Market Appraisal - KT Qs Flashcards
What is a Market Appraisal?
A Market Appraisal is where an agent provides a property owner with an estimate guide price ahead of a potential letting / sale.
These reports may contain appraisals of the existing use, potential alternative uses, and look at factors that may influence the market rent and market value, such as macro-economic factors and local market conditions.
Market appraisals after often the precursor to a formal valuation, and are a useful took to manage clients expectations.
Give me some examples of different scenarios where a Market Appraisal may be undertaken?
Potential Disposal – If a client is considering their options for the purposes of a building they own / occupy. They may not necessarily want / need a formal valuation but are seeking an indication of market values (for sale or rent).
Potential Acquisition – A potential occupier might want some guidance on what a property might cost to occupy.
How does a Market Appraisal differ from a Red Book Valuation?
(COMMON QUESTION)
A market appraisal DOES NOT have to follow the Red Book processes VPS 1-5.
A market appraisal is usually carried out by an agent giving an indication of what the property could achieve in the market, based on their assessment of local market conditions and comparable transactions = It is NOT a valuation and CANNOT be used for lending / funding purposes or relied upon by third parties.
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 (Red Book Valuation) of any kind and is given simply for marketing guidance purposes and strictly for internal use only.
I would be clear that no Third Party should rely on the advice given.
What market appraisal approaches are you familiar with?
Comparable Method – Applying a price per sq ft based on comparable market evidence.
Income / Investment Method – Taking a hypothetical lease, applying a rental value to the area(s) and using an appropriate multiplier to reflect an investment yield.
Do you charge a fee for a market appraisal? If not, why not? If so, how would you calculate the fee?
It depends on the scope of work. If it was a market appraisal of a large scale project that 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 I can add as a competent professional, in the hope of being formally appointed.
If I were to charge a fee for a market appraisal, I might charge a small fixed fee which I would deduct from the client’s final account on successful completion of a transaction.
What did you say about measurements in your Market Appraisal?
Mesured to both IPMS 3 and NIA.
What did you include in your Market Appraisal for your example in Moorgate?
What does a market appraisal typically contain?
Initially, I inspected the floor making note of the existing fit out, specification, condition and location. I included the following in my market appraisal report:
1) Introduction and key experience – (setting out my firm’s track record and relevant experience).
2) Market Commentary – Summarising market conditions, which at the time were still feeling the effects of the Covid-19 pandemic. This included commentary on vacancy rates, supply levels and rental forecasts.
3) Local Area Overview – Demonstrating my understanding of the locality and the likely demand for the space, proximity to transport links.
4) Comparable Evidence – Setting out recent transactions which would assist in determining the Estimated Rental Value (ERV).
5) Leasing Strategy – Give my views on the best disposal methods and proposed marketing strategy.
For Moorgate, as the existing fit out was dated and the lease term was only until 2026, I recommended marketing below the passing rent.
What did you say about market sentiment for Moorgate and what was your leasing strategy?
Moorgate would benefit considerably from the introduction of the Elizabeth Line at Liverpool Street that can be accessed from Moorgate station.
However, the city market is highly saturated with competing space, particularly tenant release space. The city market is awash wish second hand accommodation.
I noted the effects of the Covid-19 pandemic were being felt causing a lot of uncertainty in the market, and that lots of occupiers were reluctant to make commitments.
I noted that requirements for this size of space (13,000 sq ft) were often for newly refurbished, amenity filled schemes as occupiers look to entice staff back to the office. Therefore the floor had to be priced accordingly.
As the existing fit out was dated and the remaining lease term was only until 2026, recommended marketing below the passing rent.
I also recommended marketing the floor from splits of 3,000 sq ft as this was shown to be where the demand is and offer flexibility in the lease term.
What was the analysis that you conducted to support your market appraisal in Victoria?
I analysed rental enquiry levels over the past year or so to assess the number of live requirements.
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.
I analysed the condition of the current fit out to support my ERV.
What records did you keep relating to this instruction?
I kept a password protected file under ‘Opportunities’ as this was a potential instruction to dispose of the surplus office space.
I saved my market appraisal in the file, along with any other material such as comparable evidence, photographs from inspection, client contact details and signed Terms of Engagement.
Must keep for a minimum of 6 years (Limitation Act 1980).
How did your actions assist in a suitable outcome for the case? (Moorgate)
The client thanked me for the market appraisal and subsequently instructed Cluttons to dispose of the floor.
What are the limitations of a Market Appraisal?
Market appraisals are not a Red Book valuation and cannot be used for funding/lending purposes.
Market appraisals are strictly for reporting purposes for internal use, and the advice cannot be relied upon by a third party.
Usually there is no fee for a market appraisal.
No guarantee of further work if the MA is speculative.
What does the RICS Professional Statement: UK Commercial Estate Agency (2016) say about Market appraisals?
You should provide realistic advice in regards to the likely selling price/rent based on your professional judgement and market comparable evidence.
Any figure must reflect current market conditions and consider likely lease terms acceptable to the market.
You should be able to support your figure with comparable evidence in similar situations.
The advice is not a formal valuation of the property. It is important you make clear you are providing an estimate of anticipated market price or rent and not a valuation. If required by the client, you may instruct a formal valuation on your clients behalf.
You should only provide advice with a market appraisal if you have thorough and sufficient knowledge of the market.
How would you carry out a market appraisal in accordance with the RICS Professional Statement: UK Commercial Estate Agency (2016)?
Before providing advice on the likely selling price or rent you need to:
Inspect the whole property inside and out.
Where measurements are taken you should take reasonable steps to ensure these are accurate.
Review the general condition of the property (important to gauge the general condition)
Ask the client questions to establish they are the legal owner and any relevant issues that may impact on the marketing strategy you adopt.
When advising on a suitable asking price or rent you should obtain comparable data, details of sales or lettings and similar properties in the area.
You should also take into account the current market conditions, whether prices or rents have been rising or falling since the comparable sale or letting and by how much.
