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Valuation > Level One > Flashcards

Level One Flashcards

1
Q

What is the RICS Valuation – ‘Global Standards’?

A

Set of global valuation standards created to achieve the highest standards and best-practice in valuation

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2
Q

RBG (2021): What are the main changes from the previous Red Book Version?

A

Sustainability and ESG factors – definitions, inspections and valuaitons e.g. commentary on future costs, valuation evidence e.g. direct flood risks or indirect property resilience
Other changes – definitions and scope of valuations within IVS, valuation for financial reporting, Terms of reference clarity

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3
Q

What are the components of the RBG?

A
  • Part 1 – Introduction
  • Part 2 – Glossary
  • Part 3 – PS (Professional Standards)
  • Part 4 – VPS (Valuation Technical and Performance Standards)
  • Part 5 – VPGA (Valuation Applications)
  • Part 6 – IVS (International Valuation Standards)
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4
Q

Are there any exceptions to the use of the RBG?

A

PS1 – compliance
5 exemptions to the requirements of the RBG:
1. Advice in prep for litigation or negotiations
2. Statutory functions
3. Internal purposes
4. Agency or Brokerage work
5. Expert witness role

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5
Q

Are there any new changes regarding the Red Book / Supplement?

A

1) Implementation of Valuation review recommendations
2) Alignment with development in other relevant global standards and regulations such as the new International Valuation Standards (IVS) published in 2024, IFRS and Basel 3.1
3) Adaption to evolving practices and processes for issues including ESG and technological advancements

31st January 2025

New UK National Supplement 2023
Lots of changes, but the biggest change was specifically in regard to regulatory purpose valuations (UK VPS 3) – maximum single engagement period of 5 years – max of 10 years for a firm that could be across multiple engagements – 3-year break

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6
Q

Any other recent valuation publications?

A

TBC

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7
Q

What is the importance of impartiality? How would you check for this?

A

Ensure in accordance with PS2 – Ethics and objectivity. Valuer must think independently to be able to come to a reasonable, unbiased valuation.
Checks – think first, then run conflict of interest checks on system

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8
Q

What is the RICS VRS?

A

Valuer Registration Scheme – regulatory monitoring scheme for valuers introduced in 2011: to 1.improve valuation quality, 2. self-regulate, 3. elevate status of profession

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9
Q

Tell me about the factors that impact Market Rent, and how this differs from Market Value?

A

MR – location, specification, construction, size (specification, pitch/prominence)
MV – impacted by the same issues, but when analysing comparables, will also be paying consideration to covenant and income profiles (income profile, covenant, lot size)

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10
Q

What are the 5 valuation methods? How do you know each is appropriate to use?

A
  1. Comparative
  2. Investment
  3. Profits
  4. Residual
  5. Contractors (DRC – depreciating replacement cost)
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11
Q

How do the 5 methods differ from IVS 105?

A

International Valuation Standards IVS 105 sets out 3 valuation approaches:
1. Income – investment, residual, profits
2. Cost - DRC
3. Market - comparable

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12
Q

When is it appropriate to use the profits method?

A

Used when the value of a property depends upon its trade and profitability of the business rather than its physical properties e.g. petrol stations, healthcare and pubs

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13
Q

What are the different bases of value?

A

VPS4 – Bases of Value
1. Market Value = amount asset/liability will exchange on -val date -willing buyer etc.
2. Market rent = as above but for an interest in property for lease
3. Fair value = price in an orderly transaction between two market participants on the measurement date
4. Investment value = value of an asset to a particular owner
5. Equitable Value == estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties (not used in UK)
6. Liquidation Value = Basis of value can be used for a group of assets sold in piecemeal basis considering cost of getting asset into a saleable condition (not used in UK)

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14
Q

What are the pros and cons of using software such as Argus Enterprise?

A

Pros:
- Time
- Efficiency
Cons:
- Too many ways to do things.
- There can quite often be hidden aspects.

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15
Q

What is Term and Reversion?

A

Used for reversionary investments (Market Rent more than passing rent) i.e. when under-rented.
Term capitalised until next rent review/lease expiry at an initial yield.
Reversion to Market Rent valued in perpetuity at a reversionary yield.

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16
Q

What is layer/hardcore method?

A

Used for over rented investments
Income flow divided horizontally
Bottom Slice = Market Rent
Top Slice = Rent passing less Market Rent until next lease event
Higher yield applied to top slice to reflect additional risk.
Different yields use depending on comparable investment evidence and relative risk.

17
Q

What is an All Risk Yield?

A

The remunerative rate of interest used in the valuation of fully let property let at market rent reflecting all the prospects and risk attached to the particular investment.

18
Q

What is a True Yield?

A

Assume rent is paid in advance not in arrears (traditional valuation practice assumes rent is paid in arrears)

19
Q

What is a Nominal Yield?

A

Initial yield assuming rent is paid in arrears.

20
Q

What is a Gross Yield?

A

The yield not adjusted for purchasers’ costs (such as an auction result).

21
Q

What is a Net Yield?

A

The resulting yield adjusted for purchasers’ costs.

22
Q

What is an Equivalent Yield?

A

Average weighted yield when a reversionary property is valued using an initial and reversionary yield.

23
Q

What is an Initial Yield?

A

Simple income yield for current income and current price.

24
Q

What is a Reversionary Yield?

A

Market Rent divided by current price on an investment let at a rent below the MR.

25
Q

What is a Running Yield?

A

The yield at one moment in time

26
Q

What is the hierarchy of evidence?

A

Stated in Comparable evidence in Real Estate Valuations
Cat A – direct comparables
Cat B – general market data
Cat C – other sources

27
Q

What is a YP/PV/YP in perpetuity?

A

YP – years purchase
Year’s purchase is a term used to calculate the value of a property or an annuity based on its annual income
PV – present value
Current value of future money
YP in perpetuity – 100/yield
Capitalization approach into perpetuity
1.

28
Q

What are other VPGAs apart from 1 and 2?

A

VPGA 1 – Inclusion in financial accounts
VPGA 2 – Securing lending
VPGA 3 – Businesses
VPGA 4 – Trade properties
VPGA 5 – plant and equipment
VPGA6 – intangible assets
VPGA7 – personal property and art
VPGA8 – Valuation of property interest (e.g. environmental and esg factors)
VPGA9 – Portfolios
VPGA10 – matters giving rise to material uncertainty

29
Q

What does WAULT stand for?

A

Weighted Average Unexpired Lease Term

30
Q

How do you calculate WAULT?

A

TBC

31
Q

What is the definition of special assumption?

A

Special Assumptions are those things which are not true but have been assumed to be true

32
Q

What is included in Terms of Engagement (VPS 1 / IVS 101 Scope of Work)?

A
  1. Identification and status of the valuer
  2. Identification of the client
  3. Identification of any other intended users
  4. The asset to be valued
  5. Currency
  6. Purpose of valuation
  7. Basis of value
  8. Valuation date
  9. Extent of investigation
  10. Nature and source of the information to be relied upon
  11. Assumption and special assumption to be made
  12. Format of the report
  13. Restriction for use, distribution and publication
  14. Confirmation of Red Book Global / IVS compliance
  15. Fee basis
  16. Complaints handling procedure to be made
  17. Statement that the valuation may be subject to compliance by the RICS
  18. Limitation on liability agreed
33
Q

What is to be included in a valuation report (VPS3 / IVS 103)?

A
  1. Identification and status of the valuer
  2. Client and any other intended users
  3. Purpose of valuation
  4. Identification of the asset to be valued
  5. Basis of valuation
  6. Valuation date
  7. Extent of investigation
  8. Nature and source of information relied upon
  9. Assumption and special assumption
  10. Restriction on use, distribution and publication
  11. instruction undertaken in accordance with IVS standards
  12. Valuation approach and reasoning
  13. Valuation figure(s)
  14. Date of valuation report
  15. Comment on market uncertainty
  16. Statement setting out any limitations on liability that have been agreed
34
Q

What is Market Value?

A

The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

35
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
measurement date

36
Q

What is Market Rent?

A

The estimated amount for which an interest in real property should
be leased on the valuation date between a willing lessor and willing
lessee on appropriate lease terms in an arm’s length transaction, after
proper marketing and where the parties had each acted knowledgeably,
prudently and without compulsion

37
Q
A

Valuation (6 decks)

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