Question Bank Flashcards
Case Study
How did you confirm instructions?
Instruction letter provided fee, basis of valuation, confirmation of no conflicts, property details, proposed loan, report delivery date
Client service agreement provides basis of value, reporting requirements e.g. Groundsure report, PII & Complaints handling
Fee and timelines agreed then documented in instruction letter
Case Study
If there wasn’t a service agreement, how would you set out your scope of instructions?
Terms of Engagement
Valuer
Client
Purpose
Property
Basis of value
Valuation date
Assumptions and special assumptions
Fee
PII & limitation on liability
Complaints handling procedure
Can you provide three examples of onerous lease terms.
Inability to Assign
Long lease term without break clauses
Aggressive RPI rent reviews/no collar and cap
None of your investment comparables are close to the subject property. Is that a problem?
In an ideal world you would have comparables from close by
The market meant that this wasn’t the case
I considered properties from towns similar to High Wycombe (oakfield House - Haywards Heath, Weald Court - Tonbridge) or as close as possible - (Beech Court and Forest Court - Wokingham).
I placed importance on similar quality buildings, multi-let, similar rents etc and adjusted where necessary
Is the term and reversion method of valuation adopted by the market?
Define Market?
Valuers use the term and reversion method
Investors may use cash flows which are explicit, Term and Reversion/investment method is implicit
Why is your equivalent yield the same as your term yield when the reversionary yield is higher? Shouldn’t there be a difference?
The reversionary yield reflects the uplift in rent after the vacant space lets
The term yields are just on the let units
I can see costs for Rates and Service charge. I can’t see what void allowances you have made for either existing vacancies or future lease expiries. How long a period have you allowed for new lettings? Is there a lesson to be learned from 2 Bishops Court?
I allowed 12 month void to let the vacant space + 3 months rent free in line with the market
I allowed 6 months void on let space as a mid-point between the tenant vacating or renewing, as we do not know what they will do.
Was the property the subject of a recent sale?
The valuation was for loan security for the purchase
Offer 1.3m however we concluded the buyer was a special purchaser
No other offers and no representation.
Are you obliged to report the purchase price?
Yes under VPGA 2
What do you do if the price is withheld from you?
Investigate as much as possible - marketing price, speak to agents etc
Report this to the bank
2 Bishops Court has been sold with planning permission for conversion to residential. Did you consider this angle for the subject property?
I did - however, the property had no planning permission, and also 3 units were subject to lettings.
Any developer would have to account for the years remaining on the leases + empty rates, service charges etc within their appraisal.
Four years remaining on each lease, only two of them have tenant only break options
Case study
(Bishop’s Court)
Are you aware of the background to that change of use?
Yes they received pre-app approval for change of use to create flats
Ours did not have pre-app approval and is subject to leases
Do you have a broad idea of residential values and conversion costs for this location?
High Wycombe BROADLY £300-400 psf cap value but the property is situated in a commercial business park
Conversion costs??
What is RICS current guidance regarding sustainability?
Must report EPC and other credentials
Must report environmental risks
Must consider impact of sustainability/energy efficiency on value
Assessing covenant status – understanding accounts / D&B – What are the primary measures that you consider when considering a tenant’s covenant?
What is their D&B rating
Are they national or local
What risk do they pose
Are they attractive to investors
What is happening at a macro level in their industry (e.g. banks/betting shops coming off the high street)
Are you qualified to comment on a tenant’s status?
(covenants)
We use D&B ratings and other sources to ascertain the market view, and comment on this within our report/valuation
We are not qualified to give a detailed insight into a tenant’s business/risk profile
What are the differences between Independent Expert, Arbitrator and Mediator?
Independent Expert undertakes their own investigations to come to a decision
An Arbitrator considers evidence provided by each side and decides the outcome of a dispute in accordance with statute (Arbitration Act 1990)
A Mediator facilitates discussion between two parties but has no decision-making authority and cannot impose a resolution.
An arbitrator can’t be sued, an Independent Expert could if negligent, a mediator could but unlikely.
MEES - when might a building be exempt from an EPC?
exempt from an EPC if listed, religious building, temporary building
exempt from MEES if exempt from EPC, where the tenancy is less than 6 months with no security of tenure or more than 99 years
On what basis do you measure offices within industrial property?
GIA
Are there circumstances in which office premises might be measured on a net basis?
If requested by the client
In what circumstances is the valuation of offices on an IPMS basis appropriate?
Should always be measured IPMS - dual measure if client requires NIA
Prime Industrial spec?
Minimum 8m clear eaves height
Minimum 30KN/sqm floor loading
full height loading doors + dock level
5%-10% office content
Approximate site cover 40%
Prime office spec?
Raised floors
suspended ceiling
Air-conditioning (VAV, VRV etc)
End of journey facilities
Sustainable spec
Retail
Give 3 examples of end allowances
Return frontage
Frontage superior to the rest of the pitch?
Discount for restricted view of frontage e.g. canopy
You are considering two retail units – one 60ft of frontage and 20ft of depth, the other, within 2 doors, 20ft of frontage and 60 ft of depth. Which is more valuable?
The 60ft frontage with 20ft depth
Offices – what are the key valuation considerations today?
Is it in a desirable location?
Is it Grade A specification?
Is it let and capable of attracting a new tenant if need be?
Is it sustainable?
Residential – how will the government’s proposed changes to tenants’ rights (and landlord’s responsibilities) affect the valuation of property in the private rented sector.
-opinion-
Could be perceived to be higher risk/more management duties
Could therefore push prices down/yields up
Could separately lead to landlords exiting the market which would reduce supply