General Flashcards
What are the three tenures on titles?
Frerhold
Leasehold
Commonhold
Valuations are often prepared on the basis of An unencumbered freehold unless supplied with the title. Other matters such as restrictive covenants, encumbrances must be considered.
Valuers must look for public footpaths, unmade and un-adopted roads, shared driveways and shared areas in blocks of flats.
What are the 4 market forces?
. Social ideals and standards
. Economic activities and trends
. Government activity and intervention
.physical or environmental forces
What affects mortgage interest rates?
A rise in the Bank of England’s Base rate will generally give rise to an increase in mortgage interest rates and a fall to a fall in interest rates
Define an arms length transaction?
There is no personal or professional relationship between the buyer and seller
What does a valuer need to value a new build with incentives?
. A copy of the developers disclosure form
. Further guidance on RICS guidance note - Valuation of individual new build homes 2nd edition
. Valuer should include statement such as
‘ it may not be possible to obtain the valuation figure if the property is resold as second hand especially if comparable new property is on offer at the same time’
. Mortgage providers stipulate that if incentives are more than 10% then they should be deducted
What are the three overall valuation approaches classified into?
. The market approach (comparison)
. The income approach (investment)
. The cost approach (contractors or
Name the five conventional methods of valuation?
. The comparative method . The investment method . The residual method . The profits / accounts method . The contractors method/depreciated replacement cost
What are contemporary valuation methods?
Where a discounted cash flow (DCF) techniques are used.
What are the contemporary growth expect techniques?
. Market value and Investment value/worth . Yield construction / discount rates . Gross and net present value . Internal rate of return (IRR) . Valuation and discounted cash flows
What does the RICS Guidance note on Valuation of Individual new build homes stipulate with regards to incentives?
. It is the Valuers responsibility to seek and establish the incentives.
. The valuer should differentiate between sales incentives that do not add value to the property and those that may enhance the value.
. When valuing a new build property on comparable evidence the valuer should account for the impact of incentives in the price.
What can new build incentives include?
. Payment of stamp duty and legal fees . Carpets/ fittings or furniture . Cash back . Other gifts . Mortgage payment
What does a valuation report cover?
. Name of client . Confirmation of instructions . Address . Date and purpose . The basis of the valuation . Tenure and related matters . Property details . Assumptions . Limitations / caveats agreed at time of inspection . Valuation . Signature . Appendices - photos, plan, copy of terms and conditions
Where do comparable come from?
. In house data of sales handled by the firm.
. In house data of valuations handled by the firms
. Current trend of the residential market with observation of land registry recorded sales
. Personal contact with agents
. Rightmove/Zoopla
What adjustments will have to be made for comparable evidence?
. Time
. Physical characteristics
. Conditions of sale
. Location
When is it acceptable to adjust for time differences?
When you have a sound knowledge of the market prices with a known supportable percentage such as a reference to published indices of house prices.
It is generally best to discard these in favour of more recent comparables.
When to adjust comparables for Sale conditions?
. Sales not conducted at arms length . Not normal market conditions . Between members of the same family . Quick sale to a cash buyer . A repossession . A sale forming part of a larger business
What physical characteristics can affect the comparables and what adjustments can be made?
. Poor condition . In need of new boiler . Windows . Kitchen/bathroom . Energy efficiency . South facing garden . En-suite / utilities
What are the additional bases of value in the IVS?
. Equitable value
. Synergistic value
. Liquidation value
What is yield?
Yield refers to the earnings generated and realised on an investment over a particular period of time and is expressed asa percentage based on the invested amount.
Income (———— ) x 100 = yield Price.
Basically what is the return for the investor after say 1 year
What valuations do I carry out on a daily basis?
CAPITAL VALUATIONS
. Purchase/sale
. Secured lending
RENTAL VALUATIONS
. Leasing/letting
. Rent review/lease renewal
. As part of a capital valuation
What was the previous edition of the red book?
The RICS Valuation - Professional Standards (Global & UK) 2014 edition - Global and UK editions are now published separately since June 2015
What does the red book reflect on?
. The IVS 2017 standards . International standard for ethics and measurement . High quality valuation advice . Transparency . Consistency . Avoidance of conflicts . Sustainability factors . Definitive Implementation guide . . Expressly comply with the RICS Rules of Conduct .
What is included within the global Red Book?
. Professional standards (PS) 1 & 2 which are MANDATORY
. Valuation technical and performance standards (VPS) 1-5 which are MANDATORY
. Valuation Practice Guidance (VPGA’s) 1-10 ADVISORY
What does the red book have regards to?
. Maintenance of confidentiality . Avoidance of conflicts of interest . The international ethics standards . International property measurement standards . IVS compliant . RICS rules of conduct
What is the aim of the red book?
To engender confidence, and to provide assurance to clients and recognised users alike, that a valuation provided by an RICS qualified valuer anywhere in the world will be undertaken to the highest professional standards
What are the professional standards in the red book?
They define the parameters for compliance with the red book, including adoption of the international valuation standards IVS, RICS regulatory requirements and clarify the RICS rules of conduct for members when doing valuations.
What are the two professional standards in the Global valuation standards red book?
PS1 - Compliance with standards where a written valuation is provided
PS2 - Ethics, competency, objectivity and disclosures
What are the five Valuation technical and performance standards (VPS) mandatory
In the Global Standards?
VPS 1 - Terms of engagement
VPS 2 - Inspections, investigations and records
VPS 3 - Valuation reports
VPS 4 - Bases of value, assumptions and special assumptions
VPS 5 - Valuation approaches and methods
What are VPGA’s?
Valuation Practice Guidance VPGA’s embody best practice to ensure high standards of professionalism and assist members in identifying information relevant to the particular valuation assignment.
What are the 10 VPGA’s valuation practice guidance in the Global Standards?
VPGA 1 - Valuation for inclusion in financial statements
VPGA 2 - Valuation of interests for secured lending
VPGA 3 - Valuation of businesses and business interests
VPGA 4 - Valuation of individual trade related properties
VPGA 5 - Valuation of plant and equipment
VPGA 6 - Valuation of intangible assets
VPGA 7 - Valuation of personal property, including arts and antiques
VPGA 8 - Valuation of real property interests
VPGA 9 - Identification of portfolios, collections and groups of properties
VPGA 10 - matters that may give rise to material valuation uncertainty
What is a Depreciated-replacement cost (DRC)?
The current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation.
What is the cost approach?
An approach that provides an indication of value using the principle that a buyer will pay no more than the cost to obtain a similar property of equal utility whether by purchase or construction
What is a departure?
Special circumstances where the red book mandatory guidance may be inappropriate or impractical.
. A clear statement must be confirmed in the terms of Engagement and the report
What is equitable value?
The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties.
What is the income approach?
An approach that provides an indication of value by converting future cash flows to a single current capital value.
What is Market approach?
An approach that provides an indication of value by comparing the subject asset with identical or similar assets for which price information is available.
What is marriage value?
An additional element of value created by the combination of two or more assets where the combined value is more than the sum of the separate values.
What is a special purchaser?
A particular buyer where the asset has a special value because of advantages from ownership therefore will be willing to pay more than market value. A special purchaser may be the adjoining owner or have sentimental attachment.
. Someone that can enjoy synergistic value
What is a forced sale?
A “forced sale” is a description of the situation under which the exchange takes place, not a distinct basis of value’. In short, an RICS member can provide ‘forced sale’ advice but must be very careful about the terms in which it is reported.
What is a common example property advice required for secured lending?
. Property that is or will be owner-occupied
. Property that is or will be held as an investment
. Property that is equipped as a trading entity and that is valued with regard to trading potential
. Property that is or is intended to be the subject of development or refurbishment
What is secured lending?
A loan security valuation is not equivalent to the value of the property on the open market, however. The purpose of having a loan valuation completed is to establish whether the amount of the loan can be secured against the value of the property and, should you default on the loan, whether the lender can realistically recoup the amount.
The basis used will be Market Value
What is an intangible asset?
An intangible asset is defined as a non-monetary asset that manifests itself by its economic properties. It does not have a physical substance but grants rights and/or economic benefits to its owner.
In the Red Book - UK National Supplement how many UK ProfessionalStandards (PS) are there? MANDATORY
- UK PS 1 - Compliance with valuation standards within the UK jurisdiction
How many UK Valuation Technical and Performance Standards (VPS) are their? MANDATORY
3
UK VPS 1 - Terms of Engagement- red book Compliance
UK VPS 2 - Terms of Engagement- Supplementary provisions in Scotland
How many UK Valuation Practice Guidance Applications (UK VPGAs) are their? - ADVISORY
18
UK VPGA 1 - Valuation for financial reporting: general matters
UK VPGA 2 - Valuations for other regulated purposes
UK VPGA 3 - Valuations for assessing adequacy of financial resources
UK VPGA 4 - Valuation of local authority assets for accounting purposes
UK VPGA 5 - Valuation of central government assets for accounting purposes
UK VPGA 6 - Local Authority and central government accounting: existing use value (EUV) Basis of value
UK VPGA 7 - Valuation of registered social housing providers assets for financial statements
UK VPGA 8 - Valuation of charity assets
UK VPGA 9 - Relationship with auditors
UK VPGA 10 - Valuation for commercial secured lending purposes
UK VPGA 11 - Valuation for residential mortgage purposes
UK VPGA 12 Valuation of residential property for miscellaneous purposes
UK VPGA 13 - Residential secured lending guidance for other related purposes including RICS HomeBuyer Service
UK VPGA 14 - Valuation of registered social housing for loan security purposes
UK VPGA 15 - Valuations for Capital Gains Tax,, Inheritance Tax, Stamp Duty Land Tax and the Annual Tax on Enveloped Dwellings
UK VPGA 16 - Valuations for compulsory purchase and statutory compensation
UK VPGA 17 - Local Authority disposal of land for less than best consideration in England and Wales
UK VPGA 18 - Affordable Rent and market Rent under the Housing Acts in a regulatory context
What Guidance notes are available when carrying out a valuation on a new build?
The RICS Guidance note, Valuation of individual new-build homes 2nd edition
What factors will have a material impact on value?
. The tenure, the terms of any tenancies
. If leasehold and the length of the remaining lease term
. Location, age, type, accommodation, fixtures, features and amenities of the property, including sustainability considerations
. General state, liability, repairs, form of construction and apparent major defects, liability to subsidence
. The location of the area known to be at risk from flooding, radon, fracking, mining or other environmental factors
. Current or potential valuation impact of the energy performance certificate
. Easements, restrictive covenant, third party rights.
. Obligations to planning conditions or restrictions relating to affordable housing
What reasonable assumptions can the valuer make?
. The property is vacant possession . Valid planning permissions . Development satisfactorily completed . No deleterious or hazardous materials . Site not contaminated . No onerous or unusual restrictions, encumbrances . Roads adopted . No ongoing insurance claims . Recognised builders warranty such as NHBC
What is a lifetime mortgage?
An equity release product.
- repayment is deferred until the sale of the property (lifetime) death of the mortgagor
- the interest is rolled up and compounded over the length of the mortgage term.
What is home reversion?
The occupant sells all or part of the home to a reversion company or an individual. The occupant no longer owns all or part of the home, but continues to live there rent free for the remainder of their life.
. This releases some equity for the occupant
What is a retrospective valuation?
A valuation provided at a historical date.
This should be used only solely for internal use for reviewing a specific loan. It is important that the valuer establishes the reason for the request before accepting the instruction.
When in stamp duty tax paid?
Under £125,000 = £0
Between £125k-£250k= 2%
Between £250k - £925k = 5%
First time buyers up to £300k = £0
You have up until 30 days after completion to file a return to HMRC
What is an enveloped dwelling?
A dwelling owned through a company to avoid or minimise taxes
For compulsory purchase and statutory compensation what documents are available?
The RICS professional statement - Surveyors advising in respect of compulsory purchase and statutory compensation 1st edition.
As well as PS1 and PS2 and individual VPS
What purpose are valuations carried out for? And which ones do I carry out? *
CAPITAL VALUATIONS . Purchase/Sale * . Secured Lending * . Financial statements (e.g accounts) . Statutory Purposes . Internal Purposes
RENTAL VALUATIONS . Leasing/Letting * . Rent review/ lease renewal * . Rating . As part of a capital valuation *
What is the mandatory requirements and guidance referred to when carrying out a valuation?
. RICS Valuation - Global Standards 2017
. RICS Valuation - UK Supplement
. RICS Property Measurement 2nd edition 2018
. Comparable evidence in property valuation 1st Ed 2012
What other guidance is available?
. Sustainability and residential property valuation 1st edition 2011
How many Professional standards are their in the Global Standards?
2
PS1 Compliance with international standards and RICS professional statements where a written valuation is provided
PS2 Ethics, competency, objectivity and disclosures
What is a special assumption?
Where an assumption is made that assumes facts that differ from those existing at the time of the valuation such as valuation on the basis that the development is complete even though the house is still undergoing construction
What changes were there from the 2014 - 2017 UK national supplement?
. Titles of the mandatory requirements and guidance are now consistent with the Global red book.
. Titles have been renumbered with some removals and additions
. Removals were - UKGN UK Guidance notes no longer in the red book
. Additions - UK VPGA 10 & 16
What must members also comply with as a valuer?
RICS valuer registration (VR)
What factors can impact on the markets perception of value?
. Surrounding area, communications and facilities
. Characteristics of the property
. Characteristics of the site
. Potential development or redevelopment
. Improvements to leasehold properties- who do the improvement belong to the tenant or landlord
. Planning (zoning) controls
. Outgoings and running costs
In terms of environmental risks what document should be referred to?
Environmental risks and global real estate 1st edition 2018
What in particular is helpful in the Environmental Risks and global real estate 1st edition 2018?
Appendix c - checklists for environmental issues (residential)
Surveying safely should also be referred to
What must be adhered to when completing the report?
The terms of Engagement and the report must align
When adopting or justifying a valuation approach what must the valuer consider?
. The nature of the asset
. The purpose, intended use and context of the particular assignment
. Any statutory or other mandatory requirements applicable in the jurisdiction concerned.
What is an assumption?
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.
Can you run me through some assumptions you have made?
. Title
. Condition of building
. Services
What special assumptions have you encountered?
. That a proposed development has been completed in accordance with a defined plan and specification with Bellway
What other special considerations may you need to state?
. Planning consent has or will be granted
. The property is vacant (when occupied at the valuation date)
. The property is reinstated
What is a forced sale?
The term forced sale must not be used!
It should be expressed as:
Market Value on the Special Assumtion of a sale after __ days
90 days is usual for residential
180 days is usual for commercial property
What is a regulated purpose valuation?
A valuation relied on by third parties who have not commissioned the valuation and they are subject to valuation monitoring
Valuation for financial reporting (asset valuations) will be be carried out to which basis?
. Fair Value
This is relevant for takeovers or mergers if companies.
There are two financial frameworks in the UK and Republic of Ireland :
- IFRS
- UK GAAP
What is a valuation?
A valuation is not a fact, it is an estimate
What matters give rise to material valuation uncertainty?
- unusual or unique property
- potential planning permission
- limited or restricted information such as no lease
- disrupted markets such as legal, political or natural events, unforeseen financial collapse or major changes such as BREXIT
What contents should be in the file following the completion of the red book valuation?
- Conflicts of interest (COI) check
- Terms of Engagement
- Inspection notes etc.
- Planning, rating and environmental searches
- Comparable and analysis
- Valuation calculations with rationale
- Report
What demonstrates uniformity and best practice?
- Valuer must be competent and have no conflicts of interest
- Must agree terms of Engagement
- Inspect, measure, carry out investigations etc
- Assemble, analyse, weight and rank comparables
- Value with rationale
- Report
What are the 9 most important contents of the terms of Engagement for a red book valuation?
- Client
- Property
- Valuer
- Purpose
- Basis
- Valuation date
- Extent and limitations of inspection/ enquiries
- assumptions/special assumptions
- Fee
If someone requests open market valuation on a forced sale bases what should you do?
Correct them with market value on the special assumption of sale.
What is the purpose of the UK national supplement?
It supplements the Global Standards and incorporates uk law and practice.
What Valuations do the red book apply to?
All of them unless valuation listed as an exception.
What valuations are exceptions to the red book?
. Agency or brokerage
. Marketing advice
. Acting as expert witness
. Statutory function
What is a statutory function?
STATUTORY VALUATION. : It is a part of valuation practice that relates to valuations as governed by legislation àvaluations à for rating and tax purposes (also known as ad valorem valuation meaning it is based on market value) AND for compulsory acquisitions.
Can you name some valuations that are carried out for a statutory function?
. Compulsory purchase
. Rating
. Section 18 valuations
. Leasehold
What is a section 18 valuation?
A Section 18 (1) Valuation provides a statutory cap for damages,( dilapidations) by calculating the difference by which the value of the landlord’s interest has been reduced on account of the breaches of lease covenant. This is otherwise known as the ‘diminution in value’ of the landlord’s interest.
What is the difference between Valuation Technical and Performance Standards (VPS) and Valuation Practice Guidance (VPGA)?
Valuation Technical and Performance Standards (VPS) are mandatory
Valuation Practice Guidance applications (VPGA) are advisory.
What are the possible consequences if a valuer does not comply with a VPS?
. Reprimand
. Suspended
. Expelled
What is a section 25?
A section 25 notice is named after the section in the Landlord & Tenant Act 1954 (LTA) that sets out the information (in a notice) that a landlord needs to give the tenant in order to end a business tenancy.
What are the possible consequences of a Valuer does not comply with a VPGA?
It could be a contributory factor in a tribunal negligence case
Describe how departure from the Red Book mandatory requirements may be possible?
- not carrying out internal inspections
- must stipulate in terms of conditions
What information would you require from a telephone enquirer who asked: can you do me a valuation?
. What? . Where? . Who? . Why? . Who is the other party?
How would you respond to a request to value a property from Pavement Assessment only?
. If it is a standard property . If we have previously valued . If we have have experience of the area . If let is there floor plans and a lease . If unfamiliar decline the instruction
What are the UK specific Bases of Value!
. Existing Use Value (EUV)
. Existing Use Value for Social Housing ( EUV-SH)
. Projected Market Value (PMV)
What would be considered proper marketing to be in the Market Value definition?
. Selling by most appropriate method Of sale:
- Private Treaty
- Auction
- Private Tender
. Advertise
. Market for appropriate period of time
What is synergistic value?
Synergistic value, or marriage value, arises from the combination of two or more assets to create a new asset that has a higher value than the sum of the individual assets
When is market Rent not appropriate as a basis of value in providing a report on the rental value of a property and why not?
. Rent Review
. Lease renewal
When is fair Value the appropriate valuation basis?
Valuation for company accounts
What is an asset valuation?
. Valuation for inclusion in company accounts
. Balance sheet - fixed assets
When is existing use value (EUV) the Valuation basis?
. To value local and central government owner occupied non-specialised buildings
What is the fundamental difference between Market Value and Existing Use Value?
Market value is the more profitable where as the Existjng use value is restricted to the existing use
When is DRC depreciated replacement cost used in valuations?
- owners occupied specialised properties
Name three situations that can adversely affect the certainty of valuations?
. Characteristics not suited to location
. Limitations on enquiries such as no lease, no inspection internally
. Disrupted market
Is zoning a valuation technique?
Yes it is a valuation technique not a measurement technique
What is zoning?
It is a valuation technique used to analyse and value retail space that have different frontage to depth ratios
If you have acted negligently what should you do?
Inform director and they will inform insurers
What should be done after assembling comparable evidence?
- the valuer must weight and rank each piece
- Some May be disregarded
What is a sensitivity analysis?
A sensitivity analysis is created to understand the impact a range of variables has on a given outcome. The sensitivity analysis is based on the variables affecting valuation and records the range of possible outcomes.
It is good to know the worst and best case scenario. When reporting to the bank provide the worst case scenario at the downside risk of the market rent
What is a standard zone depth?
6.1m
How would you determine the market value of an investment property let on internal repairing terms?
Assuming market rented NET the market rent down and taking the cost of liabilities off such as external repairs insurance and any other outgoings
What is NET?
NET worth is the amount by which assets exceed liabilities
What is the market capitalisation rate?
It is an alternative term for the all risks yield by which the capitalisation rate is used to indicate the rate of return that is expected to be generated on an investment property.
What is an all risks yield?
All risks yield is often used by Valuers of commercial property to provide an indication of the likely risks apparent in a particular investment
How would you value a green-field site with planning permission for residential development?
- By comparison if possible
- Residual if not
What does the case stokes v Cambridge mean to you?
It was a tribunal compulsory purchase case in 1961 relating to a ransom strip which was the key to unlock the development. The outcome was the case established the ransom strip was worth 1/3rd of the increase in the value of the benefiting land.
What is (VAT) value added tax ?
A tax on the amount by which the value of an article has been increased at each stage of its production or distribution
How would you value a property for which there are no comparables?
- make large adjustments
- compile evidence
- then use DRC (Depreciated replacement cost) or contractors method as a test
What is the RICS valuer registration?
An independent system of regulatory monitoring for quality assurance that monitors RICS members who carry out red book valuations
What does the BCIS provide?
BCIS - Costs of building per m2 of the GIFA (gross internal floor area)
How would you do a compulsory purchase?
I haven’t done one but I would approach it in the same way while considering the special rules and using open market transactions. Where open market evidence is scarce I would use other settlements of claim for comparable evidence
What is the principal planing act?
Town and Country Planning Act 1990
What forms of construction are unacceptable for mortgage?
. BISF - British Iron and Steel Federation
. PRE 1965 softwood timber framed construction
. Aired homes
And more
