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1
Q

What are the FIVE main methods of valuation?

A

1.Comparative
2.Investment
3. Profits
4. Residual
5. Contractors (depreciated replacement cost)

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2
Q

What are the three valuation approaches set out in IVS?

A

M-market
I-income
C-cost

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3
Q

What are assumptions?

A

Assumptions are made where it is reasonable to assume that something is true without need for specific investigation

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4
Q

What is a special assumption?

A

Something that is taken to be true and accepted as fact, even though it is not true

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5
Q

What is the RICS red book?

A

Set of global standards which set out procedural rules and guidance for written valuations.

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6
Q

What is market value?

A

the estimated amount for which an asset or liability should exchange

-on the valuation date
-between willing buyer and seller
-in an arms length transaction
-after property marketing
-where the parties act knowledgeably, prudently and without compulsion

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7
Q

what is market rent?

A

the estimated amount for which an interest in real property should be leased

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8
Q

What is fair value?

A

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 measeurement date

(this basis of value is required for IFRS)

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9
Q

what is investment value?

A

the value of an asset to a particular owner, or the prospective owner for individual investment or operational objectives

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10
Q

what is equitable value?

A

the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflect the respective interests of those parties (not used in UK)

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11
Q

what is liquidation value?

A

used for a group of assets sold in piecemeal basis considering the costs of getting the assets into a saleable condition

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12
Q

What is a yield?

A

refers to how much income an investment generates, typically expressed as a percentage of the investment’s value

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13
Q

When does the Red Book not apply to valuations?

A

ALIES- Agency, Litigation, Internal, Expert determination, Statutory

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14
Q

What statutory due diligence should be done prior to undertaking a valuation and why?

A

Why- required to check that there are no material matters that could impact upon the valuation

Checks could include:
-Asbestos register
-Business rates/council tax
-contamination
-Equality Act 2010 compliance
-EPC rating
-Flooding (check environment agency website)
-H&S compliance
-Fire safety
-Highways
-Legal title and tenure
-public rights of way (OS sheet)
-Planning history and compliance

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15
Q

What are the bases of value?

A

-Market value
-Market rent
-Investment value
-Equitable value
-Synergistic value
-Liquidation value

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16
Q

What is the purpose of the Red Book?

A

Greater consistency, objectivity and transparency

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17
Q

Why has the Red Book been updated (2025)?

A

To align with the International Valuation Standards, which are updated every 2 years

To reflect market changes/developments

Key changes include:
- an updated glossary that clarifies alignment with IVS
- a revised ordering of VPSs to map to IVS and
- a new VPS 5 covering valuation models to align with IVS
-Adaption to increasing interest in technology and ESG

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18
Q

What is the market approach as described in VPS 3?

A

Based on comparing the subject asset with identical or similar assets or liabilities, where price information is available, and you can compare similar market transactions within an appropriate time period.

I.e. The comparable method

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19
Q

What is the income approach as set out in VPS3?

A

Converting current and future cash flows into a capital value

e.g. investment, residual and profits methods

20
Q

What is the cost approach as set out in VPS3?

A

Reference to cost of asset whether by purchase or construction i.e. DRC/Contractors method

21
Q

What is the document “RICS Sustainability and ESG in commercial property valuation and strategic advice”?

A

Global guidance note released in 2021
Covers definitions of ESG, role of sustainability and the role of the valuer
Explores sustainability characteristics, considerations and risk

22
Q

Have any valuation reviews been conducted recently?

A

Yes Peter Gray’s independent review of real estate investment valuations in December 2021.

23
Q

Can you name two recommendations commissioned by RICS, standards and regulation board following Gray’s independent review of real estate investments?

A

I - Independent panel
C - Creation of compliance officer
E- Expectation of culture and behaviours

A.K.A ICE

24
Q

Not including the red book are there any other RICS documents on valuation standards?

A

RICS valuation – global standards UK national supplement

-Supplements the Global Red Book for valuations subject to UK jurisdiction.
-Published 2023, updated Jan 2025 to reflect Red Book Changes

25
What is the comparable method of valuation?
Based on comparing the subject asset with identical or similar assets or liabilities, where price information is available, and you can compare similar market transactions within an appropriate time period.
26
How do you analyse comparables?
Review price per area rate Display key findings in a table Research if the transaction is open market, transaction amount, size, location, date of transaction, specification, condition and layout
27
What is the profits method of valuation?
-Used for valuing trade related properties in markets where there is a monopoly position e.g. pubs, petrol stations, hotels, day nurseries, leisure and healthcare properties. -Basic principle is the value of the property depends on the profit generated from the business, not the building or location. -Need accurate accounts for 3 years if possible
28
What is the investment method of valuation?
Used when there is an income stream to value 4 techniques: term and reversion, hardcore and layer, hardcore and top slice and DCF
29
What does VPGA stand for?
Valuation practice global applications
30
Why is there a need for UK guidance as well of global standards (Red Book)?
Global Valuation Standard is to enable consistence and transparency globally, whilst UK guidance is specifically for the UK market, align with the UK jurisdiction and practice
31
What is the residual method of valuation?
Calculates the value of the land by taking the developed value and subtracting the price of developing it i.e. what is the amount remaining after all relevant costs of development and profit have been deducted.
32
What is the depreciated replacement cost method (contractors)?
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
33
How do you judge the viability of a project?
Payback - how long to repay initial outlay NPV - given rate of return, does the project add value (NPV > 0 add value) IRR - does project beat your target rate of return
34
What are the different sections of the Red Book?
Professional Standards (PS1&2) which are MANDATORY Valuation technical and performance standards VPS 1-6 which are MANDATORY Valuation Practice Guidance (VPGA's) 1-11 which are ADVISORY
35
What different yields are you aware of? Name and describe at least 3
All risks yield - reflects all risks, returns and growth Initial yield - ARY applied to passing rent Gross initial yield - yield on investment before deducting expenses Net initial yield - yield on investment after deducting annual expenses. Expressed as a percentage of capital value plus purchaser costs (used in hardcore and top slice) Reversionary Yield - applied to the reversion (market rent) to reflect risk. Yield that should be achieved if passing rent adjusts to market rent Equivalent yield - weighted average between term and reversion (used in hardcore and layer institutional market) Equated yield - internal rate of return with explicit growth
36
Name the two Valuation Professional Standards in the Red Book and examples of what is found within them?
PS 1- Compliance with standards where written valuation is provided e.g. compliance within firms/with international standards PS2- Ethics, Competency, Objectivity and Disclosure
37
Name the six valuation professional and technical performance standards in the Red Book
VPS1- Terms of Engagement VPS2- Bases of value, assumptions and special assumptions VPS3- Valuation approaches and methods VPS4- Inspections, investigations and records VPS5- Valuation models VPS6- Valuation reports
38
Name the 11 Valuation practice guidance (VPGAs)
VPGA 1- Financial reporting VPGA2- Secured lending VPGA3- Businesses/business interests VPGA4- Trade related property VPGA 5- Plant and equipment VPGA6- Intangible assets VPGA7- Arts and antiques VPGA8- Real property interests VPGA9- Portfolios and groups of assets VPGA10- Material valuation uncertainty VPGA 11- Relationship with auditors
39
What factors can affect a yield?
Risk Growth potential Quality of location Quality of covenant Property use Lease terms Voids Liquidity Obsolescence / Repair
40
What is an IRR?
a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.
41
What is the purpose and role of terms of engagement?
Important element of client care (avoids misunderstanding) Good record of scope of works agreed Assists in preventing PI claims
42
Give examples of what is included in terms of engagement as per VPS 1?
-Identification and status of responsible valuer -Identification of client -Asset/liability being valued -Valuation currency -Purpose of valuation -Bases of value adopted -Assumptions and special assumptions -Fee basis -ESG
43
What's the difference between a valuation and an appraisal?
Market appraisal- general estimate of a property's value, usually for agency/marketing purposes Valuation- formal, accurate Red Book valuation for specific legal and/or financial purposes
44
Name some different valuation purposes?
Loan security, financial accounts, tax, rating, internal valuations, development
45
When is the comparable method most commonly used?
To assess market value/market rent of commercial & residential properties. Also can be used for farms and land with development potential.
46
What is the hierarchy of evidence in RICS Professional Standard 'Comparable Evidence in Real Estate Valuation' (2019) ?
Category A- Direct Comp Evidence e.g. open market lettings Category B- general market data e.g. indices, data bases, historic evidence Category C- other sources e.g. interest rates, returns, transactional evidence from other real estate types/locations
47

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