Must learn

Question 1

Commencing a valuation instruction what 3 important steps must be undertaken first?

Answer 1

1 - Competence - SUK
Skills necessary to undertake the work
Understanding and
Knowledge

2 - Independence
Think first and check for any conflicts of interest

3 - Terms of engagement
set out in writing your confirmation of instructions to the client prior to starting work and recieve confirmation

confirm the competence of the valuer

Extent and limitations of the valuers inspection

Question 2

what is the comparative methodology?

Answer 2

1 - Search and select comparables
2 - Confirm/verify details and analyse headline rent to get a net effective
3 - Assemble comparable data in schedule
4 - Adjust comparable data using the hierarchy of evidence
5 - Analyse comparables to form an opinion
6 - Report value

Question 3

what is a term and reverion?

Answer 3

Used for reversionary investments when under rented
Term is capitalised until review/lease expiry at an initial yield
Reversion to market rent valued in perpetuity at a reversionary yield

Question 4

What is hardcore/layer method?

Answer 4

Used for over rented investments
income flow is divided horizontally
bottom slice = market rent
Top slice = rent passing less market rent until the next lease event
higher yield is applied to the top slice to reflect the additional risk
different yields used to depend on comparable evidence and relative risk

Question 5

What is a DRC

Answer 5

Depreciated replacement Cost

Question 6

When is a DRC used?

Answer 6

For specialized properties with limited or no direct market evidence such as schools, sewage works, or lighthouses.

Question 7

What is the purpose of DRC valuations

Answer 7

used for owner occupied property
for account purposes of specialised properties.

Question 8

What is the DRC method?

Answer 8

1 - Value of land in its existing use
2 - Add current costs of replacing the building plus fees less discount for depreciation and obsolescence/ deterioration - using BCIS to judge the level of Obsolescence

Question 9

What is the three obsolescence in a DRC?

Answer 9

Physical - Result of deterioration/ wear or tear over years
Functional - Where the design or specification of the asset no longer fulfills the function for what it was originally designed for
Economic - Changing market conditions for the use of the asset.

Question 10

What is a DCF?

Answer 10

Discounted cash flow.

Question 11

Explain a DCF valuation

Answer 11

1 - Growth explicit investment method of valuation
2 - Involves projected estimate cash flow over an assumed investment period plus an exit value at the end of the period usually on an ARY basis.

Question 12

What is the DCF method?

Answer 12

1 - Estimate the cash flow (income less expenditure)
2 - Estimate the exit value
3 - Select a discount rate
4 - Discount cash flow at the discount rate
5 - Value the sum of the completed discounted cash flow to provide the NPV

Question 13

What is the maximum flat and v board before planning is required?

Answer 13

Flat - 2m V board - 2.3 m

must not project more than 1m from the face of the building & not above 4.6m from the ground

Question 14

What regulation governs marketing boards

Answer 14

town & Country planing (control of advertisement) Regulations 2007

Question 15

What are the types/bases of estate agency

Answer 15

Sole agency - one agent
Joint agency - 2 or more agents sharing a fee on a pre-agreed basis.
Multiple agency - any number of agents but only the successful agent gets a fee.

Question 16

Advantages and disadvantages of Private treaty

Answer 16

Advantages
1. Flexibility
2. parties control the process
3. Confidential
4. Vandor not under any obligation to sell

Disadvantages
1. Potential for Gazumping or Gazundering
2. Late decision not to buy
3. Associated abortive costs.

Question 17

What is Gazundering and Gazumping?

Answer 17

Gazundering - lower the amount of an offer that one has made to (the seller of a property), typically just before the exchange of contracts.

Gazumping - make a higher offer for a property than the chosen seller and thus succeed in acquiring the property.

Question 18

What is the difference between informal and formal tender?

Answer 18

Formal Tender
1 - provides a potential purchaser with a single chance to bid for a property
2 - High level of accountability
3- No opportunity for a further bid
4 - possible for the formal tender to lead directly to a contract of sale
5 - The highest figure is accepted - unless the vendor reserves the right to refuse and or all offers

Informal tender
1 - Further negotiations can follow on
2 - Usually less onerous as terms/conditions are prepared
3 - The informal tender will not lead directly to contract
4 - The vendor does usually state they are under no obligation to accept the highest or any offer received.