To value the real estate component, the banks will only accept the valuation from a registered valuer so wherever possible we encourage the sellers to obtain a valuation during the listing process.
The value of the management rights business is assessed by applying a multiplier to the proven net profit. To ensure the net profit claimed by the seller is correct, the bank will insist on having a financial due diligence examination carried out by an expert management rights accountant.
First and foremost the multiplier is driven by supply and demand,the more people wanting to buy will encourage the seller to ask a higher price, conversely the fewer people wanting to buy will condition the seller to reduce the price. Having said that, multipliers are generally set having regard to previous sales of similar properties within the area.
The multiplier is also determined by a number of other factors including:
The net profit is multiplied by the multiplier to determine the asking price for the business component. This is then added to the real estate value of the managers apartment to arrive at a final asking price.
The valuation of a management rights property with a net profit of $125,000 asking a multiplier of 4, and a managers apartment valued at $350,000, would be as follows: