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Question 1

What is the purpose of a development appraisal?

Answer 1

financially assess the viability of the development scheme.

Establish the residual value of the site

assess the profitability of the proposed scheme and its

sensitivity to changing inputs or assessing the viability of different uses, rents, yields, financial contributions such as S106 and CIL

Question 2

What is the purpose of a residual valuation?

Answer 2

commonly used to find MV of the site based on market inputs.

at one time, at a valuation date, for a particular purpose.

Can be based on simple residual valuation or DCF

All inputs are taken at the valuation date.

Question 3

how would you carry out a residual valuation?

Answer 3

gross development value (GDV) - total development costs (including profit) = residual land value

(assumes 100% debt finance)

Question 4

typical inflows and costs to be considered in a residual valuation?

Answer 4

• the value of the completed property: this is the appropriate basis of value of the
  completed development without adjustment for any sale costs. IVS 410 employs this term, but it also uses gross
  development value (GDV). Both terms represent the
  estimated contract price of the developed property. It assumes, therefore, that any
  prospective acquisition costs of the purchaser that may have reduced the price have
  been accounted for
• net development value (NDV): this is the appropriate basis of value of the completed
  development net of any sale costs
• site clearance, remediation or preparation costs
• costs of construction, including any contingencies
• professional fees related to construction
• costs and professional fees relating to planning
• any planning obligations or levies linked to the development
• finance for the development, including the site
• developer’s profit
• any other costs or inflows related to the development and
• site costs where land value is not the residual.

Question 5

DCF residual

when is it used?

Answer 5

discounted cash flow residual method.
A discounted cash flow may be used for more complex assets with phased construction or disposal where the timing of events needs to be fully accounted for in the valuation.

Question 6

Basic residual method?

Answer 6

The basic application of the residual method is a simplified representation of the expected revenue and expenditure from a development. The residual land value is derived from the value of the completed development (net) minus the development costs, including developer’s profit.

Question 7

What does the developer need to borrow money for?

Answer 7

1. Site purchase (compound interest over a straight line basis)
2. TCC and associated costs - calculation on an S Curve basis, taking half the build costs over the length of the build programe.
3. Holding costs to cover voids until disposal of the scheme (empty rates, service charge, interest charges) compound interest on a straight line basis.

Question 8

define investment value

Answer 8

the value of an asset to a particular owner or prospective owner for individual investment or operational objectives

Question 9

define fair value

Answer 9

the price that would be received to sell and asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date.

Question 10

define market value

Answer 10

the estimated amount for an asset or liability should exchange on a valuation date, between a willing seller and a willing buyer in an arms length transaction, after proper marketing, where parties have acted knowledgably , prudently and without compulsion.

Question 11

define market rent

Answer 11

the estimated amount for which an interest in real property should be leased on a valuation date between a willing lessee and willing lessor on appropriate lease terms in an arms length transaction, after proper marketing where parties have acted knowledgably, prudently and without compulsion.

Question 12

what is VGPA 1?

Answer 12

valuation for the inclusion in financial accounts

fair value must be adopted for all IFRS accounts

Question 13

VGPA 2 - what needs to be done for secured lending

Answer 13

• disclose previous involvement (2yrs) with the borrower to the lender
• advise on whether the loan should be agreed to should the borrow default
• comment on any environmental considerations
• comment on any circumstances the valuer is aware of that could affect the value.
• any other factors that potentially conflicts with the definition of MV or its underlying assumptions.
• material difference with and without special assumptions

Question 14

VGPA 8

what does this cover

Answer 14

valuation of real property interests

inspections, investigations w/a particular focus on environmental and sustainability considerations

ESG factors that could impact the value - wild fires, flood / storm risk, regulatory change, carbon emissions.

Question 15

VGPA 10

Answer 15

matters that give rise to material uncertainty

• reports must not be misleading
• comment on any issues relating to material uncertainty
• a standard caveat should not be used.

Question 16

Part 6 RBG

Answer 16

International Valuation Standards

General standards - ToE CoI , approaches, methodology,

asset standards, specific requirements to specific assets eg, real property, development property.

(IVS 410 - development property)

Question 17

what is the structure of the UK National Supplement 2018?

Answer 17

part 1: introduction

part 2: professional and valuation standards

part 3: UK Valuation practise guidance and applications - advisory

Part 4: Summary of changes from RB UK 2014

(contains 18 valuation practise guidance)

Question 18

what are the valuation monitoring requirements under VPS3 uk supplement?

Answer 18

1. members must annually declare the length of time a valuer has acted for a client for regulated valuation purposes and the extent and duration of the firms relationship with the client.
2. Required to disclose if in the last financial yr, if a percentage of the fee income is less or more than the 5% of the total fee income.
3. there should be a policy in place on the rotation of valuers when the asset is regularly valued. the RICS recommends a 7 year minimum rotation period.
4. when an introductory fee is accepted by the firm when a property is purchased, the firm CANNOT value the property for regulatory purposes for 12 months.

Question 19

any RICS guidance regarding valuations and ESG?

Answer 19

RICS Global Guidance Note: Sustainability and ESG in commercial property advice 3rd edition Dec 2021, eff 2022

• sustainability characteristics and risks should be considered when analysing comps.
• how these should be reflected in the choice of valuation.

Question 20

what are the SDLT bands for commercial property

Answer 20

under £150,000 - NIL

£150,000 - £250,000 - 2%

over £250,000 - 5%

Question 21

SDLT bands for residential property

Answer 21

£0 - £250,000 Nil

£250,000 - £925,000 - 5%

£925,001 - £1,500,00 - 10%

over £1,500,00 - 12%

Question 22

how would you carry out the valuation of a long leasehold interest?

Answer 22

ground rent deducted from the gross income to calculate the net rent received.

net rent capitalised at yield for the length of the lease. = MV

Rent received - ground rent = net rent

capitalised at a yield for the remaining term = MV

often use a single rate yield, duly discounted to reflect the risk of the wasting asset.

A DCF can also be used.

Question 23

WAULT

Answer 23

weighted average unexpired lease term

To the first break/expiry of a lease across the asset weighted by the contracted rent.

Question 24

NER calculation

Answer 24

Gross rent X (lease duration - rent free)

               lease duration

Question 25

how would you value a retail unit

Answer 25

zoning technique

rental value of the property reduces away from the street.

Zone A - 6.1m - halving back

A/10 - basements

return frontage - 10% uplift