Conventional Valuation Methods And Their Application Flashcards
Name the conventional methods of valuation?
1) Comparative Method
2) Investment Method
3) Residual Method
4) Profits/Accounts
5) . Contractor’s/Depreciated Replacement Cost (DRC)
What are the contemporary valuation methods?
Contemporary valuation methods are where discounted cash flow methods are used. (DCF)
What makes a property transaction comparable to the property being valued?
If there are similarities in:
1) Physical Characteristics
2) Location
3) Use
4) Tenure (and lease terms if appropriate)
5) Time scale
How many comparables are needed to produce a valuation?
Could be more than three. Maybe as many as it takes to get to the correct valuation figure.
What is the longest time period before a valuation date that a transaction could be accepted as being comparable?
Say 3 to 5 years
What do you understand by the expression of weighting of comparable evidence?
By make adjustments to the comparable evidence.
What do you understand by the expression of hierarchy of evidence?
The hierarchy of evidence is as follows:-
1) Recent sales/lettings
2) Similar properties
3) Similar size (residential)
To be completed.
What is interpolation of comparable evidence?
Interpolation is calculating a value that lies between two extreme points.
What is extrapolation of comparable evidence?
Extrapolation is calculating a value that lies outside two extreme points.
What is the purpose of zoning?
To carry out valuations of shops based on net internal area.
What is the standard Zone depth?
Common zone depth is 6.1m or 20ft.
Although London May use 9.14m (30ft)
How would you arrive at the Market Rent the first floor of a retail unit?
The first floor area is calculated as a tenth (1/10).
How would you arrive at the market rent of a retail unit with a return frontage?
Options are:
1) To zone back from both frontages.
2) allow a percentage uplift say 5%
3) . All of the unit could become Zone A if both frontages have an even pedestrian flow.
4) . A percentage reduction for loss of shelving and display racks.
How would you value a shop unit for review rent with frontages on two roads I.e. it is a through unit?
Can result in halving back from both frontages at the same or different Zone A rate(s).
How would you determine the Market Value of an investment property let on Internal Repairing terms?
By using the investment method and making allowance for External repairs, insurance and management.
What factors make up the all risks yield?
The factors that make up the all risks yield are:
1) . The construction (age, design, specification)
2) . The tenant covenant strength
3) . The rent (market, over-rented, under-rented)
4) . Unexpired lease term
5) . Other lease terms
6) . Anticipated rental growth (location)
What is the market capitalization rate?
The market capitalization rate is the yield
How would you value a green-field site with planning permission for residential development?
By using either a residual valuation or discounted cash flow method.
Describe how you would carry out a residual valuation?
GDV (Gross Development Value)
Less All costs including interest and developers profit
= Land Value
What costs did you deduct (are deducted) in your/ a Residual Valuation?
1) . Demolition
2) . Construction
3) . possible contamination
4) . Finance
5) . Contingency
6) . Agents/legals (professional fees)
7) . Acquisition costs
8) . Developers profit
How did you calculate (would you calculate) developers profit in your / a Residual Valuation?
Can be either a percentage of total costs or a percentage of GDV.
What are the usual acquisitions costs of a development site?
Legal Fees including VAT and Stamp Duty Land Tax.
What is a ransom strip?
A piece of land that provides access to a development site.
What is random value?
Ransom value is normally 1/3 of the increase in value of the development land resulting from the access.
What does the case of Stokes v Cambridge mean to you?
A CPO case of farmland (12.6 acres)
Agreed that Planning permission for industrial development must be assumed.
Subject to satisfactory access and provision of estate roads.
Land which could provide satisfactory access was a track (0.7 acres)
Value of land deferred for 3 years circa £68,000
Less developers profit 15% plus costs of roads, sewers, fencing, consents and contingencies plus existing use of land l.
Increase in value due to access circa £30,000
One third circa £10,000
Open market value of land circa £20,000
What is the Profits Method also known as?
The profits method is also know as the accounts method.
Name three property types that would be valued by the Profits Method?
Golf Course
Cinemas
Casinos
Hotels
Public houses
Why are certain properties valued by the Profits method?
Because there is no direct comparison method or investment method which is possible.
Explain the basic approach to the Profits Method?
Turnover excluding VAT
Less
1) Purchases
2) Wages
3) Heating/lighting
4) Repairs/Decoration
5) Insurance
6) Rates
7) General Expenses
= Net Operating Profit
What valuation checks can be carried out on a valuation produced by the Profits Method?
1) Capitalization of the gross turnover excluding VAT
2) The adjusted net profit by the return on capital.
3) unit prices per seat
4) price per bedroom (hotels, rest homes, nursing homes)
When is the contractors method used in practice?
As a method of last resort used for specialized properties.
What is another name for the Contractor’s method?
DRC (Depreciated Replacement Cost)
Explain the basic approach to the Depreciated Replacement Cost Method.
Cost of MODERN building
LESS Depreciation
= Net Replacement Cost
PLUS Site Value
= Value as Existing
Explain what is included in a Reinstatement / Replacement Cost For Insurance Purposes?
1) Demolition
2) Shoring up and weather-protection of adjoining buildings.
3) Rebuilding in accordance with current Building Regulations.
4) Professional Fees
How would you value a property for which there are no comparables?
Check to see if in investment method can be used.
Resort to residual if valuing land
Profits method for leisure properties
Final resort is to use the contractor’s method/DRC method.
