Market Appraisal Flashcards
How does a market appraisal differ from a valuation?
A market appraisal does not have to follow the Red Book processes VPS 1-5.
An appraisal is normally carried out by Estate Agents giving an indication of what the property could achieve in the market place based on their assessment of the local market and transactions. An appraisal is therefore not a valuation and cannot be used for lending/funding purposes.
How do you make it clear to a client you are carrying out a market appraisal as opposed to a valuation?
I would confirm in my marketing report that my advice does not comprise a valuation (or Red Book Valuation) of any description and is given simply for marketing guidance purposes only and strictly for internal use only. Furthermore no third party should rely on any advice given.
What market appraisal approaches are you familiar with?
Market / Comparable method:
Applying a rate per sq. ft. based on comparable market evidence.
Income / Investment method:
Taking hypothetical lease, applying a rental value to the area(s) and using a multiplier to reflect an investment yield.
Give me some examples of different scenarios where a market appraisal may be undertaken?
If a client is considering their options for the purposes of a building they own / occupy. They may not necessarily want / need a valuation but are seeking an indication of market values (for sale or rent).
A potential occupier might want some guidance on what a property might cost to occupy.
A market appraisal of a lease - is there a (reverse) premium value?
Do you charge a fee for a market appraisal? If not why not? If so, how would you calculate the fee?
Depends on the scope of work. If it was an appraisal of a large scale project then I may look to fix a fee reflecting an appropriate estimated hourly rate.
Generally if pitching for an instruction, I do not charge a fee for a market appraisal. I draft a full written report for the prospective client, and use this as an opportunity to demonstrate to the client the value that I can add as a competent professional. If I were to charge for a market appraisal, I might charge a small fixed fee which I would deduct from the client’s final bill on successful completion of a transaction.
Explain how you carried out the market appraisal in your case study?
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What processes did you follow? What did you say about measurements when marketing?
measured in accordance with RICS Code IPMS and NIA
What discussions did you have with the owner and what notes did you make about condition?
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At Brixton what did you include in your leasing report.
I included the following:
- Introduction and key experience - (setting out my company’s track record and relevant experience).
- Market Overview - Summarising market conditions, which at the time were volatile due to Brexit.
- Local Area Overview - demonstrating my understanding of the locality and the likely demand for the space.
- Comparable Evidence - setting out recent transactions which would assist in arriving at ERVs for the site.
- Leasing Strategy - Giving my views on the best disposal methods and planning uses to maximise value. I also set out my proposed marketing strategy.
What was the analysis that you set out in support of your appraisal?
My rental analysis included a number of assumptions, including:
Current open market value
Premises being fitted to CAT A spec.
Raised floors, perimeter trunking, power distribution, heating, cooling, ventilation.
I analysed rental enquiry levels over the past year or so, to determine that many occupiers were choosing to stay put, rather than upsize or downsize if they could avoid doing so.
I analysed current market trends to support my estimation on void periods and incentives.
I analysed the local area and demographic to support my views on target occupiers.
What did you say about market sentiment and what was your leasing strategy?
Market sentiment: I said that Brixton had evolved hugely over the past few years and had become a hotbed of activity for start-ups and small businesses.
I said that Brexit and international political events had caused an element of uncertainty in the market, and that lots of occupiers were reluctant to make commitments.
Leasing Strategy: I differentiated between the different possible uses of each arch (A1, B1 office, D1, D2 etc). and applied values to each of these based on my research and knowledge of the market.
I advised on works that I thought would be required in each unit to attract interest and to maximise value.
I commented on likely void periods and tenant incentives.
How did you arrive at the recommended strategy?
To arrive at my recommended strategy, I used my own knowledge and experience to support my views.
I worked closely with team members to ensure that my thinking was on the right lines.
I carried out desktop research to support my analysis.
What records did you keep relating to this instruction?
I kept a file under “Opportunities” as this was a potential instruction. I saved my leasing report in the file, along with any other material such as comparable evidence, photographs, client contact details, Terms of Engagement etc.
What were your recommendations as to incentives, void periods and capital contributions? What was the outcome of this instruction?
I advised that the market at the time demanded rent-free periods of c. 1 month per year TC. But that rent-free periods of between 3-9 months might apply (based on a 3 year lease) depending on the level of tenant work required.
I advised that an initial marketing void of 6 months should be applied.
I advised that the client should carry out a base fitout rather than offering capital contributions to tenants. This meant that they could control the quality of the fitout and standardise it across the scheme, to future proof for re-letting.
Any further incentives to tenants should be via rent-free periods for tenants fitout.
How did your actions assist in a suitable outcome for the case?
The client thanked me for my leasing report, noting that it was very thorough and carefully thought out. The project was a couple of years off and the client was seeking some preliminary advice, but I hope that my advice stands me in good stead to be instructed in due course.
