What is term and reversion valuation?

Term & Reversion is a variant of an international appraisal procedure (so-called "Income Approach") for the valuation of real estate . It is a simplified discounted cash flow process, as only two “time windows” are considered.

What is the term and reversion method?

2.1. 5 In a term and reversion valuation, the income is divided into a fixed income to review (the term) and an income from review to perpetuity (the reversion). The latter income is taken to be the current open market rent, and is capitalised as if it were from a fully let property.

What is reversion in valuation?

The reversion is the amount of monies received by the owner when the real estate is sold or, for the purposes of evaluating a property's value, the amount of money it is anticipated that the owner would receive if the property were sold.

What is reversion in real estate finance?

A 'reversion' is a future interest that an individual has in a piece of property even after he or she has conveyed that property, in a lesser estate, to another individual. Once the lesser estate has expired or ended, the property will return to the original individual.

What is a reversion sale?

A “reversion”, “reversion event” or “exit” is the terminal event the concludes a real estate project, where the Sponsor or developer expects to exit the property or portfolio of properties via sale, partial sale, or refinance.

CFA Level 2 | Alternative Investments: Valuing Private Real Estate - Term and Reversion

How is a reversion related to a life estate?

In our story, the person who had the property is known as the holder of the life estate. And the king has the estate in reversion, which means that if the person dies, the land reverts back to the king.

What is the difference between reversion and remainder?

The key difference between a reversion and a remainder is that a reversion is held by the grantor of the original conveyance, whereas "remainder" is used to refer to an interest that would be a reversion, but is instead transferred to someone other than the grantor.

What is an example of reversion?

For example, if Sara transfers a piece of property to Shane for life, Shane has the use of the property for the rest of his life. Upon his death, the property reverts, or goes back, to Sara, or if Sara has died, it goes to her heirs.

How is leasehold value calculated?

The valuation of leasehold is the discounted value of the net cash flow as it would with a freehold valuation. However the major difference is that the net income stream of the leasehold is finite (see Figure 1 - ten years). It is useful to consider the nature of a leasehold investment.

What is the residual method of valuation?

Introduction. Residual valuation is the process of valuing land with development potential. The sum of money available for the purchase of land can be calculated from the value of the completed development minus the costs of development (including profit).

How do you value a freehold reversion?

The valuation of a freehold of a block of flats with long leases is based on the investment value. Multiply the ground rent figure by the year's purchase. This is calculated by the valuer or more usually taken from the valuation table.

What are the 5 methods of valuation?

There are five main methods used when conducting a property evaluation; the comparison, profits, residual, contractors and that of the investment. A property valuer can use one of more of these methods when calculating the market or rental value of a property.

What are the 5 methods of valuation RICS?

What is top slice valuation?

In the under-rented scenario, the top slice represents the potential capital gain of the reversion, whilst in the over-rented scenario, the top slice represents the extra income over and above market rent for the unexpired term of the lease reflecting that this is a fixed income and dependant upon the tenant's ability ...

What is lease reversion?

The term reversionary lease is used to describe a lease "where possession is delayed to a future date" and is different from a lease of the reversion. In simple terms a reversionary lease is one which is granted today, with a term commencement date of tomorrow or some other future date.

Is a 999 year lease as good as freehold?

How long can a lease be? Newly-created leases can be anything from 99 or 125 years to 999 years. A 999 year lease is effectively as good as freehold, and there can even be some advantages to owning some properties this way, rather than under freehold (see below).

Do leasehold properties increase in value?

The main issue with leasehold is the countdown of the timer – whilst a property usually increases in value as time passes, a leasehold property devalues as the lease goes on, and most people know they can swoop in at a cheap price when the years remaining on the lease are low.

What does revision mean in real estate?

The definition of reversion in real estate is the return of property or assets to their original owner after a prespecified event or occurrence. This real estate term is used primarily in documents pertaining to estates and their execution, but can also be used in other circumstances.

What does the term remainderman mean?

A remainderman is a property law term that refers to a person who stands to inherit property at a future point in time upon the termination of a preceding estate—usually a life estate. A remainderman is a third person other than the estate's creator, initial holder, or either's heirs.

Is reversionary interest a future interest?

Reversionary interest refers to the right to occupy and use the land sometime in the future (future interest) e.g. upon the expiry of the lease period. In the case of the State land, after 99 years, the land returns to the state. The State is said to have a reversionary interest in the land.

What's the difference between reversionary interest and remainderman interest in a property?

d. With reversionary interest, the property reverts to the owner after the death of the life tenant. With remainder interest, the title to the property goes to a named third party following the death of the life tenant.

What is a remainder in property?

Primary tabs. A remainder is a future interest in land. It is the right to own and possess the land after the fixed interest of current holder expires. Thus, a remainder can follow a life estate or a term of years. It is created by the use of the phrase "then to" or similar language.

Who owns the property in a life estate?

A person with life interest generally (as we have not perused the Will) does not have the right to sell, transfer or alienate the property to the detriment of the absolute owner, which in your case is the son, i.e., you. It is a limited right to enjoy the property up to the death of the life holder.

What is an action for reversion?

The objective of an action for reversion of public land is the: cancellation of the certificate of title and the resulting reversion of the land covered by the title to the State. This is why an action for reversion is oftentimes designated as an annulment suit or a cancellation suit.

Does a life estate end when the measuring life dies?

A life estate is an interest in land whose duration is measured by a human life. The holder has the right to possess the property as long as he or she lives. At the death of the holder, the property reverts back to the owner.