Market Value

Question 1

What is the investment method of valuation?

Answer 1

Used when there is an income stream to value
The rental income is capitalised to produce a capital value
Conventional method assumes growth implicit valuation approach
An implied growth rate is derived from the market capitalisation rate

Question 2

What is hardcore and layer approach?

Answer 2

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

Question 3

What is term and reversion approach?

Answer 3

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.

Question 4

What is an all risks yield?

Answer 4

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.

Question 5

How did you determine that Richmond was an affluent area?

Answer 5

Office for National Statistics - demographic evidence

Question 6

How do you equate for a comparable that is LLH / VFH?

Answer 6

Apply a slight discount, higher capitalisation rate.

Question 7

How might the sale of this property at auction impact the comparable? (Fulham Road)

Answer 7

• Competitive biding
• Lot size
• Distressed or forced sale - lower sale price?