Core Competencies Flashcards
What is the residual method and how applied?
- Estimated land value
- Gross Development Value (assumption development complete at valuation date) deduct Total Development Costs
When is the profit method used and how is it undertaken?
- Trade related property – reasonably efficient operator
- Hotels, pubs, golf courses
- Turnover – expenses = gross profits adjusted to provide EBITDA.
Depreciated cost method of valuation
Land, Building, Depreciation
* No available transactions of similar properties
* Cost of building equivalent building deduct depreciation and land.
What is the comparative method?
- Market based method – transactions of similar properties
- Adjusted to subject property
- Hierarchy of evidence – A, B and C
Name some different purposes of valuation.
secured lending, financial accounts, capital gains tax, SDLT
What is the Red Book?
- Mandatory rules and best practice guidance for members who undertake asset valuations
- IVS, Red Book UK, Mandatory, VPS, PS, VPGA
Outline the steps taken following valuation instruction.
- 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
For secured lending valuations what is included in banks letter of instruction?
- Borrower
- Address
- Purpose
- Conflicts
- Special Assumptions
- Access details
- Banks terms of report
What are the different methods of valuation?
- Comparable
- Investment
- Profits
- Residual
- Depreciated Replacement Cost
What is the definition of Market Value?
the estimated amount asset exchange:
* On the valuation date
* Willing buyer and willing seller
* Arms length transaction
* Proper marketing
* Knowledgeably, prudently and without compulsion
What is the definition of Market Rent?
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
What is Hope Value?
Market value based on expectation of getting planning permission
What is Marriage Value?
Uplift in value arising from merger of interests
What is Special Value?
An extraordinary element of value over and above MV
When is Red Book not required?
ALIES - Agency, Litigation / Negotiation, Internal purpose, Expert Witness, Statutory
What is a regulated purpose valuation?
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
What things would you consider before site to carry out inspection?
- Competence
- Insurance
- Agreement signed
- Risks involved
- Review relevant equipment required
How to undertake inspection?
- Building from top to bottom
- External inspection
- Age, construction and additions
What risks do you consider when undertaking inspections?
- Lone working
- Asbestos
- Accessing roof and roof spaces at height
- Hazards with empty properties
Name some typical building defects.
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
What are different basis of measurement under the Code of Measuring Practice 6th Edition?
GEA, GIA and NIA
What does IPMS standard for?
International Property Measurement Standards
How would you typically measure a retail unit? Talk me through process
Zoning technique, halving back using 6.1M depths. Central London uses 9.1M (30ft)
For what type of property is building coverage important?
Industrial - circa 40%
What are the two definitions of valuer?
Internal
External
When considering Comparable Evidence what is the Hierarchy of Evidence?
- OM Lettings
- Lease Renewals
- Rent Reviews
- Third Party Determinations
- Sale & Leaseback
- Inter-company transactions
Can you tell me the main components of a DRC Valuation?
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
What affects yields?
Covenant strength, unexpired lease term, economic / market conditions, physical and locational factors of the property. In prime markets alternative investment classes.
What is YP?
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
Talk me through the main steps of a profits valuation
Analysis of trade. FMT, FMOP. TO less costs of sales, less expenses = FMOP x Multiple / YP
What is EBITDA(R)?
Earnings Before Interest Tax Depreciation Amortisation (Rent)
What’s included in Total Development Costs (TDC)?
Build cost, site preliminaries, professional fees, acquisition costs
Tell me the difference between a Residual Appraisal & a Development Appraisal
Residual finds land value – Dev App finds profitability / viability
Talk me through the last residual appraisal you did inc methodology?
Assess GDV, less build costs, contingency, prof fee’s, S106 / CIL, finance, sales costs, acquisition costs
Can you give examples of special purchasers?
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
How would you analyse comparables that have rent free periods and capital contributions?
Straight line; time value of money; DCF.
What is placemaking?
Strategically using community’s public amenities to make economic progress.
What is the effect of covenant on valuations?
Has impact on the security of an investment. Stronger the covenant the greater security it provides.
Talk me through professional fees…
Typically circa 7.5% = project management, planning, quantity surveyors, architect fees, structural engineering
Define initial yield
Rent / (value less costs)
Define equivalent yield
Overall weighted average yield to be applied to an income stream to produce value.
Define equated yield
Yield rate often used in DCF based upon reference to gilts plus property allowance
Define reversionary yield
ERV / (value less costs)
Define all risks yield
Capitalisation rate which takes into account liquidity, time preference, and risk regarding uncertainty of income.
How would you value a leasehold property?
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.
What is overage and clawback
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
