PE Valuation - Comparable Method

Question 1

Under VPS 5 of the Red Book, the comparable method falls under which approach?

Answer 1

Market approach

Question 2

Why is the comparable method used?

Answer 2

Direct and simple approach comparing like-for-like

Question 3

Where would you find guidance on the comparable method?

Answer 3

RICS Guidance Note Comparable evidence in real estate valuation (1st Edition, Oct 2019)

Question 4

What is a comparable?

Answer 4

Item of information used during the valuation process as evidence to support the valuation of another, similar item

Question 5

What is the economic principle behidn the comparable method?

Answer 5

Substitution - the buyer of an item would not pay more for it than the cost of acquiring a satisfactory substitute

Question 6

What should a comparable be?

Answer 6

1. Very similar
2. Recent
3. Comprehensive
4. Result of an arm’s length transaction in the open market
5. Verifiable
6. Consistent with the local market practice

Question 7

How many comparables do you need?

Answer 7

More than one, as many as are relevant and recent

Question 8

What are the RICS’ 3 categories of comparables?

Answer 8

Category A - direct transactional evidence