General Knowledge Flashcards
When was the IPMS coalition created? & what does it do?
International Property Measuring Standards Coalition was created on the 30th May 2013. Brings together 87 organisations together to standardise measuring.
What are the three methods & five approaches?
MIC : CRIPD
Market: comps
Income: Residual, profits, investment
Cost: DRC
What impact would your property being located in a flood zone have on value?
Valuation is based on the assumption that appropriate flood insurance can be obtained at an economic level
What needs to be included in the terms of engagement?
Client name, and address, property address, purpose of valuation, basis, valuation date, valuer and insurer
What needs to be considered when quoting for a valuation?
Fee, Terms of engagement, conflict, checked, competence, independence, PII
How many methods of valuation are required for development and what are they?
Residual and market approach (comps)
Define an assumption
No one all reasonably expected to be true
Define special assumption
Known not to be true but taken as fact
(Ie. Forced sale of 90 days)
On what basis of measurement would you measure for BCIS data?
GIA
Name the method types of valuation
Accounts
Investment
What is your companies PII limit
£10 million
Define an external valuer
Has no material links with the asset to be valued or the client
Name the act relating to equality and what do you state in the valuation report?
Equality Act Compliance 2010
State in report that we are not experts in the area
Name five background enquires you need to make
-Flood mapping
-Check EPC
-Have sight of the title and register
-Check the listed building register
-Check for TPO
-Have signed TofE
-Check the planning portal
What would be the timeline of a valuation?
Receive instructions, agree terms with signed TofE on File, arrange access, undertake background enquires, inspect property, undertake valuation and report to client within the agreed timeframe (normally 10 working days), send report, check that all relevant documents are on the file, close the file.
What is done within a Term & Reversion
Market rent calculated used for the reversion and deferred to the PV until the review for the term
What would you do if you needed to value a retail premises with no comparable evidence vacant premises but you did have comps on retail investments.
Take into account investment comps to get MR, then defer using the pre calculated spreadsheets to account for the value of £1 for the time it would take in the current market to find a tenant and a reasonable amount of RF
Define gross & net yield
Gross; overall
Net; true yield, accounts for costs & deducts legals, agency, SDLT.
What is the current SDLT rates?
Up to £250,000 Zero
The next £675,000 (the portion from £250,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%
The remaining amount (the portion above £1.5 million) 12%
How would you account for a rent free period when analysing comps?
Average it out across the year
I.e- take the value of the RF out of the rent PA & that gives the true MR
When does a valuation not have to be Red Book?
Agency, when for internal use, statutory functions, arbitrations, litigation & negotiations
ALIES
Define special assumption
Something known not to be true
Name six purposes of valuation
- Loan security
- Rating
- Accounts
- Landlord & tenant functions
- Tax - inheritance tax
- Corporate real estate advise - relocate/refurbish
Define VPS
Valuation Practice Statement (process to follow)
What is the full name of the Red Book and when is the latest version from?
Red Book 2022
RICS Valuation Global Standards 2022
January 2022
Define the Red Book & what it doesn’t do
It’s a set of global standards which set out procedural rules and guidance for written valuations.
-Not a manual
-Does not instruct members on how to value individual cases
-Prescribe a particular format for reports
-Override standards specific to and mandatory within individual jurisdictions
Define ESG as per the Red Book
Environmental, social and governance (ESG) - ‘The criteria that together establish the framework for assessing the impact of the sustainability and ethical practices of a company on its financial performance and operations. ESG comprises three pillars: environmental, social and governance, all of which collectively contribute to effective performance, with positive benefits for the wider markers, society and world as a whole
Define the purpose of the Red Book
Consistency, Objectivity and Transparency
Why was the RB updated?
Because the IVS are updated on a rolling program every 2yrs, latest put a focus on ESG
What does Professional Standard 1 and Professional Standard 2 define?
PS1 - Compliance
PS2 - Ethics & conflicts
Define what VPS 1 to 5 stand for
- TOE
- Inspections
- Reporting
- Bases of Valuation
- Valuation Approach
Define VPGA
Valuation Practice Global Applications
When is an Independent expert used?
In rent review disputes to determine rent.
Define an expert witness
Any profession called to give expert evidence to a court of law and they do not have duty to client, they have a duty to the court
Define ten things you would expect to see included in the TofE
- Identification of valuer
- Identification of the client
- Identification of any intended user
- Identification of the asset being valued
- Valuation currency
- Purpose of valuation
- Basis of value adopted
- Valuation date
- Nature & extent of the valuers work
- Nature and source of info relied upon in valuation
- All assumptions and special assumptions made
- Format of report
- Restrictions on use, distribution and publication of the report
- Confirmation that the valuation will be undertaken in accordance with the IVS
- The basis on which the fee will be calculated
- Where the firm is registered for regulation by RICS, reference to Complaints Handling Procedure
What are the four basis of value (VPS4)
Market value (VPS 4.4), Market rent (VPS 4.5), Investment value (VPS 4.6) and Fair value (VPS 4.7)
Name the different basis of value
Market value, market rent, fair value, investment value/worth
What do NIA and IPMS 3 have in common
They are the measurements for usable floor area
What is the purpose of the Redbook?
Consistency, objectivity and transparency
What is the full name of the Redbook?
RICS valuation global standards
Define comparable
An item of info used during the valuation process as evidence to support the valuation of another similar item
When wouldn’t you use comparable evidence?
limited number of available comparable transactions, a lack of up to date evidence, special purchasers, a lack of similar/ identical evidence and where real estate markets aren’t fully transparent
What factors do you have to consider in regards to comparable evidence?
location, layout, aspect, outlook, immediate environment, condition, facilities, EPC rating, facilities, accessibility to transport links, parking
What does NIY include
Cost yield, includes SDLT
Give examples of a Deleterious materials
-Mundic
Define mundic block
A Deleterious materials made up of mining waste and concrete including iron.
Due to the decomposition of mineral constituents such as iron within the aggregate it is a decomposing material
Define synergistic value in terms of IVS
The result of a combination of two or more assets or interests where the combined value is more than the sum of the separate values
Define the Red Book
Set of global standards which set out procedural rules & guidance for written valuations. The Red Book is not a valuation manual
Why has the Red Book been updated?
Because the IVS are updated on a rolling system every two years, the Red Book needs to mirror this
Name five VPGAs
1- Accounts valuations
2- Loan security
4- Profits valuation
8- Real estate valuation
10- Certainty
CRAPL
10,8,1,4,2
When would you undertake a valuation that is not Red Book compliant?
ALIES
Agency
Litigation
Internal
Expert Witness
Statutory
Define when independent expert would be appointed
Used in rent review disputes only
Define an expert witness
Any professional called to give expert evidence to a court of law and they do not have duty to the court.
Define 2022 Red Book changes
New PS1 contains detail on the need for clear, unambiguous and documented TofE, when members apply any exceptions.
PS1 now makes it is either Red Book or not
Name the components of TofE
-Identification and status of valuer
-Identification of the client
-Identification of any other intended users
-Identification of the asset/liability being valued
-Valuation currency
-Purpose of the valuation
-Basis of value adopted
-Valuation date
-Nature and extent of the values work & any limitations
-Nature & source of info upon which the valuer will rely
-All assumptions & special assumptions to be made
-Format of the report
-Restrictions on use, distribution & publication of report
-Confirmation that the valuation will be undertaken in accordance with IVS
-The basis on which the fee will be calculated
-CHP
-Statement on agreed liability
Define the minimum report headings in regards to a valuation report
-Identification & status of valuer
-Identification of the client and any other intended users
-Purpose of the valuation
-Identification of the asset or liability being valued
-Basis of value adopted
-Valuation date
-Extent of investigation
-Nature & source of info relied upon
-Assumptions & special assumptions
-Restrictions on use & distribution of report
-Confirmation completed in accordance with IVS
-Val approach and reasoning
-Amount of the val
-Commentary on any material uncertainty
-A statement setting out any limitations on liability that have been agreed.
Define Market Value
The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arms length transaction after product marketing, and where the parties had each acted knowledgeably, prudently and without compulsion
Define Market Rent
The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and willing lease on a appropriate lease terms in an arms length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
Define investment value
The value of an asset to the owner or a prospective owner for individual investment or operational objectives.
Investment value is an estimate of value of a property to a particular owner or purchaser who may wish to analyse the potential performance against certain investment criteria, for example a target rate of return as opposed to those generally prevailing in the market.
*used in conjunction with DCF
Define Fair 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.
Define synergistic value
Combination of two or more assists/interests where the combined value is more than the sum of the separate values.
What’s the typical Basis of Value?
Market value
What % increase would you add for return frontage?
10% - 2.5% depending on the quality of the return frontage.
- on the ground floor rate where it is full length. Where only partial length, added to that section
In your case study why did you apply A/20 to the ancillary area?
-because it was in line with comparable data
-wasn’t very usable space
Why do we undertake Due Diligence?
Understand areas that are going to impact value.
What would constitute a COI?
If already acting for an interested party, if we have worked for an interested party in the last two years.
We declare all past involvement with any interested party.
To what scale should a local plan be?
1:2500
What is a common unit defect?
Water ingress and corrosion
What is a common office defect?
Cavity wall tie failure.
What are the three common causes of defects?
Water, movement and deterioration
How would you calculate Net Effective Rent?
Straight line most common
Add all actual income together and divide by lease length
What’s the Hierarchy of Rental Evidence
New lease
Lease renewal
Independent expert
Opinion
Arbitration
Asking rents
Define investment value
The value of an asset to a particular owner or prospective owner for individual investment or operational objectives
Define fair 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
Define VPS
Valuation technical practice statement
What’s the RICS document relating to comparable evidence?
Comparable evidence in real estate valuation 2019
What is the RICS document relating to ESG?
Sustainability and ESG in commercial property valuation and strategic advise, 2021
What’s the RICS document relating to risk?
RIL
Risk, insurance and liability 2021
On a plan scaled 1:100 what would you expect the tolerance to be?
25mm
How would you undertake a Hardcore & Lay?
Used where a property is over rented.
Would firstly establish this by working out MR
Hardcore is market rent
Lay is the proportion of the rent which is over rented
More risky yield on the lay as its a profit rent and above market
NIY what does is allow for?
Allows for purchasers costs including SDLT, professional fees.
Why did you put a lower yield on the term in your example 8 water ma trout?
Because it’s lower risk as the rent is below market rent therefore the tenant is less likely to default
What is the purpose of a material uncertainty clause?
Ensure any client relying upon a valuation report understands it has been prepared under extraordinary circumstances & where a valuer feels the unknowns are so significant the valuation produced would be less reliable than in normal circumstances
What’s the rental difference in IRI/FRI?
Roughly 5%
When reporting a forced sale how would this be calculated?
The red book states a special assumption must be reasonable and the valuer must give reasoning behind the special assumption however some clients do request the assumption of market value assuming sale within 90days
What are the 2025 Red Book updates?
Bringing in amendments to the VPS’s to be more coherent with IVS
Further evolvement to ESG
What are the 2025 Red Book updates?
Bringing in amendments to the VPS’s to be more coherent with IVS
Further evolvement to ESG
When was the UK supplement of the Red Book last updated and what did it include?
October 2023
-Rotation of Valuers every 5 years (10 years for firm)
Define yield
The return on risk on an asset
What is VPGA 10?
Material uncertainty - Covid clause
When is the next update for the Red Book?
Currently ongoing, to be adopted January 2025
Which part of the Red Book is guidance?
Valuation Practice Guidance Application
What should your comparable data be?
Comprehensive - multiple not just one
Very similar
Recent and representative of the market
Result of an arms length transaction
Verifiable
What is the best comparable data?
Identical property, neighbouring property, just sold.
What is the best comparable data?
Identical property, neighbouring property, just sold.
What are some adjustments that might be required when analysis comparable data?
Location, incentives, condition
Why do properties held in pension funds required to be valued?
Required to be valued every 3 years to establish whether the fund has appropriate assets to cover its accrued liabilities
In your SofE please can you explain how you undertook the T&R at Water-Ma-Trout?
-Established MR, under rented and therefore confirmed a T&R was required
-Capitalised the passing rent at 7% to reflect the secured term
-Then capitalised the MR at 8% at PV, higher yield because not confirmed
Why do valuers need to have considered EPC rating?
Because EPC rating can affect demand especially in less popular locations & it is part of the due diligence
What is an internal valuer?
A valuer employed by the company who’s assets their valuing
What is an external valuer?
Someone who has no material links to the asset being valued
What are Automated Valuation Models?
a service that combines mathematical or statistical modeling with databases of existing properties and transactions to calculate real estate values
What is the role of Automated Valuation Models?
In lending
In audit of valuations
For mass appraisals i.e for local taxation purposes
For the identification of fraudulent activity
For estimating compensation payments
What are same + and - to AVM?
+
Lenders like
-
Property typically not inspected
How would you value a lease where the parsing rent is at market rent
A traditional valuation - applying a yield, in perp to come to the valuation figure
Income x the yield = capital value
How would you account for the presence of asbestos within a valuation report?
Have site of asbestos management plan, have quotes from asbestos companies to remove if substantial then you may account for it within report
How do you adjust your comparables?
Take account of age condition and location, applying a +/- % depending on valuers opinion and local market knowledge
What’s an example of a special assumption?
Assumed planning in place
What impact would Japanese’s Knotweed have on value?
It would devalue the property
How much by would depend on its extent and coverage
