The Determining The Discount Rate for an Income Property Valuation

conference paper

English

The income evaluation is one of the basic methods to establish a price of a real estate. It deals with a discount rate. But there are no obligatory methods how to establish the discount rate. Generally, the discount rate consists of two components: the risk-free rate of profit and risk premiums. Risk premiums contain a risk that a property will not generate profits which are considered in the valuation. This risk is caused by a lot of criteria which should be taken into account during the valuation. To see how discount rate is determined by real estate appraisers, I conducted a survey. Respondents were asked to answer eighteen questions using an electronic form. The survey concerned determination of the discount rate when valuing the yield of administrative and office buildings. In my survey, I focused, among other things, on how the risk premium is provided and what risk criteria are used. Most valuers determine risk premiums in the discount rate by professional estimate. Only a minority performs an exact calculation. Respondents also mostly agreed on criteria which influence the discount rate; such as construction and technical condition, age and maintenance of the property, location and ability to rent the property and access to the property. It is also of importance whether the property is on the land of the same or another owner.

Discount rate; income evaluation of real estate; real estate; risk premium; survey

HORALÍK, J.; MARKOVÁ, L.

2014

16. 10. 2014

VUT v Brně

Brno

978-80-214-5051-6

PBE PhD FORUM 2014 Octtober 16-17, 2014, Kroměříž, Czech Republlic PROCEEDINGS

1

146

154

9