1 a short history of property valuation models — the 17 th to 21 st century prepared for...

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1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference, Stockholm, Sweden, 27 June 2009 Rodney L Jefferies Agricultural Management and Property Studies Department, Commerce Faculty, Lincoln University, Canterbury, New Zealand P.O. Box 84, Lincoln University, Lincoln 7647, New Zealand

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Page 1: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

1

A SHORT HISTORY OF PROPERTY VALUATION MODELS— THE 17TH TO 21ST CENTURY

Prepared for presentation at theEuropean Real Estate Society Conference,

Stockholm, Sweden,27 June 2009Rodney L Jefferies

Agricultural Management and Property Studies Department, Commerce Faculty, Lincoln University, Canterbury, New Zealand

P.O. Box 84, Lincoln University, Lincoln 7647, New Zealand

Page 2: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

Overview of Paper•The aim of this paper is to set in context of a history — necessarily short to fit in the scope of a conference paper — concentrating on describing and examining the development of investment valuation models — not the theory beyond that necessary to explain the models in their historical context.•It does deal with methodology — but only to the extent as to how the models fit within the broader investment valuation paradigms of their day and professional generation.•This paper, based on the author’s PhD current research literature review, omits any equations and examples of the models referred to. The citations and references refer the reader to relevant sources for such details and elaborations by the originators of the models. (A Doctoral proposal was presented at this ERES Conference Doctoral Session 1.5 – A generic property interest real value investment valuation model).•Accompanying this paper is a colour chart [Following] setting out the key contributions to income valuation models historically over the last four centuries in chronological order by decades within each highlighted century, beginning in 1600 to the present time. •This shows the contributions of the various authors stratified into those from the UK, USA, and Australia/New Zealand with a brief identification of their key publications or contributions. •It highlights the historical developments in income valuation models set longitudinally against the different technologies available to valuers applying these models in practice.

Page 3: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

Sections in PaperIntroduction

History of income valuation thought, concepts, professional practice and standardsHistorical development of investment valuation modelsInvestment versus market value

Firstly, UK property investment valuation modelsHistory of models and valuation tables in 16th–18th CenturyEquated yield modelsUK rational or logical valuation modelsReal value modelsRICS Research report into valuation methodsUK Professional response and EY endorsementReal Value Hybrid Model Discounted cash flow “models” in the UKAdvanced explicit DCF, arbitrage , split tenant-risk/market risk rate , actuarial,

convertible bond and real options models

Inter-country comparisons

Page 4: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

4

Clay’s 17th Century Valuation Model

Based on 30 years purchase @ 3.33% p.a.

Page 5: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

Sections in Paper ContinuedSecondly, USA investment real estate appraisal models

Capitalization models in the USA – 1930-1960sSplit-capitalization modelsBand of investment modelsEllwood’s mortgage-equity modelDiscounted cash flow (DCF) models in USABlackadar’s dynamic capitalization model

Thirdly, Australia & New ZealandSynthesis of traditional and other models from UK & USAAustralian & New Zealand adaptations of DCFs from overseas

modelsDCF model development & standards in Australia & New ZealandJefferies’ generic real value model

Page 6: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

6

Author's slide rule from the 1960's

Influence of technology on progress

Odhner Mechanical Calculator circa 1935-45 as used by Author in Dunedin

in 1964

Page 7: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

Sections in Paper ContinuedFourthly, The parallel influence of technology

•This first technological advance arose from the printing press – mass produced ready-reckoners, almanacs and valuation and interest tables from the early 17th Century•Next advance was the introduction of slide rules in 18th — 20th Century •Next was mechanical calculators — invented in 1822 used to 1960s•Next was electronic calculators — invented in 1957 used to present•Next was electronic computers — invented in 1960s used to present

•Application of models to multi-tenanted properties•The lag in textbook coverage •“Long live” direct capitalisation! –Progress is inevitable however!

•Valediction –This author would propose a real value model for real estate valuation

– but “he’d have to say that” – wouldn’t he?

•The time-charts Follow:

Page 8: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

8

Technology becomes – electronic & then small and portable

Vintage Compaq Portable II -1986 As used by Author 1986-1995

Vintage Sharp Compet 364R Calculator As used by Author ex 1973 & still on his desk

Page 9: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

Don’t worry its too small - overall view - see next slide for 17th Century only!

17th – 21st Century – Development of Income Valuation ModelsChronological Overview

NOTES: Key contributions

to land ecomomics and income

valuation models

Cla

y w

rote

"E

as

y, a

nd

Ne

ce

ss

ary

Ta

ble

s o

f In

tere

st

an

d

Re

nts

Fo

reb

orn

e, a

lso

fo

r th

e V

alu

ati

on

of

Le

as

es

, An

nu

itie

s a

nd

Pu

rch

as

es

eit

he

r in

Pre

se

nt

or

in R

ev

ers

ion

".

Pe

tty

de

ve

lop

ed

ca

pit

alis

ati

on

us

ing

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ea

rs p

urc

ha

se

".N

ew

ton

es

tab

lish

ed

th

eo

rem

s o

f c

om

po

un

d in

tere

st

Ph

illip

s p

ub

lish

ed

"C

om

po

un

d in

tere

st

& a

nn

uit

y"

& m

isc

ta

ble

s f

or

rec

on

str

uc

tio

n a

fte

r th

e 1

66

6 F

ire

of

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nd

on

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art

pu

blis

he

d "

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ble

s o

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co

un

t A

nn

uit

es

&

c.

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ith

pu

blis

he

d "

We

alt

h o

f N

ati

on

s"-

inc

l. th

eo

ry o

f re

nt

as

fu

nc

tio

n o

f p

ric

e.

Ba

ily w

rote

"T

ab

les

fo

r th

e p

urc

ha

sin

g a

nd

re

ne

win

g o

f le

as

es

", c

on

so

lida

tin

g e

arl

ier

wri

ters

an

d g

ivin

g m

ath

em

ati

ca

l

de

riv

ati

on

s o

f co

mp

ou

nd

inte

rest

fo

rmu

las

Inw

oo

d's

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ab

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fo

r th

e P

urc

ha

sin

g o

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sta

tes

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e o

f th

e m

os

t fa

mo

us

- u

se

d in

to t

he

20

th C

en

tury

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lth

us

pu

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inq

uir

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to t

he

pro

gre

ss

of

ren

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ica

rdo

pu

blis

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d "

On

th

e p

rin

cip

les

of

po

litic

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ec

on

om

y"

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s p

ub

lish

ed

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lem

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ts o

f p

olit

ica

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on

om

y"

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rx p

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lish

ed

"D

as

Ka

pit

al"

Ho

sk

old

pu

blis

he

d "

En

gin

er'

s V

alu

ing

As

sis

tan

t"

rep

ute

dly

cre

ate

d a

ca

pit

aliz

ati

on

ra

te @

sp

ec

ula

tiv

e r

ate

+

sin

kin

g f

un

d @

sa

fe r

ate

Hu

rd d

efi

ne

d u

rba

n v

alu

e a

s e

co

no

mic

re

nt

or

gro

un

d

ren

t c

ap

ita

lize

d.

Fis

he

r re

pu

ted

ly c

oin

ed

th

e t

erm

"ra

te o

f c

ap

ita

liza

tio

n"

& t

he

th

eo

ry o

f v

alu

ing

inc

om

e-p

rod

uc

ing

ca

pit

al.

We

bb

s p

ub

lish

ed

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alu

ati

on

of

Re

al P

rop

ert

y:

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uid

e t

o

the

va

lua

tio

n o

f la

nd

an

d b

uild

ing

s e

tc. f

or

va

rio

us

pu

rpo

se

s"

wh

ich

c

ap

ita

lise

d n

ett

an

nau

l in

co

me

at

a n

um

be

r o

f y

ea

rs p

urc

ha

se.

Pa

rry

pu

blis

he

d "

Par

ry’s

Va

lua

tion

an

d In

ve

stm

en

t T

ab

les

"

Ba

bc

oc

k w

rote

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he

Ap

pra

isa

l of

Re

al E

sta

te".

Me

rtzk

e a

dv

oc

ate

d a

"b

uilt

-up

ca

pit

aliz

ati

on

ra

te".

G

rim

es

& C

raig

ue

ad

vo

ca

ted

a "

thre

e-i

nte

res

t-ra

te".

Fis

he

r w

rote

"T

he

ory

of

Inte

res

t ".

Th

orn

so

n d

en

ou

nc

ed

"A

nn

uit

ists

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dv

oc

ati

ng

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sk

old

.B

ab

co

ck

ad

vo

ca

ted

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plit

ca

pit

aliz

ati

on

ra

tes

" in

"T

he

A

pp

rais

al o

f R

ea

l Es

tate

".K

nis

ke

rn a

dv

oc

ate

d a

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ing

le c

ap

ita

liza

tio

n r

ate

".

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orn

so

n -

ad

vo

ca

ted

"S

plit

-ra

te c

ap

ita

liza

tio

n m

eth

od

" w

ith

sin

kin

g f

un

d a

dd

ed

to

th

e c

ap

ita

liza

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ate

Ro

ss

ori

gin

ate

d

"Ba

nd

-of-

inv

es

tme

nt"

me

tho

d.

Ra

tclif

f w

rote

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rba

n L

an

d E

co

nm

ics

"J

oh

n M

urr

ay

wro

te "

Pri

nc

iple

s a

nd

Pra

cti

ce

of

Va

lua

tio

n"

Ap

pra

isa

l In

sti

tute

sta

rts

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he

Ap

pra

isa

l of

Re

al E

sta

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We

ime

r a

dv

oc

ate

d "

ca

pit

aliz

ati

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as

on

ly v

alid

me

tho

d"

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oo

d c

rea

ted

mo

rtg

ag

e-e

qu

ity

me

tho

d a

nd

pu

blis

he

d

"Ta

ble

s f

or

Re

al E

sta

te A

pp

rais

ing

an

d

Fin

an

cin

g"

Mo

bil

Oil

N.Z

. Ltd

. Pu

blis

he

s "

DC

F In

ve

stm

en

t A

na

lys

is"

Sp

ee

dy

ad

vo

ca

tes

"In

ve

stm

en

t b

y D

CF

me

tho

ds

."G

raa

sk

am

p p

rom

ote

d a

pra

cti

ca

l co

mp

ute

r s

erv

ice

fo

r th

e in

co

me

ap

pro

ac

h.

Gra

as

ka

mp

dri

vin

g f

orc

e b

eh

ind

ED

UC

AR

E c

ou

rse

s a

t W

isc

on

sin

Un

ive

rsit

yA

ke

rso

n d

ev

elo

pe

d "

Ellw

oo

d W

ith

ou

t A

lge

bra

me

tho

d"

Kin

na

rd p

ub

lish

es

"In

co

me

Pro

pe

rty

Va

lua

tio

n"

Jo

hn

so

n p

ub

lish

ed

"T

he

Ins

tan

t M

ort

ga

ge

-Eq

uit

y

Te

ch

niq

ue

" G

rea

ve

s a

cc

red

ite

d w

ith

“...

ca

taly

se

d t

he

gra

du

al

ad

op

tio

n o

f th

e D

CF

me

tho

d o

f v

alu

ati

on

in t

he

UK

"W

oo

d a

dv

oc

ate

s a

"re

al v

alu

e v

alu

ati

on

me

tho

d"

No

rth

pu

blis

he

s "

Re

al e

sta

te in

ve

stm

en

t a

na

lys

is a

nd

v

alu

ati

on

"M

ars

ha

ll c

rea

ted

"e

qu

ate

d y

ield

" m

od

el a

lso

pro

du

cin

g

the

in

itia

l ta

ble

s &

"D

on

ald

so

n's

Inv

es

tme

nt

Ta

ble

s"

(19

79

)R

os

e p

ub

lish

es

"R

os

e’s

Pro

pe

rty

Va

lua

tio

n T

ab

les

" G

ree

nw

ell

W. &

. Co

ca

lled

fo

r a

"N

ew

va

lua

tio

n m

eth

od

"B

ow

co

ck

pu

blis

he

s "

Pro

pe

rty

Va

lua

tio

n T

ab

les

"D

av

ids

on

pu

blis

he

d "

Pa

rry

's V

alu

ati

on

an

d In

ve

stm

en

t T

ab

les

" 1

0th

Ed

itio

nF

ish

er

- re

fin

ed

Ellw

oo

d’s

J-F

ac

tors

fo

r s

tra

igh

t-lin

e o

r

Sy

ke

s p

rop

os

es

a "

Ra

tio

na

l va

lua

tio

n m

od

el"

Tro

tt c

ha

ire

d "

RIC

S R

es

ea

rch

pro

jec

t in

to p

rop

ert

y

va

lua

tio

n m

eth

od

s"

Bla

ck

ad

ar

de

ve

lop

ed

a “

dy

na

mic

ca

pit

aliz

ati

on

” m

od

el

Ma

so

n p

rod

uc

ed

"A

me

ric

an

Ins

titu

te o

f R

ea

l Es

tate

A

pp

rais

ers

Fin

an

cia

l Ta

ble

s"

Cro

sb

y a

dv

oc

ate

s a

"h

yb

rid

eq

ua

ted

yie

ld a

nd

re

al v

alu

e

(sh

ort

-cu

t D

CF

) m

od

el"

Fis

he

r a

nd

Ma

rtin

pu

blis

h "

Inc

om

e P

rop

ert

y A

pp

rais

al"

A

pp

leb

y &

We

stw

oo

d p

ub

lish

"T

he

Au

str

alia

n V

alu

ati

on

a

nd

Lif

e A

nn

uit

y T

ab

les

"S

ca

rre

tt p

ub

lish

es

"P

rop

ert

y V

alu

ati

on

: T

he

fiv

e

me

tho

ds

"B

row

n p

rop

os

ed

a "

Sp

lit t

en

an

t-ri

sk

/ma

rke

t ri

sk

ra

te

mo

de

l"A

las

tair

Ad

air

et

al p

ub

lish

"E

uro

pe

an

Va

lua

tio

n

Pra

cti

ce

: T

he

ory

an

d T

ec

hn

iqu

e"

Ba

um

an

d C

ros

by

pu

blis

h "

Pro

pe

rty

Inv

es

tme

nt

Ap

pra

isa

l"F

ren

ch

& W

ard

pro

po

se

d a

n "

Arb

itra

ge

mo

de

l"J

eff

eri

es

pu

blis

he

d "

Urb

an

Va

lua

tio

n in

Ne

w Z

ea

lan

d -

V

ol.

II"

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wla

nd

pu

blis

he

s "

Pro

pe

rty

Inv

es

tme

nts

an

d T

he

ir

Fin

an

cin

g"

Ba

illie

u K

nig

ht

Fra

nk

- o

rga

nis

ed

th

e "

Pro

pe

rty

E

co

no

mic

Ta

sk

Fo

rce

"A

IVL

E is

su

e "

Info

rma

tio

n P

ap

er

on

Us

e o

f D

isc

ou

nte

d

Ca

sh

Flo

w in

Pro

pe

rty

Va

lua

tio

ns

"R

ICS

- is

su

es

"T

he

Ma

llin

so

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ep

ort

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he

Pre

sid

en

t’s

W

ork

ing

Pa

rty

on

Co

mm

erc

ial P

rop

ert

y V

alu

ati

on

s"

Wh

ipp

le p

ub

lish

es

"P

rop

ert

y v

alu

ati

on

an

d a

na

lys

is"

Je

ffe

rie

s N

ZIV

mo

no

gra

ph

"D

isc

ou

nte

d c

as

h f

low

(D

CF

) v

alu

ati

on

te

ch

niq

ue

s &

sp

rea

ds

he

et

ap

plic

ati

on

s"

NZ

IV is

su

e "

Gu

ida

nc

e N

ote

4:

Us

e o

f D

isc

ou

nte

d C

as

h

Flo

w T

ec

hn

iqu

es

in P

rop

ert

y V

alu

ati

on

s."

Lu

sh

t p

ub

lish

es

"R

ea

l Es

tate

Va

lua

tio

n"

An

dre

w &

Bo

oth

pro

po

se

d a

n "

Ac

tua

ria

l an

d a

c

on

ve

rtib

le b

on

d m

od

el"

Isa

ac

an

d T

err

y S

tele

y p

ub

lish

"P

rop

ert

y V

alu

ati

on

T

ec

hn

iqu

es

"T

on

y J

oh

ns

on

et

al p

ub

lish

"M

od

ern

Me

tho

ds

of

Va

lua

tio

n -

9th

Ed

"K

en

ne

th L

us

ht

pu

blis

he

s "

Re

al E

sta

te V

alu

ati

on

-

Pri

nc

iple

s a

nd

Ap

plic

ati

on

s"

Ak

ers

on

pu

blis

he

s A

I's "

Ca

pit

alis

ati

on

Th

eo

ry a

nd

T

ec

hn

iqu

es

: S

tud

y G

uid

e"

Sc

hu

lte

pu

blis

he

s "

Re

al E

sta

te E

du

ca

tio

n T

hro

ug

ho

ut

Th

e W

orl

d:

Pa

st,

Pre

se

nt

an

d F

utu

re"

Fis

ch

er

pu

blis

he

s "

Pro

pe

rty

Va

lua

tio

n M

eth

od

olo

gy

"H

arv

ard

pu

blis

he

s "

Inv

es

tme

nt

Pro

pe

rty

Va

lua

tio

n T

od

ay

"D

av

ids

on

pu

blis

he

s 1

2th

& 1

3th

Ed

ns

of

"Pa

rry

's

Va

lua

tio

n &

Inv

es

tme

nt

Ta

ble

s"

AI p

ub

lish

12

th &

13

th E

dn

s o

f "T

he

Ap

pra

isa

l of

Re

al

Es

tate

"F

ish

er

an

d M

art

in p

ub

lish

2n

d &

3rd

Ed

ns

of

"In

co

me

P

rop

ert

y V

alu

ati

on

"A

nd

rew

Ba

um

et

al p

ub

lish

4th

Ed

of

"Th

e In

co

me

A

pp

roa

ch

to

Pro

pe

rty

Va

lua

tio

n"

Sa

rah

Sa

yc

e e

t a

l pu

blis

h "

Re

al E

sta

te A

pp

rais

al:

Fro

m

Va

lue

to

Wo

rth

" W

hip

ple

pu

blis

he

s 2

nd

Ed

n o

f "P

rop

ert

y v

alu

ati

on

an

d

an

aly

sis

"R

ee

d e

dit

s "

Th

e v

alu

ati

on

of

rea

l es

tate

– t

he

Au

str

alia

n

ed

itio

n o

f th

e A

pp

rais

al o

f R

ea

l Es

tate

– 1

2th

Ed

n"

Wy

att

pu

blis

he

s "

Pro

pe

rty

va

lua

tio

n in

an

ec

on

om

ic

co

nte

xt"

Ba

um

an

d C

ros

by

pu

blis

h 3

rd E

dn

of

"Pro

pe

rty

In

ve

stm

en

t A

pp

rais

al"

Sc

arr

ett

pu

blis

he

s 2

nd

Ed

n o

f "P

rop

ert

y V

alu

ati

on

: T

he

Computers

Calculators

Side Rules

Ready-Reckoners& Interest Tables

UK Land Economists &

Valuation Model Contributors

16

17

- T

ho

ma

s C

lay

16

62

- S

ir W

illia

m P

ett

y1

66

7 -

Jo

hn

Ne

wto

n1

66

7 -

He

nry

Ph

illip

s

17

26

- J

oh

n S

ma

rt1

77

6 -

Ad

am

Sm

ith

18

02

- F

ran

cis

Ba

ily

18

11

- W

illia

m In

wo

od

18

15

- R

ob

ert

Ma

lth

us

18

17

- D

av

id R

ica

rdo

18

48

- J

oh

n S

tua

rt M

ill

18

67

- K

arl

Ma

rx

18

77

- H

en

ry H

os

ko

ld

19

10

- C

lare

nc

e &

N

orm

an

We

bb

19

13

- R

ich

ard

Pa

rry

19

72

- M

ich

ae

l Gre

av

es

19

73

- E

rne

st

Wo

od

19

75

/76

Ph

ilip

Ma

rsh

all

19

76

- J

ac

k R

os

e1

97

6 -

Gre

en

we

ll W

. & C

o.

19

78

- P

hili

p B

ow

co

ck

19

78

- A

lick

Da

vid

so

n

19

80

/82

- S

tep

he

n S

yk

es

19

80

/86

- A

nd

rew

Tro

tt1

98

5 -

Ne

il C

ros

by

19

91

- D

ou

gla

s S

ca

rre

tt1

99

4 -

RIC

S1

99

5 -

Ge

rald

Bro

wn

19

95

- A

las

tair

Ad

air

et

al

19

95

- A

nd

rew

Ba

um

an

d

Ne

il C

ros

by

19

95

- N

ick

Fre

nc

h a

nd

C

ha

rle

s W

ard

19

96

- A

nd

rew

Ad

am

s

an

d P

hili

p B

oo

th

20

00

- D

av

id Is

aa

c a

nd

T

err

y S

tele

y

20

00

- T

on

y J

oh

ns

on

et

al

20

02

- T

im H

arv

ard

20

02

& 2

00

8 -

Alic

k

Da

vid

so

n2

00

6 -

An

dre

w B

au

m e

t a

l2

00

6 -

Sa

rah

Sa

yc

e e

t a

l2

00

7 -

Pe

ter

Wy

att

2

00

8 -

An

dre

w B

au

m a

nd

N

eil

Cro

sb

y2

00

8 -

Do

ug

las

Sc

arr

ett

Century/Decade 1600 1610 1620 1630 1640 1650 1660 1670 1680 1690 1700 1710 1720 1730 1740 1750 1760 1770 1780 1790 1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

USA Land Economists &

Valuation Model Contributors

Ric

ha

rd H

urd

- 1

90

3Ir

vin

g F

ish

er

- 1

90

6

Fre

de

ric

k B

ab

co

ck

- 1

92

4A

rth

ur

Me

rtzk

e -

19

27

Jo

hn

Gri

me

s &

W

illia

m C

raig

ue

- 1

92

8

Irv

ing

Fis

he

r -

19

30

Iva

n T

ho

rns

on

- 1

93

2F

red

eri

ck

Ba

bc

oc

k -

19

32

Ph

illip

Kn

isk

ern

- 1

93

3Iv

an

Th

ors

on

- 1

93

6T

hu

rsto

n R

os

s -

19

37

Ric

ha

rd R

atc

liff

- 1

94

9

Ap

pra

isa

l In

sti

tute

- 1

95

1A

rth

ur

We

ime

r -

19

53

Le

on

Ellw

oo

d -

19

59

Ja

me

s G

raa

sk

am

p -

19

69

Ch

arl

es

Ak

ers

on

- 1

97

0W

illia

m K

inn

ard

Jn

r -

19

71

Gra

as

ka

mp

- 1

97

1Ir

vin

Jo

hn

so

n -

19

72

L

inc

oln

No

rth

- 1

97

3J

eff

rey

Fis

he

r -

19

79

Ja

me

s M

as

on

- 1

98

2G

ord

on

Bla

ck

ad

ar

-19

81

/83

Je

ffre

y F

ish

er

an

dR

ob

ert

Ma

rtin

-1

99

1K

en

Lu

sh

t -

19

96

Ke

nn

eth

Lu

sh

t -

20

00

Ka

rl-V

ern

er

Sc

hu

lte

- 2

00

1C

ha

rle

s A

ke

rso

n -

20

00

& 2

00

9A

pp

rais

al I

ns

titu

te -

20

01

& 2

00

8J

eff

rey

Fis

he

r a

nd

Ro

be

rt M

art

in -

2

00

5 &

20

08

Australia & New Zealand Land

Economists & Valuation Model

Contributors

Jo

hn

Mu

rra

y -

19

49

Mo

bil

Oil

N.Z

. Ltd

. - 1

96

8S

qu

ire

Sp

ee

dy

- 1

96

8

Ap

ple

by

an

d W

es

two

od

-

19

91

Ba

illie

u K

nig

ht

Fra

nk

- 1

99

2J

eff

eri

es

- 1

99

0P

atr

ick

Ro

wla

nd

- 1

99

3A

IVL

E -

19

93

.T

om

Wh

ipp

le -

19

95

Ro

dn

ey

Je

ffe

rie

s -

19

95

N

ZIV

- 1

99

5R

od

ne

y J

eff

eri

es

- 1

99

6/7

AIV

LE

- 1

99

7

Do

min

ick

Fis

ch

er

- 2

00

2T

om

Wh

ipp

le -

20

06

Ric

ha

rd R

ee

d -

20

07

R e a d y - R e c k o n e r s & I n t e r e s t T a b l e s

M e c h a n I c a l C a l c u l a t o r s M e c h a n I c a l C a l c u l a t o r s

S l i d e R u l e s S l i d e R u l e s

R e a d y - R e c k o n e r s & I n t e r e s t T a b l e s R e a d y - R e c k o n e r s & I n t e r e s t T a b l e s

C o m p u t e r s

E l e c t r o n i c C a l c u l a t o r s E l e c t r o n i c C a l c u l a t o r s

C o m p u t e r s

Page 10: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

17th - 19th Century – Development of Income Valuation Models - Chronological Overview

NOTES: Key contributions

to land ecomomics and income

valuation modelsC

lay

wro

te "

Ea

sy

, an

d N

ec

es

sa

ry T

ab

les

of

Inte

res

t a

nd

Re

nts

Fo

reb

orn

e, a

lso

fo

r th

e V

alu

ati

on

of

Le

as

es

, An

nu

itie

s a

nd

Pu

rch

as

es

eit

he

r in

Pre

se

nt

or

in R

ev

ers

ion

".

Pe

tty

de

ve

lop

ed

ca

pit

alis

ati

on

us

ing

"y

ea

rs p

urc

ha

se

".N

ew

ton

es

tab

lish

ed

th

eo

rem

s o

f c

om

po

un

d in

tere

st

Ph

illip

s p

ub

lish

ed

"C

om

po

un

d in

tere

st

& a

nn

uit

y"

& m

isc

ta

ble

s f

or

rec

on

str

uc

tio

n a

fte

r th

e 1

66

6 F

ire

of

Lo

nd

on

Sm

art

pu

blis

he

d "

Ta

ble

s o

f In

tere

st,

Dis

co

un

t A

nn

uit

es

&

c.

Sm

ith

pu

blis

he

d "

We

alt

h o

f N

ati

on

s"-

inc

l. th

eo

ry o

f re

nt

as

fu

nc

tio

n o

f p

ric

e.

Ba

ily w

rote

"T

ab

les

fo

r th

e p

urc

ha

sin

g a

nd

re

ne

win

g o

f le

as

es

", c

on

so

lida

tin

g e

arl

ier

wri

ters

an

d g

ivin

g m

ath

em

ati

ca

l

de

riv

ati

on

s o

f c

om

po

un

d in

tere

st

form

ula

sIn

wo

od

's "

Ta

ble

s f

or

the

Pu

rch

as

ing

of

Es

tate

s"

- o

ne

of

the

mo

st

fam

ou

s -

us

ed

into

th

e 2

0th

Ce

ntu

ryM

alt

hu

s p

ub

lish

ed

"A

n in

qu

iry

into

th

e p

rog

res

s o

f re

nt"

Ric

ard

o p

ub

lish

ed

"O

n t

he

pri

nc

iple

s o

f p

olit

ica

l e

co

no

my

"

Mill

s p

ub

lish

ed

"E

lem

en

ts o

f p

olit

ica

l ec

on

om

y"

Ma

rx p

ub

lish

ed

"D

as

Ka

pit

al"

Ho

sk

old

pu

blis

he

d "

En

gin

er'

s V

alu

ing

As

sis

tan

t"

rep

ute

dly

cre

ate

d a

ca

pit

aliz

ati

on

ra

te @

sp

ec

ula

tiv

e r

ate

+

sin

kin

g f

un

d @

sa

fe r

ate

Computers

Calculators

Side Rules

Ready-Reckoners& Interest Tables

UK Land Economists &

Valuation Model Contributors

16

17

- T

ho

ma

s C

lay

16

62

- S

ir W

illia

m P

ett

y1

66

7 -

Jo

hn

Ne

wto

n1

66

7 -

He

nry

Ph

illip

s

17

26

- J

oh

n S

ma

rt1

77

6 -

Ad

am

Sm

ith

18

02

- F

ran

cis

Ba

ily

18

11

- W

illia

m In

wo

od

18

15

- R

ob

ert

Ma

lth

us

18

17

- D

av

id R

ica

rdo

18

48

- J

oh

n S

tua

rt M

ill

18

67

- K

arl

Ma

rx

18

77

- H

en

ry H

os

ko

ld

Century/Decade 1600 1610 1620 1630 1640 1650 1660 1670 1680 1690 1700 1710 1720 1730 1740 1750 1760 1770 1780 1790 1800 1810 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

USA Land Economists &

Valuation Model Contributors

Australia & New Zealand Land

Economists & Valuation Model

Contributors

R e a d y - R e c k o n e r s & I n t e r e s t T a b l e s

M e c h a n I c a l C a l c u l a t o r s

S l i d e R u l e s

Page 11: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

Chronological Overview – 17th Century

NO

TE

S:

Ke

y co

ntrib

utio

ns

to

lan

d e

co

mo

mic

s

an

d in

co

me

v

alu

atio

n m

od

els

Clay wrote "Easy, and Necessary Tables of Interest and

Rents Foreborne, also for the Valuation of Leases, Annuities and

Purchases either in Present or in Reversion ".

Petty developed capitalisation using "years purchase".Newton established theorems of compound interestPhillips published "Compound interest & annuity" & misc tables for reconstruction after the 1666 Fire of London

Co

mp

ute

rs

Ca

lcu

lato

rs

Sid

e R

ule

s

Re

ad

y-R

ec

ko

ne

rs&

Inte

res

t Ta

ble

s

UK

La

nd

E

co

no

mis

ts &

V

alu

atio

n M

od

el

Co

ntrib

uto

rs

1617 - Thomas Clay

1662 - Sir William Petty1667 - John Newton1667 - Henry Phillips

Ce

ntu

ry/De

ca

de

16001610

16201630

16401650

16601670

16801690

17001710

17201730

17401750

17601770

17801790

18001810

18201830

18401850

18601870

18801890

19001910

19201930

19401950

19601970

19801990

20002010

2020

US

A L

an

d

Ec

on

om

ists

&

Va

lua

tion

Mo

de

l C

on

tribu

tors

Au

stra

lia &

N

ew

Ze

ala

nd

La

nd

E

co

no

mis

ts &

V

alu

atio

n M

od

el

Co

ntrib

uto

rs

R e

a d

y - R e

c k

o n

e r s

& I n

t e r e

s t T

a b

l e s

S l i d

e R

u l e

s

Page 12: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

12

Page 13: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

Chronological Overview – 18th Century

NO

TE

S:

Ke

y co

ntrib

utio

ns

to

lan

d e

co

mo

mic

s

an

d in

co

me

v

alu

atio

n m

od

els

Co

mp

ute

rs

Ca

lcu

lato

rs

Sid

e R

ule

s

Re

ad

y-R

ec

ko

ne

rs&

Inte

res

t Ta

ble

s

UK

La

nd

E

co

no

mis

ts &

V

alu

atio

n M

od

el

Co

ntrib

uto

rs

Ce

ntu

ry/De

ca

de

16001610

16201630

16401650

16601670

16801690

17001710

17201730

17401750

17601770

17801790

18001810

18201830

18401850

18601870

18801890

19001910

19201930

19401950

19601970

19801990

20002010

2020

US

A L

an

d

Ec

on

om

ists

&

Va

lua

tion

Mo

de

l C

on

tribu

tors

Au

stra

lia &

N

ew

Ze

ala

nd

La

nd

E

co

no

mis

ts &

V

alu

atio

n M

od

el

Co

ntrib

uto

rs

R e

a d

y - R e

c k

o n

e r s

& I n

t e r e

s t T

a b

l e s

Smart published "Tables of Interest, Discount Annuites &c.Smith published "Wealth of Nations"- incl. theory of rent as function of price.

Baily wrote "Tables for the purchasing and renewing of leases" , consolidating earlier writers and giving mathematical

derivations of compound interest formulas

Co

mp

ute

rs

Ca

lcu

lato

rs

Sid

e R

ule

s

1726 - John Smart1776 - Adam Smith

1802 - Francis Baily

Ce

ntu

ry/De

ca

de

16001610

16201630

16401650

16601670

16801690

17001710

17201730

17401750

17601770

17801790

18001810

18201830

18401850

18601870

18801890

19001910

19201930

19401950

19601970

19801990

20002010

2020

R e

a d

y - R e

c k

o n

e r s

& I n

t e r e

s t T

a b

l e s

S l i d

e R

u l e

s

Page 14: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

Chronological Overview – 19th Century

Baily wrote "Tables for the purchasing and renewing of leases" , consolidating earlier writers and giving mathematical

derivations of compound interest formulasInwood's "Tables for the Purchasing of Estates" - one of the most famous - used into the 20th CenturyMalthus published "An inquiry into the progress of rent"Ricardo published "On the principles of political economy"

Mills published "Elements of political economy"

Marx published "Das Kapital"

Hoskold published "Enginer's Valuing Assistant" reputedly created a capitalization rate @ speculative rate + sinking fund @ safe rate

Co

mp

ute

rs

Ca

lcu

lato

rs

Sid

e R

ule

s

1802 - Francis Baily

1811 - William Inwood1815 - Robert Malthus1817 - David Ricardo

1848 - John Stuart Mill

1867 - Karl Marx

1877 - Henry Hoskold

Ce

ntu

ry/De

ca

de

16001610

16201630

16401650

16601670

16801690

17001710

17201730

17401750

17601770

17801790

18001810

18201830

18401850

18601870

18801890

19001910

19201930

19401950

19601970

19801990

20002010

2020

R e

a d

y - R e

c k

o n

e r s

& I n

t e r e

s t T

a b

l e s

M e c h

a n I c a l C

a l c u l a t o

r s

S l i d

e R

u l e

s

NO

TE

S:

Ke

y co

ntrib

utio

ns

to

lan

d e

co

mo

mic

s

an

d in

co

me

v

alu

atio

n m

od

els

Co

mp

ute

rs

Ca

lcu

lato

rs

Sid

e R

ule

s

Re

ad

y-R

ec

ko

ne

rs&

Inte

res

t Ta

ble

s

UK

La

nd

E

co

no

mis

ts &

V

alu

atio

n M

od

el

Co

ntrib

uto

rs

Ce

ntu

ry/De

ca

de

16001610

16201630

16401650

16601670

16801690

17001710

17201730

17401750

17601770

17801790

18001810

18201830

18401850

18601870

18801890

19001910

19201930

19401950

19601970

19801990

20002010

2020

US

A L

an

d

Ec

on

om

ists

&

Va

lua

tion

Mo

de

l C

on

tribu

tors

Au

stra

lia &

N

ew

Ze

ala

nd

La

nd

E

co

no

mis

ts &

V

alu

atio

n M

od

el

Co

ntrib

uto

rs

R e

a d

y - R e

c k

o n

e r s

& I n

t e r e

s t T

a b

l e s

Page 15: 1 A SHORT HISTORY OF PROPERTY VALUATION MODELS — THE 17 TH TO 21 ST CENTURY Prepared for presentation at the European Real Estate Society Conference,

Chronological Overview – Early to Mid 20th Century

NO

TE

S:

Ke

y co

ntrib

utio

ns

to

lan

d e

co

mo

mic

s

an

d in

co

me

v

alu

atio

n m

od

els

Co

mp

ute

rs

Ca

lcu

lato

rs

Sid

e R

ule

s

Re

ad

y-R

ec

ko

ne

rs&

Inte

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Hurd defined urban value as economic rent or ground rent capitalized.Fisher reputedly coined the term "rate of capitalization" & the theory of valuing income-producing capital.

Webbs published "Valuation of Real Property: A guide to

the valuation of land and buildings etc. for various purposes" which capitalised nett annaul income at a number of years purchase .Parry published "Parry’s Valuation and Investment Tables "

Babcock wrote "The Appraisal of Real Estate".Mertzke advocated a "built-up capitalization rate". Grimes & Craigue advocated a "three-interest-rate".

Fisher wrote "Theory of Interest ".Thornson denounced "Annuitists" advocating Hoskold.Babcock advocated "Split capitalization rates" in "The Appraisal of Real Estate".Kniskern advocated a "Single capitalization rate" .Thornson - advocated "Split-rate capitalization method" with sinking fund added to the capitalization rateRoss originated "Band-of-investment" method.

Ratcliff wrote "Urban Land Econmics"John Murray wrote "Principles and Practice of Valuation"

Appraisal Institute starts "The Appraisal of Real Estate"Weimer advocated "capitalization as only valid method" Ellwood created mortgage-equity method and published "Tables for Real Estate Appraising and Financing"

Mobil Oil N.Z. Ltd. Publishes "DCF Investment Analysis"Speedy advocates "Investment by DCF methods."Graaskamp promoted a practical computer service for the income approach.

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Richard Hurd - 1903Irving Fisher - 1906

Frederick Babcock - 1924Arthur Mertzke - 1927

John Grimes & William Craigue - 1928

Irving Fisher - 1930Ivan Thornson - 1932

Frederick Babcock - 1932Phillip Kniskern - 1933

Ivan Thorson - 1936Thurston Ross - 1937

Richard Ratcliff - 1949

Appraisal Institute - 1951Arthur Weimer - 1953Leon Ellwood - 1959

James Graaskamp - 1969

John Murray - 1949

Mobil Oil N.Z. Ltd. - 1968Squire Speedy - 1968

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Chronological Overview – Mid 20th Century

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Graaskamp driving force behind EDUCARE courses at Wisconsin UniversityAkerson developed "Ellwood Without Algebra method"Kinnard publishes "Income Property Valuation"Johnson published "The Instant Mortgage-Equity Technique" Greaves accredited with “... catalysed the gradual adoption of the DCF method of valuation in the UK"Wood advocates a "real value valuation method"North publishes "Real estate investment analysis and valuation"Marshall created "equated yield" model also producing the initial tables & "Donaldson's Investment Tables" (1979)Rose publishes "Rose’s Property Valuation Tables" Greenwell W. &. Co called for a "New valuation method"Bowcock publishes "Property Valuation Tables"Davidson published "Parry's Valuation and Investment Tables" 10th EditionFisher - refined Ellwood’s J-Factors for straight-line or

Sykes proposes a "Rational valuation model"Trott chaired "RICS Research project into property valuation methods"Blackadar developed a “dynamic capitalization” model Mason produced "American Institute of Real Estate Appraisers Financial Tables"Crosby advocates a "hybrid equated yield and real value (short-cut DCF) model"

Fisher and Martin publish "Income Property Appraisal" Appleby & Westwood publish "The Australian Valuation and Life Annuity Tables"Scarrett publishes "Property Valuation: The five methods"Brown proposed a "Split tenant-risk/market risk rate model"Alastair Adair et al publish "European Valuation Practice: Theory and Technique" Baum and Crosby publish "Property Investment Appraisal"French & Ward proposed an "Arbitrage model"Jefferies published "Urban Valuation in New Zealand - Vol. II" Rowland publishes "Property Investments and Their Financing"Baillieu Knight Frank - organised the "Property Economic Task Force"AIVLE issue "Information Paper on Use of Discounted Cash Flow in Property Valuations"RICS - issues "The Mallinson Report - The President’s Working Party on Commercial Property Valuations"Whipple publishes "Property valuation and analysis" Jefferies NZIV monograph "Discounted cash flow (DCF) valuation techniques & spreadsheet applications"NZIV issue "Guidance Note 4: Use of Discounted Cash Flow Techniques in Property Valuations."Lusht publishes "Real Estate Valuation"Andrew & Booth proposed an "Actuarial and a convertible bond model"

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1972 - Michael Greaves1973 - Ernest Wood1975/76 Philip Marshall1976 - Jack Rose1976 - Greenwell W. & Co. 1978 - Philip Bowcock1978 - Alick Davidson

1980/82 - Stephen Sykes1980/86 - Andrew Trott1985 - Neil Crosby

1991 - Douglas Scarrett1994 - RICS1995 - Gerald Brown1995 - Alastair Adair et al1995 - Andrew Baum and Neil Crosby1995 - Nick French and Charles Ward1996 - Andrew Adams and Philip Booth

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Charles Akerson - 1970William Kinnard Jnr - 1971

Graaskamp - 1971Irvin Johnson - 1972 Lincoln North - 1973Jeffrey Fisher - 1979

James Mason - 1982Gordon Blackadar -1981/83

Jeffrey Fisher andRobert Martin -1991

Ken Lusht - 1996

Appleby and Westwood - 1991

Baillieu Knight Frank - 1992Jefferies - 1990

Patrick Rowland - 1993AIVLE - 1993.

Tom Whipple - 1995Rodney Jefferies - 1995

NZIV - 1995Rodney Jefferies - 1996/7

AIVLE - 1997

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Sykes proposes a "Rational valuation model"Trott chaired "RICS Research project into property valuation methods"Blackadar developed a “dynamic capitalization” model Mason produced "American Institute of Real Estate Appraisers Financial Tables"Crosby advocates a "hybrid equated yield and real value (short-cut DCF) model"

Fisher and Martin publish "Income Property Appraisal" Appleby & Westwood publish "The Australian Valuation and Life Annuity Tables"Scarrett publishes "Property Valuation: The five methods"Brown proposed a "Split tenant-risk/market risk rate model"Alastair Adair et al publish "European Valuation Practice: Theory and Technique" Baum and Crosby publish "Property Investment Appraisal"French & Ward proposed an "Arbitrage model"Jefferies published "Urban Valuation in New Zealand - Vol. II" Rowland publishes "Property Investments and Their Financing"Baillieu Knight Frank - organised the "Property Economic Task Force"AIVLE issue "Information Paper on Use of Discounted Cash Flow in Property Valuations"RICS - issues "The Mallinson Report - The President’s Working Party on Commercial Property Valuations"Whipple publishes "Property valuation and analysis" Jefferies NZIV monograph "Discounted cash flow (DCF) valuation techniques & spreadsheet applications"NZIV issue "Guidance Note 4: Use of Discounted Cash Flow Techniques in Property Valuations."Lusht publishes "Real Estate Valuation"Andrew & Booth proposed an "Actuarial and a convertible bond model"

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1991 - Douglas Scarrett1994 - RICS1995 - Gerald Brown1995 - Alastair Adair et al1995 - Andrew Baum and Neil Crosby1995 - Nick French and Charles Ward1996 - Andrew Adams and Philip Booth

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James Mason - 1982Gordon Blackadar -1981/83

Jeffrey Fisher andRobert Martin -1991

Ken Lusht - 1996

Appleby and Westwood - 1991

Baillieu Knight Frank - 1992Jefferies - 1990

Patrick Rowland - 1993AIVLE - 1993.

Tom Whipple - 1995Rodney Jefferies - 1995

NZIV - 1995Rodney Jefferies - 1996/7

AIVLE - 1997

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Fisher and Martin publish "Income Property Appraisal" Appleby & Westwood publish "The Australian Valuation and Life Annuity Tables"Scarrett publishes "Property Valuation: The five methods"Brown proposed a "Split tenant-risk/market risk rate model"Alastair Adair et al publish "European Valuation Practice: Theory and Technique" Baum and Crosby publish "Property Investment Appraisal"French & Ward proposed an "Arbitrage model"Jefferies published "Urban Valuation in New Zealand - Vol. II" Rowland publishes "Property Investments and Their Financing"Baillieu Knight Frank - organised the "Property Economic Task Force"AIVLE issue "Information Paper on Use of Discounted Cash Flow in Property Valuations"RICS - issues "The Mallinson Report - The President’s Working Party on Commercial Property Valuations"Whipple publishes "Property valuation and analysis" Jefferies NZIV monograph "Discounted cash flow (DCF) valuation techniques & spreadsheet applications"NZIV issue "Guidance Note 4: Use of Discounted Cash Flow Techniques in Property Valuations."Lusht publishes "Real Estate Valuation"Andrew & Booth proposed an "Actuarial and a convertible bond model"

Isaac and Terry Steley publish "Property Valuation Techniques"Tony Johnson et al publish "Modern Methods of Valuation - 9th Ed"Kenneth Lusht publishes "Real Estate Valuation - Principles and Applications"Akerson publishes AI's "Capitalisation Theory and Techniques: Study Guide"Schulte publishes "Real Estate Education Throughout The World: Past, Present and Future"Fischer publishes "Property Valuation Methodology"Harvard publishes "Investment Property Valuation Today"Davidson publishes 12th & 13th Edns of "Parry's Valuation & Investment Tables"AI publish 12th & 13th Edns of "The Appraisal of Real Estate"Fisher and Martin publish 2nd & 3rd Edns of "Income Property Valuation"Andrew Baum et al publish 4th Ed of "The Income Approach to Property Valuation"Sarah Sayce et al publish "Real Estate Appraisal: From Value to Worth" Whipple publishes 2nd Edn of "Property valuation and analysis"Reed edits "The valuation of real estate – the Australian edition of the Appraisal of Real Estate – 12th Edn" Wyatt publishes "Property valuation in an economic context"Baum and Crosby publish 3rd Edn of "Property Investment Appraisal"Scarrett publishes 2nd Edn of "Property Valuation: The

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2000 - David Isaac and Terry Steley 2000 - Tony Johnson et al2002 - Tim Harvard2002 & 2008 - Alick Davidson2006 - Andrew Baum et al2006 - Sarah Sayce et al2007 - Peter Wyatt 2008 - Andrew Baum and Neil Crosby2008 - Douglas Scarrett

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Jeffrey Fisher andRobert Martin -1991

Ken Lusht - 1996

Kenneth Lusht - 2000Karl-Verner Schulte - 2001

Charles Akerson - 2000 & 2009Appraisal Institute - 2001 & 2008

Jeffrey Fisher and Robert Martin - 2005 & 2008

Appleby and Westwood - 1991

Baillieu Knight Frank - 1992Jefferies - 1990

Patrick Rowland - 1993AIVLE - 1993.

Tom Whipple - 1995Rodney Jefferies - 1995

NZIV - 1995Rodney Jefferies - 1996/7

AIVLE - 1997

Dominick Fischer - 2002Tom Whipple - 2006Richard Reed - 2007

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