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Matt - APC > Matt - Valuation - Level 3 > Flashcards

Matt - Valuation - Level 3 Flashcards

1
Q

What is the definition of market value in the Red Book?

A

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

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2
Q

Where can the definition of market value be found within the Red Book?

A

VPS 4

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3
Q

What does VPS 4 cover in the Red Book?

A

Bases of value, assumptions and special assumptions

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4
Q

What is a basis of value?

A

It is the expected transactional environment and objectives of the parties for which an asset or liability may trade

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5
Q

Can you name any other bases of value detailed within VPS 4?

A
  1. Market Rent
  2. Investment Value
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6
Q

You mention that you helped prepare Terms of Engagement as per VPS 1 of the Red Book.

Why do we prepare Terms of Engagement and why are they important?

A

We prepare Terms of Engagement as it details the extent of the work that is to be carried out, detailing what will be done and what won’t be done.

They are important as it can help protect professionals in the event of a misunderstanding that could lead to a complaint or a negligence claim.

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7
Q

What does VPS 1 of the Red Book detail?

A

The minimum terms of engagement required.

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8
Q

What were some of the minimum terms of engagement?

A
  1. Identification of Client
  2. Purpose of instruction
  3. Identification of property
  4. Valuation date
  5. Confirmed standards to be applied (e.g. Red Book, Property Measurement and Code of Measuring Practice)
  6. Agreed departures
  7. Basis of value
  8. Assumptions and Special Assumptions
  9. Identification of Valuer
  10. Sources relied upon
  11. Validity period
  12. Restrictions on disclosure
  13. Fee basis
  14. Currency
  15. Complaints handling procedure
  16. Conflict of interest
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9
Q

What were some of the minimum final report headings?

A
  1. Identification of Client
  2. Purpose of valuation
  3. Identification of property
  4. Valuation date
  5. Confirmed standards to be applied (e.g. Red Book, Property Measurement and Code of Measuring Practice)
  6. Agreed departures
  7. Basis of value
  8. Assumptions and Special Assumptions
  9. Identification of Valuer
  10. Date of inspection
  11. Extent of investigation
  12. Property description and tenure
  13. Floor area / accommodation
  14. Defects and repair
  15. Services
  16. Planning
  17. MEES
  18. Valuation methodology, approach and reasoning
  19. Opinion of value
  20. Market commentary
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10
Q

What would you find in the final report that isn’t in the terms of engagement?

A
  1. Property information
  2. Tenure
  3. Defects and repairs
  4. Services
  5. Planning
  6. Equality Act 2010
  7. MEES
  8. Environmental factors observed
  9. Valuation method, approach and reasoning
  10. Opinion of Value
  11. Market commentary
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11
Q

What does VPS 2 of the Red Book detail?

A

Inspections and extent of investigation.

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12
Q

Were there any assumptions or special assumptions for this particular valuation?

A

There were no special assumptions.

There were assumptions that the properties were in a reasonable state of repair and had all the appropriate services.

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13
Q

What value significant factors did you observe on your inspection?

A
  1. UPVC windows
  2. Modern fit out internally
  3. Off street parking
  4. New build estate
  5. Good transport links close by
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14
Q

You mention that you used sources such as Rightmove Sold and your organisations Central Database to find comparable evidence.

What helped you determine which was the best comparable evidence?

A

Comparable evidence which had transacted close to the valuation date, on the open market, and that are similar in specification to the subject property.

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15
Q

Was there any RICS guidance you considered when choosing your comparables?

A

Yes, “RICS Comparable evidence in Real estate” volume 1, 2019

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16
Q

What does RICS Comparable evidence in Real Estate detail?

A

It details the hierarchy of comparable evidence and has them in 3 categories which are A, B and C.

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17
Q

What is Category A evidence?

A

Direct comparables (e.g. recent, completed transactions of similar properties)

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18
Q

What is Category B evidence?

A

General market data (e.g. information from public sources like indices and historic evidence)

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19
Q

What is Category C evidence?

A

Other sources (e.g transactional data that is hearsay or background data like interest rates or stock market movements)

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20
Q

The comparable evidence that you chose, what category would it fall in?

A

Category A. The evidence obtained was similar new build properties that sold close to the valuation date.

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21
Q

You say that you inspected the locality and other comparable properties to inform your opinion of value. Why was this important?

A
  1. VPS 2 and VPGA 8 detail that this is an important step to take when producing red book valuations.
  2. It also allows me to confirm the factual details of the comparables are correct also, as otherwise I’d be relying on old data.
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22
Q

How did you adjust your comparables so that they were like the subject?

A

I adjusted the comparables so that they were like the subject, so that it was a direct like for like comparison.

Adjustments I carried out were to reflect that some properties had on street parking and en suites

23
Q

What was the construction build for your terraced properties?

A

Brick construction with a pitch slate roof.

24
Q

What was the layout and size of the terraced properties?

A

They were a row of 3 terraced bungalow properties, so 2 end terrace and 1 mid terrace.

They were arranged as: Kitchen, Living Room, Bathroom and 2 Bedrooms.

535 Sq Ft / 49.69 Sq M

25
Q

Did you measure the properties at inspection?

A

Yes

26
Q

What basis of measurement did you measure the properties to?

A

Gross Internal Area (GIA)

27
Q

This is a Red Book valuation and report, did you therefore not have to adhere to the RICS Property Measurement (2nd edition) and the relevant IPMS basis?

A

It was an agreed departure with the client when issuing the Terms of Engagement that we would report on a different measurement basis than IPMS, and GIA was used instead.

28
Q

Why was it important to determine the size of the properties you were valuing?

A

It would ultimately impact the valuation. A larger size would lead to a higher value

29
Q

What was the advice you gave in this valuation?

A

I advised a senior colleague who is an RICS Registered Valuer as to my opinion of value of the dwellings, which they accepted.

As a result of this advice; it was subsequently included within the final report and advised to the client. The advice was that the values proposed by the developer were too high, and as a result of my work and advice, a lower value was agreed.

30
Q

Did the Red Book valuation and report go out in your name?

A

No, it went out in the name of the RICS Registered Valuer I was working under.

31
Q

Why did the Red Book valuation and report have to go out in the Registered Valuers name?

A

Red Book valuations and reports can only be completed and signed off by RICS Registered Valuers

32
Q

What is an RICS Registered Valuer?

A

This is an RICS Chartered Member that is part of the Valuer Registration Scheme.

33
Q

What is the Valuer Registration Scheme?

A

This is a scheme for Chartered Members that complete red book valuations.

34
Q

How do you become an RICS Registered Valuer?

A

To become a Registered Valuer you can:

  1. Qualify through the APC by taking the Valuation competency to Level 3.
  2. Doing a conversion module to become a Registered Valuer.
35
Q

Is the Valuer Registration Scheme for Members or Firms?

A

Members

36
Q

Is there a fee involved to be a RICS Registered Valuer?

A

Yes

37
Q

What was the purpose behind your valuation for the industrial property in Uttoxeter?

A

To determine the taxpayers liability for inheritance tax purposes on behalf of the client, HMRC

38
Q

Why did you value the property using the investment method?

A

This is the most common method of valuation used for commercial properties as they are usually obtained for investment purposes.

39
Q

How did you determine that your property was over rented and to use the hardcore and top slice method?

A

I had regard to the rents of similar industrial properties close to the valuation date.

I did this by analysing lease details on CoStar to determine a suitable £/sqm and established that this was higher than the comparables and therefore over rented

40
Q

What was the valuation date for your Industrial in Uttoxeter and why?

A

The date of death as per the Inheritance Tax Act 1984

41
Q

How did you determine a suitable yield for your valuation?

A

I had regard to the same data sources and for the sale of similar industrial properties close to the valuation date

42
Q

What yield did you use?

A

A Gross Initial Yield

43
Q

What is a gross initial yield?

A

A yield that is calculated by dividing the rental income by the sale price.

44
Q

Was there another yield you considered?

A

Yes, the Net Initial Yield

45
Q

What is a net initial yield?

A

This is similar to a gross initial yield, except it accounts for purchasers costs.

46
Q

What figure is commonly used to reflect purchasers costs?

A

5.8%

47
Q

Tell me how you approached your hardcore and layer valuation.

A

To do a hardcore and layer method, I would calculate the value of the core slice and the value of the top slice (or froth)

To establish and value the core slice, I had regard to my comparables to establish what a suitable market rent would be.

The core slice was then calculated using my established market rent figure using YP Perp at a yield of 7%.

The top slice was then calculated using the lease details available for the subject, and determining how much of the subject rent was above the market rent. After calculating this difference I then valued the top slice or above market rent aspect using YP at 10% for the remainder of the lease term before expiry. I adjusted my yield to a higher figure for the top slice to reflect risk.

After calculating the values of the core slice and my top slice, I added these together to get my capital value.

48
Q

What was your capital value compared to the returned figure?

A

My capital value was higher than the returned value

49
Q

What was the advice that you gave as a result of your valuation of the Industrial property in Uttoxeter?

A

I advised a senior colleague that the value returned was too low and shouldn’t be accepted, and provided details of my valuation and reasoning to back this up.

Subsequently I advised HMRC the client of this as well.

50
Q

What were the consequences as a result of your advice?

A

It would increase the taxpayers liability to inheritance tax due to the increased value.

51
Q

Did you not use Present Value of £1 when using the hardcore and top slice technique?

A

No because both incomes are already being received (core and top slice).

PV of £1 would be needed to bring back future money to today’s values such as the reversion with the term and reversion.

52
Q

What is in your Terms of Engagement but not in your final Red Book Report?

A
  1. Reference of the professional fees for undertaking the valuation
  2. Complaints handling procedure
53
Q

What is in your final Red Book but not included in your Terms of Engagement?

A
  1. Final valuation
  2. Valuation approach

Matt - APC (38 decks)

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