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
