SOME CONCEPTS AND

DEFINITIONS
 An absolute title is an unconditional title for which no other person
has a better right to the land.

 An abstract of title is a summary of documents and facts showing the

ownership of a piece of land or property.

 Adjudication is a process whereby the ownership and rights in land are

officially determined.

 Adverse possession is the occupation of land inconsistent with the

rights of the true owner.
 Alienation is the power of an owner to dispose of interest in land or
property. In particular land may be alienated from the State and
granted to private individuals.

 Appraisal/valuation is the estimating/determination of market value

of real property.

 An appraiser or a valuer is a person who estimates the value of real

property.

 Collateral is the use of property as a guarantee for a loan.

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 Cost is the amount in relation to production, not exchange. Costs may be
actual or estimated, direct (such as labour or materials) or indirect (such
as administrative costs).

 Cost approach is the valuation of property based on estimates of costs.

 Customary law: unwritten law established by long usage.

 Customary tenure: the holding of land in accordance with customary law.

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 Depreciation is reduction in value of an object through use, physical wear and
tear, effects of time or obsolescence.

 Freehold is tenure in which the owner has maximum rights permissible within
the tenure system for indefinite duration.

 Income capitalization is the valuation of property on the basis of its income

stream.

 Interest in land is a general term to describe rights in respect of land, its use,
entitlement to rent and/or income being derived from land and its use, and
entitlement to the whole or part of the proceeds of sale of an estate in land.

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 Land is the surface of the Earth, the materials beneath, the air above and
all things fixed to the soil.

 Land administration is the processes of determining, recording and

disseminating information about the ownership, value and use of land
when implementing land management policies.

 Land certificate is a certificate issued by the land registration authority to

the registered proprietor of a parcel of land, containing details of the land
in question and any encumbrances disclosed as affecting that land. It
provides primary evidence of the good title to the land that has been
registered.
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 Land tenure is the mode of holding rights in land.

 Land title is the evidence of a person’s rights to land.

 Land value is the worth of a property, determined in a variety of ways

which give rise to different estimates of the value.

 Leasehold is land held under a lease, which is a contract by which the

right of exclusive possession of land is granted by a landlord (the
lessor) to a tenant (the lessee) for an agreed amount of money for an
agreed period of time.
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 A market is a set of arrangements in which buyers and sellers are
brought together through the price mechanism.

 Market value is the most probable sale price of a real estate property in
terms of money, assuming a competitive and open market.

 Mutation is the division of land parcels into smaller areas, for instance
as a result of inheritance or commercial development.

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 Ownership is the most comprehensive right a person can have with respect
to a thing. Full ownership includes the exclusive right to use and dispose of
the thing.

 Personal property is all property that is not real property, including

moveable property, goods, fixtures and fittings which do not form part of
land, and leasehold interests.

 Prescription: the gaining of a right by reason of a lapse of time.

 Price: what a property actually fetches in an open market transaction.

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 Price is what a property actually fetches in an open market transaction.

 Property is that which is capable of ownership, either in the form of real

property or personal property, tangible (e.g. land) or intangible (e.g.
goodwill).

 Real property is land and any things attached to the land including
buildings, apartments and other construction and natural objects such as
trees.

 Rental value is the value of a property in terms of the rent that may be
derived from it.
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 Sales comparison is the valuation of property based on estimates of the
worth of similar properties.

 Valuation: the determination of the value of property.

 Valuation roll: a list showing the value of property and those responsible
for paying taxes on the property.

 Value: either: the market value (sales price paid), the rental value (for how
much it can be rented out), the use value (the potential of the land for
example for agriculture), the investment value (what income it should
generate), or: the assessed value (the official value for tax purposes).
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Important terms and concepts:
 Value is the amount of commodity, money, etc. considered equivalent for something else;
material or monetary worth of thing; worth, desirability, utility, quantities on which these depend.

Values:
 Freehold value, leasehold value, asset value, alternative use value, annual value, before and after
value, break-up value, book value, compulsory purchase value, depreciated value, deprival value,
development value, divorce value, exchange value, existing use value, fair value, forced sale
value, going concern value, gross development value. hope value, market value, marriage value,
mortgage value, permitted development value, ransom value, rateable value, rental value,
residual value, site value, speculative value surrender value, tax value, value in use, value to the
owner, and zone A value.

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Important terms and concepts:
 Price is the actual observable exchange price in the open market.

 Worth is a specific investor’s perception of the capital sum that he/she

would be prepared to pay (or accept) for the stream of benefits which
he/she expects to be produced by the investment (in other words a
subjective rather than objective assessment of value).

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Important terms and concepts:
 Market Value is the estimated amount for which an asset or liability
should exchange on the valuation date between a willing buyer and a
willing seller in an arm’s length transaction, after proper marketing and
where the parties had each acted knowledgeably, prudently and without
compulsion.

 In valuation or property sector, value refers to market value and this

should always be remembered.

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a) “The estimated amount” refers to a price expressed in terms of money
payable for the asset in an arm’s length market transaction. Market Value
is the most probable price reasonably obtainable in the market on the
valuation date in keeping with the market value definition. It is the best
price reasonably obtainable by the seller and the most advantageous price
reasonably obtainable by the buyer. This estimate specifically excludes
an estimated price inflated or deflated by special terms or circumstances
such as atypical financing, sale and leaseback arrangements, special
considerations or concessions granted by anyone associated with the sale,
or any element of value available only to a specific owner or purchaser.

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b) “An asset or liability should exchange” refers to the fact that the value
of an asset or liability is an estimated amount rather than a predetermined
amount or actual sale price. It is the price in a transaction that meets all the
elements of the Market Value definition at the valuation date.

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c) “On the valuation date” requires that the value is time-specific as of a
given date. Because markets and market conditions may change, the
estimated value may be incorrect or inappropriate at another time. The
valuation amount will reflect the market state and circumstances as at the
valuation date, not those at any other date.

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d) “Between a willing buyer” refers to one who is motivated, but not
compelled to buy. This buyer is neither over-eager nor determined to buy
at any price. This buyer is also one who purchases in accordance with the
realities of the current market and with current market expectations,
rather than in relation to an imaginary or hypothetical market that cannot
be demonstrated or anticipated to exist. The assumed buyer would not
pay a higher price than the market requires. The present owner is
included among those who constitute “the market”.

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e) “And a willing seller” is neither an over-eager nor a forced seller
prepared to sell at any price, nor one prepared to hold out for a price not
considered reasonable in the current market. The willing seller is
motivated to sell the asset at market terms for the best price attainable in
the open market after proper marketing, whatever that price may be. The
factual circumstances of the actual owner are not a part of this
consideration because the willing seller is a hypothetical owner.

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f) “In an arm’s length transaction” is one between parties who do not
have a particular or special relationship, e.g., parent and subsidiary
companies or landlord and tenant, that may make the price level
uncharacteristic of the market or inflated. The Market Value transaction is
presumed to be between unrelated parties, each acting independently.

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g) “After proper marketing” means that the asset has been exposed to the market
in the most appropriate manner to effect its disposal at the best price reasonably
obtainable in accordance with the Market Value definition. The method of sale is
deemed to be that most appropriate to obtain the best price in the market to which
the seller has access. The length of exposure time is not a fixed period but will
vary according to the type of asset and market conditions. The only criterion is
that there must have been sufficient time to allow the asset to be brought to the
attention of an adequate number of market participants. The exposure period
occurs prior to the valuation date.

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h) “Where the parties had each acted knowledgeably, prudently” presumes that both the
willing buyer and the willing seller are reasonably informed about the nature and
characteristics of the asset, its actual and potential uses, and the state of the market as of
the valuation date. Each is further presumed to use that knowledge prudently to seek the
price that is most favourable for their respective positions in the transaction. Prudence is
assessed by referring to the state of the market at the valuation date, not with the benefit
of hindsight at some later date. For example, it is not necessarily imprudent for a seller to
sell assets in a market with falling prices at a price that is lower than previous market
levels. In such cases, as is true for other exchanges in markets with changing prices, the
prudent buyer or seller will act in accordance with the best market information available
at the time.

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i) “And without compulsion” establishes that each party is motivated to
undertake the transaction, but neither is forced or unduly coerced to
complete it.

 The concept of Market Value presumes a price negotiated in an open

and competitive market where the participants are acting freely.

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 The Market Value of an asset will reflect its highest and best use. The
highest and best use is the use of an asset that maximises its potential
and that is possible, legally permissible and financially feasible.

 Market Value does not reflect attributes of an asset that are of value to
a specific owner or purchaser that are not available to other buyers in
the market. Such advantages may relate to the physical, geographic,
economic or legal characteristics of an asset. Market Value requires the
disregard of any such element of value because, at any given date, it is
only assumed that there is a willing buyer, not a particular willing
buyer.
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