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APC Questions > Core Competencies > Flashcards

Core Competencies Flashcards

1
Q

What is the residual method and how applied?

A
  • Estimated land value
  • Gross Development Value (assumption development complete at valuation date) deduct Total Development Costs
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2
Q

When is the profit method used and how is it undertaken?

A
  • Trade related property – reasonably efficient operator
  • Hotels, pubs, golf courses
  • Turnover – expenses = gross profits adjusted to provide EBITDA.
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3
Q

Depreciated cost method of valuation

A

Land, Building, Depreciation
* No available transactions of similar properties
* Cost of building equivalent building deduct depreciation and land.

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4
Q

What is the comparative method?

A
  • Market based method – transactions of similar properties
  • Adjusted to subject property
  • Hierarchy of evidence – A, B and C
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5
Q

Name some different purposes of valuation.

A

secured lending, financial accounts, capital gains tax, SDLT

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6
Q

What is the Red Book?

A
  • Mandatory rules and best practice guidance for members who undertake asset valuations
  • IVS, Red Book UK, Mandatory, VPS, PS, VPGA
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7
Q

Outline the steps taken following valuation instruction.

A
  • Property details
  • Conflict check
  • Letter of instruction
  • Purpose of valuation
  • Information gathering – importance of 3rd party reliance
  • Statutory due diligence
  • Inspection and measurement
  • Research market
  • Valuation
  • Finalise report – invoice
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8
Q

For secured lending valuations what is included in banks letter of instruction?

A
  • Borrower
  • Address
  • Purpose
  • Conflicts
  • Special Assumptions
  • Access details
  • Banks terms of report
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9
Q

What are the different methods of valuation?

A
  • Comparable
  • Investment
  • Profits
  • Residual
  • Depreciated Replacement Cost
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10
Q

What is the definition of Market Value?

A

the estimated amount asset exchange:
* On the valuation date
* Willing buyer and willing seller
* Arms length transaction
* Proper marketing
* Knowledgeably, prudently and without compulsion

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11
Q

What is the definition of Market Rent?

A

estimate amount property should lease
* On the valuation date
* Willing lessor and willing lessee
* Arms length transaction – independently without influence
* Proper marketing
* Knowledgeably, prudently and without compulsion

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12
Q

What is Hope Value?

A

Market value based on expectation of getting planning permission

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13
Q

What is Marriage Value?

A

Uplift in value arising from merger of interests

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14
Q

What is Special Value?

A

An extraordinary element of value over and above MV

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15
Q

When is Red Book not required?

A

ALIES - Agency, Litigation / Negotiation, Internal purpose, Expert Witness, Statutory

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16
Q

What is a regulated purpose valuation?

A

Outlined in UKVPS3 - when a valuation is relied upon via a third party ie.
* Financial accounts
* Stock exchange
* Collective investment schemes
* Takeovers and mergers
* Unregulated property unit trusts

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17
Q

What things would you consider before site to carry out inspection?

A
  • Competence
  • Insurance
  • Agreement signed
  • Risks involved
  • Review relevant equipment required
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18
Q

How to undertake inspection?

A
  • Building from top to bottom
  • External inspection
  • Age, construction and additions
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19
Q

What risks do you consider when undertaking inspections?

A
  • Lone working
  • Asbestos
  • Accessing roof and roof spaces at height
  • Hazards with empty properties
20
Q

Name some typical building defects.

A

Subsidence – vertical / diagonal – larger at top
Heave – movement in the ground level
Settlement – downward movement due to an increased load.
Damp – moisture becomes visible, damp meter – establish content of damp
Rising Damp – less than 1.5M

21
Q

What are different basis of measurement under the Code of Measuring Practice 6th Edition?

A

GEA, GIA and NIA

22
Q

What does IPMS standard for?

A

International Property Measurement Standards

23
Q

How would you typically measure a retail unit? Talk me through process

A

Zoning technique, halving back using 6.1M depths. Central London uses 9.1M (30ft)

24
Q

For what type of property is building coverage important?

A

Industrial - circa 40%

25
Q

What are the two definitions of valuer?

A

Internal
External

26
Q

When considering Comparable Evidence what is the Hierarchy of Evidence?

A
  1. OM Lettings
  2. Lease Renewals
  3. Rent Reviews
  4. Third Party Determinations
  5. Sale & Leaseback
  6. Inter-company transactions
27
Q

Can you tell me the main components of a DRC Valuation?

A

Underlying Land Value
Plus – cost of replacing buildings
Less – discount for depreciation, physical (deterioration of building), functional (design, spec, layout is out of date) and economic (changing market conditions for use of the asset) obsolescence

28
Q

What affects yields?

A

Covenant strength, unexpired lease term, economic / market conditions, physical and locational factors of the property. In prime markets alternative investment classes.

29
Q

What is YP?

A

Years Purchase – Multiplier (inverse/reciprocal of yield) – how many years rent it would take to purchase the asset at the sale price / valuation level. Same as PV£1

30
Q

Talk me through the main steps of a profits valuation

A

Analysis of trade. FMT, FMOP. TO less costs of sales, less expenses = FMOP x Multiple / YP

31
Q

What is EBITDA(R)?

A

Earnings Before Interest Tax Depreciation Amortisation (Rent)

32
Q

What’s included in Total Development Costs (TDC)?

A

Build cost, site preliminaries, professional fees, acquisition costs

33
Q

Tell me the difference between a Residual Appraisal & a Development Appraisal

A

Residual finds land value – Dev App finds profitability / viability

34
Q

Talk me through the last residual appraisal you did inc methodology?

A

Assess GDV, less build costs, contingency, prof fee’s, S106 / CIL, finance, sales costs, acquisition costs

35
Q

Can you give examples of special purchasers?

A

e.g. neighbouring occupier who wants to increase the size of his retail unit, neighbouring land owner who wishes to develop enlarged site, tenant who wants to buy his premises.
Special purchaser – client purchasing FH who owns upper floor long leasehold

36
Q

How would you analyse comparables that have rent free periods and capital contributions?

A

Straight line; time value of money; DCF.

37
Q

What is placemaking?

A

Strategically using community’s public amenities to make economic progress.

38
Q

What is the effect of covenant on valuations?

A

Has impact on the security of an investment. Stronger the covenant the greater security it provides.

39
Q

Talk me through professional fees…

A

Typically circa 7.5% = project management, planning, quantity surveyors, architect fees, structural engineering

40
Q

Define initial yield

A

Rent / (value less costs)

41
Q

Define equivalent yield

A

Overall weighted average yield to be applied to an income stream to produce value.

42
Q

Define equated yield

A

Yield rate often used in DCF based upon reference to gilts plus property allowance

43
Q

Define reversionary yield

A

ERV / (value less costs)

44
Q

Define all risks yield

A

Capitalisation rate which takes into account liquidity, time preference, and risk regarding uncertainty of income.

45
Q

How would you value a leasehold property?

A

Profit rent at either single rate or at dual rate. Possibility of using sinking fund or with tax depending on circumstance. Use SF to recover capital at the end of a lease.

46
Q

What is overage and clawback

A

Overage – arrangements for sharing of extra receipts over original expected through pre-agreed formula – performance clause
Clawback – agreement made between seller and purchaser of land or buildings – sell on clause

APC Questions (4 decks)

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