LK Vals Questions

Question 1

What statutory due diligence would you do for a valuation?

Answer 1

• Asbestos register
• Planning portal
• VOA enquirers
• Land registry
• Flood risk
• EPC register
• Fire safety

Question 2

How might you carry out a valuation using the comparative method of valuation?

Answer 2

1. Search for comparables using databases and third party websites.
2. Verify these comparables and analyze the headline rent.
3. Assemble comparables in a schedule
4. Adjust comps using hierarchy or evidence
5. Analyze comps to form opinion of value
6. Report the value.

Question 3

Guidance on comparable evidence and what does it say?

Answer 3

Guidance note: Comparable evidence in Real Estate Valuation 2019

• Brought about the hierarchy of evidence
• Deals with situations where there may be a lack of comparable evidence

Question 4

When is the investment method of valuation undertaken?

Answer 4

• When there is an income stream to value
• Rent is capitalized to produce a capital value

Question 5

When do use the term and reversion method?

Answer 5

• Used where the property is under- rented
• Term is capitalized unit the next lease/ review at an initial yield
• Then the reversionary to market rent is valued into perpetuity at a reversionary yield.

Question 6

When is a core and top slice used?

Answer 6

• When a property is over rented
• The bottom slice = market rent
• Top slice is difference in passing and market rent until next lease event
• Higher yield applied to top slice to reflect the risk
• Lower on the bottom slice

Question 7

How is a yield determined?

Answer 7

• Risk is the major factor in determining a yield
• Prospects for rental growth
• Quality of location
• Lease terms
• Covenant strength
• Voids

Question 8

When might a DCF be used in valuation?

Answer 8

• short leasehold interest
• Phased development projects
• Some alternative investments

Question 9

What is the internal rate of return?

Answer 9

• The rate of return at which all future cash flows must be discounted to produce an NPV of zero

Question 10

What is the Internal Rate of return?

Answer 10

• The rate at which all future cash flows must be discounted to produce an NPV of zero

Question 11

How do you calculate the IRR?

Answer 11

1. Input the MV a negative cash flow
2. Input projected rents over the hold period
3. Input projected exit value at the end of term as a positive value
4. Discount rate is the rate chosen which provides a NPV of Zero
5. If NPV is more than 0, TRR is met

Question 12

Define assumption

Answer 12

A supposition taken to be true