Agency valuation terms, explained in plain English.
Rent roll, trail income, clawback, maintainable earnings, capitalisation rate and more: the words that appear in agency valuations and sale contracts. Fixed-fee valuations from $1,495 + GST.
This glossary explains the terms that appear in agency valuations and agency sale contracts. A rent roll is the portfolio of properties an agency manages and the recurring income it produces. Trail income is the ongoing payment a mortgage broker receives over the life of a loan, and clawback is the repayment of upfront income when a loan ends early. Maintainable earnings are the profit a business can be expected to keep producing, after normalisation adjustments, and market value is the price a willing buyer and willing seller would agree at arm's length. Valuations here are fixed-fee, from $1,495 + GST for revenue under $2 million.
What do the rent roll and property management terms mean?
These terms come up whenever a real estate agency, rent roll, strata or letting business is valued or sold. Where a term has a state-specific meaning, the state is named.
| Term | Meaning |
|---|---|
| Rent roll | The properties an agency manages for landlords, with their management agreements and recurring income. RevenueWA lists things in the nature of rent rolls and client lists among dutiable business assets in Western Australia. |
| Management income | Fees for managing let properties, usually a percentage of rent collected. A rent roll valued on its own is banded for our fees by this income. |
| Management agreement | The landlord's written authority for the agency to manage a property. In Queensland an agent cannot provide a service until appointed in writing, on Form 6 for residential property or Form 6A for commercial property. |
| Trust account | The account holding client money such as rent collected for landlords. The money belongs to clients, so it is never part of an agency's value. |
| Trust account audit | The annual independent audit of an agency's trust account that state regulators require. Timing differs by state. |
| Licensee in charge | In New South Wales, the class 1 licence holder who supervises an agency business and who alone can authorise trust account withdrawals. |
| Gains and losses | Properties or clients added to and lost from a roll or book over a period, and the starting point for judging retention. |
| Attrition | The rate at which managed properties or clients leave over a period. A valuation reads your own history rather than assuming an industry average. |
| Retention clause | A sale contract term that adjusts the price if properties or clients are lost within a set period after settlement, often with part of the price held back meanwhile. |
| Letting pool | In a body corporate scheme, the units whose owners use the authorised on-site letting agent. In Queensland, owners do not have to use that agent. |
| Caretaking service contractor | In Queensland, a service contractor engaged by a body corporate who is also its authorised letting agent; the combined business is often sold as management rights. |
What do the broking and advice terms mean?
Brokerages, underwriting agencies, mortgage broking books and advice practices earn recurring income from client relationships.
| Term | Meaning |
|---|---|
| Brokerage income | The income an insurance broker earns for arranging cover, whether paid by the insurer or charged to the client as a fee. |
| Book of business | The client relationships and recurring income a broker, broking firm or adviser services and could transfer to a buyer. |
| Upfront income | A one-off payment a mortgage broker receives when a loan settles. |
| Trail income | Ongoing payments a mortgage broker receives over the life of a loan, usually linked to the balance, which stop when the loan is repaid or refinanced elsewhere. |
| Clawback | The repayment of upfront income, under the lender or aggregator agreement, when a loan is repaid or refinanced within a set period after settlement. |
| Binder or underwriting authority | An insurer's authority for an underwriting agency to accept risks on its behalf within agreed limits. |
| Ongoing fee arrangement | An agreement under which an advice client pays a recurring fee for continuing advice services. |
| AFS licence | An Australian financial services licence. ASIC says a financial services business generally needs to be authorised under one, as a licensee or an authorised representative. |
| Australian credit licence | ASIC says a business engaging in credit activities generally needs an Australian credit licence or authorisation from a credit licensee, for example as a credit representative. |
What do the valuation terms mean?
APES 225 Valuation Services asks that valuation terms used in a report are clearly defined. These are the definitions we work from.
| Term | Meaning |
|---|---|
| Market value | The ATO describes it as the estimated monetary worth of an asset on the open market at a particular time, based on its most valuable use and what a willing buyer and seller would agree at arm's length. |
| Valuation date | The date the value speaks to. It can be in the past, for example the date of a restructure or a partner's exit. |
| Basis of value | The standard of value used, such as market value, and its definition. |
| Premise of value | APES 225 defines it as the assumed set of transactional circumstances, for example going concern or liquidation. Agencies are usually valued as going concerns. |
| Normalisation | Adjusting reported profit to what the business earns when run at market cost: principal pay at market, related-party rent at market, one-off items removed. |
| Maintainable earnings | The normalised profit the business can be expected to keep producing, which is the figure most methods capitalise. |
| EBITDA | Earnings before interest, tax, depreciation and amortisation, a common measure of operating profit. |
| Multiple | The number by which earnings or recurring revenue are multiplied to reach value. Lower risk and better growth push it up. |
| Capitalisation rate | The reciprocal of a multiple, expressed as a percentage. A higher rate reflects higher risk and gives a lower value. |
| Goodwill | The value of a business above its identifiable net assets, arising from its clients, income and reputation. |
| Personal and transferable goodwill | Personal goodwill stays with an individual and may leave with them; transferable goodwill stays with the business. The split matters in agencies built on one principal. |
| Enterprise and equity value | Enterprise value is the value of the operations; equity value is what remains for owners after debt and surplus assets are accounted for. |
| Conclusion of value | APES 225's term for the estimate from a valuation engagement or limited scope valuation engagement; a calculation engagement gives a calculated value. |
| Key person risk | The risk that income falls when one person leaves, such as a principal, a licensee in charge or a broker holding the main relationships. |
| Client concentration | How much income depends on a few clients, landlords, insurers or lenders. Higher concentration usually means higher risk. |
What do the sale and deal terms mean?
These terms appear in agency sale agreements and can change what a buyer actually pays.
| Term | Meaning |
|---|---|
| Earn-out | Part of the price paid later, depending on performance after settlement. Its value today depends on how likely the targets are to be met. |
| Restraint of trade | A promise by the seller not to compete or solicit clients for a period in a defined area. A weak restraint raises the risk that clients follow the seller. |
| Dutiable value | The value on which state duty is assessed where duty applies. In Western Australia and Queensland it is the greater of the price paid and the value of the dutiable assets. |
Which terms are most often confused?
A few pairs cause most of the confusion in agency sales.
- ·Attrition and a retention clause: what happens to the roll, and how the contract shares that risk.
- ·Trail and upfront income: trail recurs and drives value; upfront income is one-off and can be clawed back.
- ·Multiple and capitalisation rate: the same thing, one the reciprocal of the other.
- ·Valuation date and issue date: the date the value speaks to, and the date the report was signed.
- ·Market valuation of assets, Australian Taxation Office
- ·APES 225 Valuation Services (revised October 2024), Accounting Professional & Ethical Standards Board
- ·Do you need an AFS licence?, ASIC
- ·Do you need a credit licence?, ASIC
- ·Duties fact sheet: business assets, RevenueWA, Government of Western Australia
- ·Calculating transfer duty on business asset transfers, Queensland Revenue Office
- ·Appointment to act as a property agent, Queensland Government
- ·Service contractors: role, Queensland Government
- ·Real estate agent licence, NSW Government (NSW Fair Trading)
Common questions.
Is a rent roll the same as goodwill?+
Not quite. A rent roll is a specific asset: the managed properties, their agreements and their income. Goodwill is broader and covers everything that makes the business worth more than its net assets, including the roll, the brand and the team.
How does a retention clause affect the value of a rent roll?+
It moves some attrition risk from the buyer to the seller. The valuation starts from the roll's own history of gains and losses, and the report can show how a retention clause and holdback change what the seller is likely to receive.
Why does a mortgage book valuation look at clawback?+
Because recent upfront income can be repaid if loans are discharged or refinanced within the clawback period. The valuation reviews clawback history and loans still inside the period, and treats likely clawbacks as a cost.
What is the difference between a multiple and a capitalisation rate?+
They express the same thing. A multiple says how many times earnings the business is worth; a capitalisation rate is its reciprocal as a percentage. Higher risk means a lower multiple and a higher rate.
Which definition of market value do your reports use?+
The report states the basis of value and its definition. Where market value is the basis, it reflects the price a willing buyer and willing seller would agree at arm's length, consistent with how the ATO describes market value.
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