Profit and risk ratios
When valuing a property on the basis of a hypothetical development approach, the anticipated profit and risk margins are determined after consideration of the level of risk associated with a project as at the date of valuation. In many cases, profit and risk ratios are not supported in the valuation report and appear to be well below what could reasonably be expected.
Valuers need to determine profit and risk ratios that are reflective of the characteristics and condition of the subject property at the valuation date. These ratios need to reflect realistic profit expectations, with appropriate and reasonable weightings for risks apparent at the date the property is required to be valued.