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Valuation👿 > Level 1 > Flashcards

Level 1 Flashcards

1
Q

What is the definition of Market Value?

A

The estimated amount for which an asset or liability should exchange for on the valuation date between a willing buyer and seller in an arms length transaction after proper marketing

Parties to act knowledgeably, prudently and without compulsion

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2
Q

What is the definition of Market Rent?

A

The estimated amount for which an interest in the property should be leased on the valuation date between a willing lessor and lesser in an arms length transaction after proper marketing

Parties to act knowledgeably, prudently and without compulsion

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3
Q

What is the definition of WAULT?

A

Weighted Average Unexpired Lease Term- is a metric which shows the average time period remaining on leases within a property or portfolio, relative to the rental income of each tenant

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4
Q

How does WAULT effect the value of an asset?

A

WAULT assesses the stability of cash flows and risk profile of an investment. Therefore a higher WAULT infers a more stable income forecast and lower risk for the investor, making the property more valuable

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5
Q

How would you calculate WAULT?

A
  1. Multiply rent of each tenant by the remaining term
  2. Sum the total
  3. Divide by the total annual rent

E.g 5yr x £10k = £50k
2yr x £50k = £100k

£150k / £60k = 2.5

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6
Q

What are the five methods of valuation?

A
  1. Comparable
  2. Investment (conventional, T&R, L/H, DCF)
  3. Profits
  4. Residual
  5. Contractors (DRC)
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7
Q

How does location impact the value of an asset?

A

A central London location would be seen as more valuable than a rural location as it’s provides proximity to transport, footfall, and expenditure

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8
Q

How does condition impact the value of an asset?

A

A high specification property would be more desirable to an investor or tenant, therefore would be willing to pay higher prices. E.g Grade A office space

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9
Q

How would covenant strength impact the value of an asset?

A

A tenant with a stronger covenant would provide a more stable income forecast and therefore would be less risky and more appealing to an investor.

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10
Q

How would tenure impact the value of an asset?

A

A tenancy with a longer lease term and higher rent would be more attractive to an investor as it would create a more stable income forecast and therefore increase the returns of the property and its value

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11
Q

When would you use the comparable method of valuation?

A

The comparable method is used to derive comparable evidence of similar property transactions/lease events to calculate an ERV for agency a or yield for investment.

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12
Q

When would you use the investment method of valuation?

A

When the property is occupied and income producing. To calculate the Market Value of an investment for loan security, accounts or agency purposes.

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13
Q

When would you use the profits method of valuation?

A

For trade related properties e.g pubs, care homes, hotels etc where the value of the property depends on the profitability of the business

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14
Q

When would you use the Contractor’s method of valuation?

A

Used where direct market evidence is limited for specialised properties including lighthouses, schools, sewage works. For accounts purposes or ratings valuation (not RBG compliant)

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15
Q

When would you use the Residual method of valuation?

A

To financially assess the viability of a development scheme through a development appraisal or residual site valuation

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16
Q

Contracting out LTA 1954 - types of declaration

A

Simple - parties have at least 14 days prior to committing to lease

Statutory- fewer than 14 days
Stat dec must be made infront independent solicitor

17
Q

What is included within purchasers costs?

A

Legal fees 0.5% + VAT at 20%
Agents fees 1% + VAT at 20%

Stamp duty - depending on price of building (assumed 5% above £250k)

Usually 6.8%

18
Q

Within a corporate transaction, how would purchasers costs differ?

A

No stamp duty tax
Just agents fees 1% and legal fees 0.5% plus VAT

19
Q

What is the threshold levels for SDLT?

A

£0-£150k - Nil
£150,001- £250k - 2%
Over £250k - 5%

20
Q

What is the SDLT threshold levels on grants of lease renewals?

A

Net Present Value of:

Up to £150k - Zero
Over £150k - 1%
Over £5mill - 2%

21
Q

Why is the DRC method not Red Book Compliant?

A

Doesn’t take into account market figures or conditions

22
Q

What is the difference between a development appraisal and and residual site valuation?

A

Development appraisal is based upon client inputs to find a developers profit

Whereas residual site valuation uses market inputs to find a market value

23
Q

RICS Valuation- Global Standards 2021 RBG Structure

A

Part One- Intro
Part Two- Glossary

Part Three- Professional Standards

Part Four- Valuation Technical and Performance Standards (VPS)

Part Five - Valuation Applications (VPGA)

Part Six- International Valuation Standards (IVS)

24
Q

Where would you find Terms of Engagement within RBG?

A

Part 4 - VPS1

25
Q

When commencing a valuation instruction what would you undertake first?

A

CIT

Competent?
Interests
Terms of engagement

26
Q

What part of the RBG provide guidance on valuation preparation (inspection)?

A

Part 4 VPS 2 - inspection, due diligence, verification of info

27
Q

Part 3 of RGB

A

Mandatory Professional Statements

PS1- compliance with standards (outlines five exceptions)

PS2- ethics, competency
(Conflicts, ToE)

28
Q

Part 4 of RGB

A

Mandatory worldwide

VPS1- Terms of Engagement- minimum

VPS2- Inspections and Record

VPS3- Valuation reporting- minimum

VPS4- Bases of Value

VPS5- Valuation Approaches and Methods

29
Q

Uk Supplementary 2023

A

Valuation Practice Guidance Applications

VPGA1: Valuation for financial reporting
VPGA2- Valuations for secured lending
VPGA8- Valuation or charity assets (Charity Act 2022)
VPGA10- valuation for commercial secured lending (incorporated new ESG)

30
Q

What are the mandatory rotations within the Red Book?

A

VPS 3

New National Supplement provides requirements from 1st May 2023

Maximum period 5 years before rotation of individual values

Maximum period 10 years before rotation of valuation firm

Minimum 3 year break after rotating

31
Q

Three approaches to calculating NER

A

Straight line method

Straight line method assuming time value of cash flow using a yield

Use of DCF

32
Q

Where are Terms of Engagement found in the Red Book?

A

Part 4 VPS 1

33
Q

Where are assumptions and special assumptions found in the Red Book?

A

Part 4 VPS 1

34
Q

Where are the requirement for valuation reports found in the Red Book?

A

Part 4 VPS 3

35
Q

Where are the bases of value found in the Red Book?

A

Part 4 VPS 4

Market value
Market rent
Fair value
Investment value
Equitable value
Liquidation value

36
Q

Where would guidance for valuations for secured lending be in the Red Book?

A

Part 5 - VPGA 2

37
Q

Any additional legislation coming into effect for Valuations?

A

Following Pereira Review as of 1st May 2024

Global standards Uk National Supplement 2023

UK VPGA10 - valuation of commercial secured lending - new ESG principles

38
Q

What are the five valuation purposes that third parties rely upon?

A

Stock exchange listings
Financial reporting - company accounts

39
Q

What’s the difference between internal and external valuer?

A

Internal- employed by company and for internal purposes

External- no material links with asset

Valuation👿 (3 decks)

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