Basics (8)

Question 1

Give two benefits of the comparable method of valuation

Answer 1

Simple

Direct

Question 2

Give two limitations of the comparable method of valuation

Answer 2

Suitability of the comparable

Availability of the comparable

Question 3

When is the comparable method used?

Answer 3

1) Residential property with VP
2) Agricultural property with VP
3) Rent reviews on farms
4) Valuation of land for residential development
5) Tendency for freehold property not subject to leasehold interest

Question 4

Traditionally valuation has been centred around the comparable method. Why do valuers need to be more alert now to all the methods?

Answer 4

Because the rural economy has changed and therefore valuers have had to change their approach to valuation problems. E.g. Renewable energy projects and growing range of commercial diversification projects

Question 5

Changes in The rural economy have put what demands on valuers? Name 5

Answer 5

1) clients more interested in methodology
2) demand more comment within a report
3) valuation uncertainty
4) increased questioning of the implicit (investment) all risks yield investment type approach to valuation
5) in favour of an explicit DCF approach

Question 6

What does the investment method of valuation assume

Answer 6

This method assumes a relationship between the rent for a property and the capital value.

Income (rent) from property is regarded as interest on capital

Question 7

What is the formula for YP in perpetuity?

Answer 7

1/i

i being the yield/risk %

Question 8

What is rack rent?

Answer 8

FMRV

Question 9

When is the residual method of valuation used?

Answer 9

For development sites - objective is to find the value of the site in its current condition

Question 10

What is the problem with the residual method of valuation?

Answer 10

It is not that accurate as you can easily manipulate it to get the answer you would like

Question 11

What does the profits method of valuation involve?

Answer 11

Capitalising the profits which the business located there may be able to sustain to find the property value.

Question 12

When is the profits method used?

Answer 12

1) When direct comparison or investment method are unsuitable.
2) where the property primarily used for a particular trade in order to make a profit

Question 13

Give 2 examples of when the profits method may be used

Answer 13

1) public house

2) petrol station

Question 14

When is the Depreciated Replacement Cost (contractors) method of valuation used?

Answer 14

For property that is not usually sold in the open market

Method of last resort

Question 15

Give 3 examples of property for echo the DRC method of valuations may be used

Answer 15

1) churches
2) schools
3) hospitals

Question 16

What is the DRC method of valuation?

Answer 16

Calculation of rebuilding of property with an allowance for the value of the site

Question 17

Name 6 methods of valuation

Answer 17

1) comparable
2) investment
3) residual
4) profits
5) depreciated replacement cost method
6) Discounted Cash Flows