Valuation methods

Photo of Erwin Rode and valuer

As one of South Africa's largest valuation firms, Rode has valued properties with a market value of close to R20 billion during the last twelve months (roughly $3 billion US).

Rode’s property valuation services are underpinned by regular, rigorous surveying of market rental levels and capitalization rates to ensure more uniform and realistic market valuations in South Africa. The results of these surveys are published in three research journals which include Rode's Report – used as a key reference source by property practitioners.

Rode uses numerous methods in determining the market value of properties. The method used is often determined by the type of property. Amongst the methods used include the income capitalization method (incorporating the OCF method); discounted cashflow (using an internationally recognised valuation software program); comparable sales method; residual land valuation method; etc.

Rode’s pioneering work in the field of property valuation includes:

  • Capitalization-rate estimates: The development of regression models to estimate the standard capitalization rates of office and industrial properties and, more recently, shopping centres
  • House valuations: The application of multiple-regression techniques to value houses in SA
  • The opportunity cash flow (OCF) method: This method is used for determining the market value of income-producing properties, using a combination of capitalization and discounting. This method was developed in 1986 by Rode's founder, Erwin Rode, and it incorporates the difference between contractual and open-market rentals, quantified by means of the OCF.

Rode's valuation approach largely avoids forecasting, which invariably introduces a significant measure of subjectivity. Evidence of the authority of Rode in the marketplace is that Rode is asked from time to time to evaluate the valuations of competitors.

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