Terms

Question 1

What is a bribe?

Answer 1

The offer, promise, giving, demanding or acceptance of an advantage as an inducement for an action that is illegal, unethical or a breach of trust.

Question 2

think public and private

What is corruption?

Answer 2

The misuse of public office or power for private gain, or misuse of private power in relation to business practice and performance.

Question 3

remember legals steps

Explain Customer Due Diligence?

Answer 3

Taking the appropriate steps to ascertain who the customer or client is and, if relevant, their ultimate beneficial owner is and counterparty. These can be relatively simple checks to verify the identity of the customer/client or may entail deeper investigations. This is a legal and regulatory requirement in many countries.

Question 4

What is money laundering?

Answer 4

Concealing the source of the proceeds of criminal activity to disguise their illegal origin.

Question 5

think checking

What is reliance?

Answer 5

The extent to which the required checks on individuals or companies have been undertaken satisfactorily by a third party.

Question 6

think flows

Explain DCF?

Answer 6

A method of valuation explicitly setting out the inflows and outflows of an investment/development.

Question 7

What is a development appraisal?

Answer 7

A financial appraisal of a development. It is normally used to calculate either the residual site value or the residual development profit, but it can be used to calculate other outputs.

Question 8

What is the development yield?

Answer 8

The rental income divided by the actual cost incurred in realising the development. This can be based on either current or future estimates of the rental value of the completed development.

Question 9

think both development and income

What is the GDV?

Answer 9

The aggregate market value of the proposed development

Assessed on the special assumption that the development is complete

on the date of valuation in the market conditions prevailing on that date.

Where an income capitalisation approach is used to estimate the GDV, normal assumptions should be made within the market sector concerning the treatment of purchaser’s costs.

The GDV should represent the expected contract price

Question 10

Remember standards

What is the GEA?

Answer 10

The aggregate external area of a building or footprint, taking each floor into account, measured with reference to the appropriate code of measuring practice eg IPMS

Question 11

Remember standards

What is the GIA?

Answer 11

Measurement of a building on the same basis as gross external area – but excluding external wall thicknesses. Net sales area is the gross internal area of a residential dwelling subject to certain inclusions and exclusions. IPMS

Question 12

remember standards

Describe highest and best use?

Answer 12

The use of the property that would produce the highest value of the asset. It must be physically possible, financially feasible and legal.

Relates to IVS 104 definition

Question 13

remember redbook

Explain hope value?

Answer 13

An element of market value in excess of the existing use value, reflecting the prospect of some more valuable future use.

Described,but not mentioned directly, in Red Book VPS 4.4. defined in Valuation of DevProperty

Question 14

What is the IRR?

Answer 14

The rate of interest (expressed as a percentage) at which all future project cash flows (positive and negative) will be discounted in order that the net present value (NPV) of those cash flows, including the initial investment, be equal to zero

Question 15

Explain market approach?

Answer 15

The market approach is based on comparing the subject asset with identical or similar assets
(or liabilities) for which price information is available, such as a comparison with market
transactions in the same, or closely similar, type of asset (or liability) within an appropriate
time horizon

Question 16

remember standards

Definition of market rent?

Answer 16

*The estimated amount for which an interest in real property should be leased on the valuation date
* between a willing lessor and a willing lessee
* on appropriate lease terms in an arms length transaction,
* after **proper marketing **and where the parties had each **acted **knowledgeably, prudently and without compulsion

IVS 104

Question 17

remember standards

What is market value?

Answer 17

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

IVS 104

Question 18

What is the Net Development Value?

Answer 18

The gross development value (GDV) minus assumed sale costs.

Question 19

What is NIA?

Answer 19

The usable space within a building measured to the internal finish of structural, external or party walls, but excluding toilets, lift and plant rooms, stairs and lift wells, common entrance halls, lobbies and corridors and car parking areas.

Remember IPMS

Question 20

What is NPV?

Answer 20

The sum of the discounted values of a net cash flow including all inflows and outflows, where each receipt/payment is discounted to its present value at a specified discount rate.

Where the NPV is zero, the discount rate is also the internal rate of return (IRR).

Question 21

Explain profit on cost?

Answer 21

The profit of the project expressed as a percentage of total development costs.

Question 22

Explain profit on value?

Answer 22

The profit of the project expressed as a percentage of the project’s net development value (NDV).

Question 23

Explain residual method of valuation?

Answer 23

A valuation/appraisal of a development based on a deduction of the costs of development from the anticipated proceeds. The residual is normally either development profit or land value.

Question 24

What is the residual value?

Answer 24

The amount remaining once the gross development cost of a project is deducted from its gross development value (GDV) and an appropriate return has been deducted.

Question 25

Explain sensitivity analysis?

Answer 25

A series of calculations resulting from the residual appraisal involving one or more variables (rent, sales values, build costs, etc.) that are varied to show the differing results

Question 26

Explain total development costs?

Answer 26

The total cost of undertaking a development excluding profit and land.

Question 27

What is value in existing use?

Answer 27

The market value, or any other appropriate basis, assuming the property continues in its existing use with no expectation of that use changing in the foreseeable future.

Question 28

What is a yield?

Answer 28

Yield can be applied to different commercial elements of a project, for example, office, retail, leisure, etc.

It is usually calculated as a year’s rental income as a percentage of the value of the property.

Depending on jurisdiction, variations include capitalisation or cap-rate, all-risks yield, equivalent yield, income yield and initial yield.

Question 29

what is the basis of value mean?

Answer 29

A statement of the fundamental measurement assumptions of a valuation. In some jurisdictions, the basis of value is also known as the ‘standard of value’.

Question 30

Explain the cost approach?

Answer 30

An approach that provides an indication of value using the economic principle that a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or construction.

Question 31

What is DRC?

Answer 31

Depreciated replacement cost

The current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation.

Question 32

What is fair value?

Answer 32

The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

Question 33

What is the income approach?

Answer 33

An approach that provides an indication of value by converting future cash flows to a single current capital value.

Question 34

What is investment value?

Answer 34

The value of an asset to the owner or a prospective owner for individual investment or operational objectives (see IVS 104 paragraph 60.1). (May also be known as worth.)

Question 35

What is the market approach?

Answer 35

An approach that provides an indication of value by comparing the subject asset with identical or similar assets for which price information is available.

Question 36

What is a valuation?

Answer 36

An opinion of the value of an asset or liability on a stated basis, at a specified date.

If supplied in written form, all valuation advice given by members is subject to at least some of the requirements of Red Book Global Standards there are no exemptions (PS 1 paragraph 1.1). Unless limitations are agreed.

Question 37

When are GEA, GIA and NIA used?

Answer 37

GEA - planning
GIA - costs
NIA - rental