenues 

 are capitalised in proportion to their share of the rate of interest which, owing 

 to this fact, will be greater or less than the current rate, according as the 

 positive or negative revenues predominate in the immaterial revenues; the 

 resulting capital value is considered as the value of the whole real estate. 



To determine the value of real estate it is necessar}^ to estimate : i) 

 the amount in currency of its material revenues and that of the share of 

 innnaterial revenues which can be valued; 2) the rate of interest according 

 to which this amount is to be capitalised. According to the methods that 

 can be employed in determining these data, a decision as to the value of 

 the analvtic method of valuation, can be made. 



