AI2154 | Final Exam 24 (Theory) Flashcards
What are the five RICS professional standards?
- Act with INTEGRITY
- Provide a high standard of SERVICE
- Act to promote TURST in the profession
- Treat everyone with RESPECT
- Take RESPONSIBILITY
What are the RICS valuation performance standards?
- TRANSPARENCY
- INDEPENDENCE
- OBJECTIVITY
- IMPARTIALITY
Why is important for real estate companies to practice ethically?
Real estate companies are nothing without their people they serve;
RICS standards and BS answer.
What is the difference between the cap rate and discount rate?
The discount rate encompasses not only the property-specific risk but also broader economic and market factors, with adjustments made based on the perceived level of risk associated with the investment over time.
What are four types of uncertainty related to property valuations?
- ECONOMY
- TENANTS
- BUILDING CHARACTERISTICS
- LAW AND REGULATION
- FINANCIAL
What is the overall impact of uncertainty in property valuations?
In general the larger and more uncertainty the larger and increase in risk which creates a higher discount rate and lower market value.
What are two problems associated with transaction based valuations?
- Poorly documented transactions
- Getting specific data can be cumbersome
- Properties are heterogeneous; many locations and variables
What are the three major valuation approaches?
- ASSET
- INCOME
- MARKET
What is the Asset Valuation approach?
computing the current value of all assets less the current value of all liabilities to get the current value of the company’s equity
What is the Income Valuation approach?
computing the income of a property using the Discounted Cash Flow (DCF) Method or Capitalization of Cash Flow (CCF) Method
What is the Market Valuation approach?
computing the comparison of similar companies to determine the price of the company using multiples derived from earnings and value information provided into various databases
Explain two methods associated with one major valuation approach.
- CCF is a single period model that converts a company’s benefit stream into a value — Value = NOI / Cap Rate
- DCF is a multiple period model that converts future series benefit streams into a value — DCF = CF t / ( 1 + r )^ t
What type of valuation would be performed on an income producing property?
Income valuation approach would be suitable to compute the value from the net operating income and capitalization rate.
What type of valuation would be performed on a church?
Asset valuation approach would be suitable to compute the current value of all assets of the church against all liabilities to compute the current equity. This is common when the property does not often switch owners frequently or is not typically on the market.
What type of valuation would be performed on a public school?
Asset valuation approach would be suitable to compute the current value of all assets of the school against all liabilities to compute the current equity. This is common when the property does not often switch owners frequently or is not typically on the market.
