Core - Valuation (L2) Flashcards

Question

How many years of audited accounts would you ideally like to see for a profits-method valuation?

Answer 1

A development appraisal assesses the viability of a project for a **specific developer**. It can assume site value or calculate it for a given developers profit requirements. A residual valuation looks to the market for **assumptions** to appraise the value of a piece of development land. A residual valuation is a one moment in time valuation for a specific purpose.

Answer 2

It should be used when there is limited availability of market evidence. It is calculated: **Value of land**, with existing use planning permission in place. + **Cost of replacing** the building, with an allowance for depreciation. (BCIS)

Answer 3

The Red Book says that the method should **not** be used for loan security valuations, but may be used for valuations to form part of a financial statement.

Answer 4

RICS Valuation - Global Standards (2025)

Answer 5

* Incorporate findings from the Valuation Review * Include practice and process changes from evolving areas such as technology and ESG * Align with development in other relevant global standards and regulations, such as the new IVS

Answer 6

Part 1 - Introduction Part 2 – Glossary Part 3 – Professional Standards (**PS**) Part 4 – Valuation Technical and Performance Standards (**VPS**) Part 5 – Valuation Applications (**VPGA**) Part 6 – The International Valuation Standards (**IVS**)

Answer 7

PS1 details when a valuation needs to be red book compliant.

Answer 8

If supplied in written form, **all** valuation advice given by *members* is subject to at least some of the requirements of the Red Book Global Standards – there are **no exemptions** (1) **When providing an Agency or Brokerage** Service (During an Instruction, in an Expectation of Instruction, or Evaluating a Bid) (2) **When Acting as An Expert Witness** (Because they will have to follow the specific procedures of the Court) (3) **Performing a Statutory Function** (Tax Return for example) (4) **Providing Valuation to a Client for Internal Purposes** (Situation in which the valuation will be without liability outside the client) (5) **When valuation is for Negotiation or Litigation purposes** (As written valuation advice may extend to matters beyond value such as tactics etc.) (**AESIN**)

Answer 9

Yes according to VPS3 of the Red Book, a valuer must sign a valuation report and make clear that they are objectively able to value the property. The RICS does not allow a firm to sign a valuation, it is signed off by an individual.

Answer 10

"The value of an asset to a particular owner or prospective owner for individual investment or operational objectives”.

Answer 11

An assumption is made where it is reasonable for the valuer to accept that something is true without the need for specific investigation or verification.

Answer 12

Valuation Practice Guidance – Applications (VPGAs)

Answer 13

- To capitalise the net rent (after ground rent deductions). - Make appropriate adjustments to the yield for any increased risk associated with leasehold. - You can use a dual rate table to value as a depreciating asset, however in reality a DCF would more commonly be used.

Answer 14

A ransom strip is a piece of land that enables access to a development site . Typical valuation could be 15% to 50% of the development value unlocked (i.e. the uplift).

Answer 15

This is the amount to which £1 invested now will accumulate at compound interest. (1+i)^n

Answer 16

This is the amount receivable at the expiration of a specified number of years and at a specified interest rate.

Answer 17

The capital value of an income stream as a multiple of the annual income

Answer 18

Part 1: Introduction Part 2: Glossary Part 3: Professional Standards (PS) - Mandatory Part 4: Valuation Technical & Performance Standards (VPS) - Mandatory Part 5: Valuation Practical Guidance Applications (VGPA 1- 10) - Guidance Part 6: International Valuation Standards

Answer 19

* Investment value (worth) * Fair value (IFRS 13 standard broadly similar to Market Value)

Answer 20

Information provided that the valuer is prepared to accept as truth without verifying this.

Answer 21

A condition that a valuer is prepared to accept as truth even though it is materially different from fact as at the valuation date. E.g. closed and vacant premises

Answer 22

4.81%, subject was 4.75%

Answer 23

It's a credit report that uses multiple sources to look at historical payment behaviour of a business to assess likely risk and viability in future.

Answer 24

Profits test - EBITDA 3x rent for 3 consecutive years

Answer 25

The stronger the covenant, the less risk attached to the investment and therefore the yield choice would be stronger to reflect the perceived strength of the investment.

Answer 26

I would consider my own personal experience and those of my colleagues within BGP to ascertain if we have been instructed on something similar before.

Answer 27

We predominantly value properties within the leisure, hospitality, medical and care sectors. Anything out with these sectors I would likely turn down. For example, purely residential, office or industrial.

Answer 28

* Valuer * Currency * Property * Tenure * Bases of Value * Valuation Date * Assumptions * Purpose * Client * Fee

Answer 29

The estimated amount for which an asset or liability should exchange on the valuation date * between a willing buyer and willing seller * in an arm’s length transaction, * after proper marketing * and where the parties had each acted knowledgeably, prudently and without compulsion

Answer 30

The estimated amount for which an interest in real property should be leased on the valuation date * between a willing lessor and a willing lessee * on appropriate lease terms * in an arm’s length transaction, * after proper marketing * and where the parties each acted knowledgeably, prudently and without compulsion.

Answer 31

This is the intangible value that arises from the efforts or reputation of a business owner or other individual.

Answer 32

Valuation for inclusion in financial statement. This is an IFRS 13 definition. It is broadly accepted to be similar to the definition of Market Value: *‘The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.’*

Answer 33

This is the perceived value gained from combining two separate assets into one asset. The added value is referred to as marriage value.

Answer 34

Investment value is the perceived value of an asset unique to that particular investor. It could differ from Market Value and if often referred to as 'worth'.

Answer 35

The Depreciated Replacement Cost method. Sometimes called The Contractor's method and referred to as the method of Last Resort. Unique properties where it is nearly impossible to derive meaningful comparative data such as a lighthouse.

Answer 36

Valuing land

Answer 37

I was concerned with multiple factors such as transaction date, size and location and I ranked my evidence accordingly.

Answer 38

Investment yield. E.g. an 8x YP is the equivalent of a 12.5% yield

Answer 39

The income generating potential of the restaurant is not intrinsically linked to the Property in which it is situated. Typically, restaurants are situated in retail units where Market Rent is derived based on their size and not directly related to the performance of the business.

Answer 40

_Preamble:_ * Receive instruction from the client * Check competence * Check independence * Issue terms of engagement (inc. Scope of works, fee, PII, CHP) * Receive Countersigned terms _Due Diligence:_ * Gather information – leases, title, planning doc, OS plans etc. * Undertake statutory due diligence (listed previously) * Inspect and measure * Research market / analyse comps _Valuation & Reporting_ * Undertake the Valuation * Draft Report * Have another Surveyor review your work * Finalise and sign report * Report your valuation to the client _Completion_ * Issue invoice * Ensure filing in good order for audit.

Answer 41

£200k passing rent, rack rented

Answer 42

Gross yield then deducted purchaser's costs to generate net yield

Answer 43

It's the annual rent divided by the sale price expressed in percentage terms

Answer 44

In a term and reversion the equivalent yield is the average weighted yield between the initial yield and the reversionary yield.

Answer 45

Stamp duty Agents: 1% Legals: 0.5%

Answer 46

I used a knowledge of other agent's deals to look for suitable comparable investment evidence in the SJW area and I contacted agents.

Answer 47

Weaker market due to high interest rates

Answer 48

Yes, the property was fully let under a new lease to a restaurant operator with a strong covenant.

Answer 49

I used a NIY because it was rack-rented

Answer 50

£3.95m - NIY 4.75%

Answer 51

- Prospects for rental / capital growth - Quality of the location - Use - Lease terms - Voids - Security / regularity of income - Liquidity / ease of sale