From existing use to value in use: time for a paradigm shift?

This paper debates the key concepts of fair value, value in use and existing use, as they relate to the valuation of owner‐occupied property assets. Changes to the professional body regulatory and advisory frameworks (International Valuation Standards Committee (IVSC), the European Group of Valuers’ Association (TEGoVA) and the Royal Institution of Chartered Surveyors (RICS)) controlling the valuation of fixed assets for balance‐sheet have taken place. These, it argues, require valuers to re‐appraise the role of existing use value (EUV) as an acceptable valuation concept. The treatment of owner‐occupied property differs with the IVSC no longer recognising EUV, which it holds to be contrary to the principles of fair value, as enshrined within International Accounting Standards. Yet, the basis is still recognised by TEGoVA, which also espouses fair value, whereas the RICS prefer the value to the business model. The crux therefore lies in the interpretation of fair value. This paper argues for the abandonment of EUV in UK and European standards, to fall in line with International Standards. It is contended that, if market value or value in use is the only acceptable approach to accounting valuations, this will have implications for corporate entities and may give their advisers some practical problems. If EUV is abandoned, it also calls into question the appropriateness of DRC (depreciated replacement cost) as a valid surrogate of market value or EUV. The paper contends that fair value embraces both value in exchange and value in use. It argues that EUV fulfils little useful purpose and calls for its abandonment and for the development of an agreed methodology for establishing value in use. In the quest for this it suggests that there would be merit in re‐exploring the notion of going concern value, which was effectively written out of UK practice with the introduction of RICS guidance.