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APC 2023 Spring GB > Vals > Flashcards

Vals Flashcards

1
Q

What are the 5 methods of valuation?

A
  • Investment
  • Comparable
  • Profits
  • Depreciated replacement cost / Contractors
  • Residual
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2
Q

When do you use the residual method?

A

Value of development land

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3
Q

When do you use the Profits method?

A

Income producing property such as a pub

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4
Q

When do you use the Contractors method –& why is it the method of last resort?

A
  • Use it to value something like a church, bandstand or ancient monument
  • Use it because something has special characteristics which make it not easily comparable.
  • only when there are no comps basically
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5
Q

What basis of value would you use for a valuation that is for accounting purposes?

A

Fair Value

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6
Q

Valuation for Internal purposes – what is the relevance of the fact a valuation is for internal purposes?

A

It is an exception to the Red book.

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7
Q

If you want to undertake a valuation that is an exception to the red book, what do you have to do?

A
  • Set it out in the TOE.
  • Set out that your client has agreed to the fact that it is an exception
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8
Q

What are the basis of value as defined by the Red Book?

A
  • Fair value
  • Market Rent
  • Market Value
  • Investment value.
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9
Q

What is the definition of market value?

A

Estimated Amount for which a property should exchange on the valuation date between a willing buyer and willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeable, prudently and without compulsion.

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10
Q

What is proper marketing – how do you define it ?

A

Marketing for the appropriate amount of time and selling via the correct/best method of sale for the property.

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11
Q

I understand you undertook a red book valuation in xxx – please talk me through it – what did you do?

A
  • I started by checking competency, running a conflict of interest check and taking instructions & agreeing terms –
  • Red book PS1 – competency = ‘having the appropriate knowledge and experience of dealing with this type of property’.
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12
Q

How do you check for conflicts?

A
  • Circulate conflict on internal coi system
  • Check emails , files etc
  • A conflict is e.g. we are instructed to sell the property post valuation. Or we are doing a loan sec valuation for the bank but have already done work in past for the applicant.
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13
Q

What do TOE for a Red Book valuation include?

A
  • Detail client
  • Property details
  • Valuation Date
  • Fee
  • PI cover
  • Complaints handling procedure
  • Basis of value
  • Limitations
  • Assumptions (e.g. property has relevant planning)
  • Currency
  • Special Assumptions (e.g. vacant possession when the property is tenanted atm).
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14
Q

What due diligence would you carry out prior to valuation?

A
  • Asbestos register
  • EPC certificate
  • Flood risk assessment
  • Planning
  • Rateable value
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15
Q

“Comparables ranked in hierarchy of evidence to determine market rent and appropriate capitalisation rate.” – What is the hierarchy of evidence ?

A
  1. Open Market Letting
  2. Lease renewal
  3. Rent review
  4. Independent expert determination
  5. Arbitrator’s award
  6. Sale & leaseback
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16
Q

Why is lease renewal above RR in hierarchy

A
  • Bc tenant can walk away
  • The rent can go down (not upwards only).
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17
Q

Where would you put subletting in the hierarchy of evidence?

A
  • Depends on alienation / onerous clauses
  • This would probably go after open market letting if no onerous clauses / alienation.
18
Q

What would an appropriate capitalisation rate be? – What factors determine capitalisation rate ?

A
  • Covenant strength
  • Lease length
  • Other terms e.g. repairing / insurance liability
  • Location/size/spec
19
Q

How do you capitalise an income stream in order to come to a gross value?

A
  • Multiply by y into perpetuity
  • Years purchase = 100/yield
  • Yield = factor of risk
20
Q

How do you get a net value ?

A

Deduct purchasers costs from gross value. / Gross value minus purchasers costs.

21
Q

What are purchasers costs?

A
  • Stamp duty
  • Land tax
  • Agency fees
  • Legal fees
  • & VAT on Agency/legal fees^
22
Q

If property is under-rented what valuation technique should you use?

A
  • Term and reversion
23
Q

How do you do a term & reversion valuation?

A
  • Term = up until next RR / reversion
  • Capitalise reversion into perpetuity
  • Add term and reversion together
    o To get value that the term & reversion is worth today, you x (multiply) it by the present value of £1.
24
Q

What is differential in yield between term and reversion?

A
  • Yield is adjusted based on risk for the reversion – so would be at a higher yield
25
Q

If a property was over-rented what would you use?

A
  • Hardcore/layer method
  • (could also use term and reversion but less common).
26
Q

How do you do a valuation with vacant possession?

A
  • Use comparable method and look at nearby vacant units
  • ^ failing this – if there are no comparables then you use the investment method
    o Look at the rent the property could generate (ERV) and apply an appropriate yield
27
Q

Would the appropriate yield be the same yield you’d apply if the property was actually already let at that ERV?

A
  • No – you need to take account of the risk by:
  • Increasing yield
    – Or – factor in a void period e.g. 6 mths – do a term & reversion where your term is at 0 rent for however long the void period is e.g. 6 mths.
28
Q

Residual valuations are used for the valuation of land – talk me through the calculation/method of a residual valuation.

A
  • Look at gross development value of a project – then deduct the costs and profit to get residual value.
29
Q

How do you work out GDV (gross development value)

A
  • Use comparable analysis to work out what newly built houses would be worth
30
Q

Costs that you include – what sort of costs would you improve?

A
  • Building costs – BCIS (Building Costs Information Service)
  • Demolition costs
  • Contingency
  • Finance costs
31
Q

What does BCIS stand for?

A
  • Building Costs Information Service (owned by RICS)
32
Q

What unit of measurement does BCIS refer to/ use

A

M2 (Meters Squared)

33
Q

What basis of measurement does BCIS use?

A

GEA (Gross External Area)

34
Q

What do banks consider in terms of their lending rate?

A
  • Risk
35
Q

What types of funding are available to developers (other than senior debt 6-7%).

A
  • Mezzanine (8-11%)
36
Q

Fees in a residual valuation – what to include?

A
  • Architects fees
  • Professional fees – covering:
    o Project manager
    o Independent monitoring surveyor
    o Building surveyor
    o Quantity surveyor
    o Civil engineers
  • Professional fees global percentage = 12.5%
  • Contingency, depends on risk – could be between 2-10% , tends to be lower.
37
Q

How would you calculate developers profit?

A
  • 15% of GDV
  • Or – 20% of total development costs
38
Q

How do you present scenarios to client on a residual valuation?

A
  • Sensitivity analysis
39
Q

What is the key RICS material for Vals.

A

RICS - Valuation, Global Standards 2021 (Red Book).

PS 1 - Compliance - Mandatory for all valuations bar
5x Red book exemptions

PS 2 - Ethics
- COI
___________________________________________________________________________
VPS 1 - TOE

VPS 2 - Inspection

VPS 3 - Report

VPS 4 - Bases of Value, Assumptions, Special Assumptions

VPS 5 - Valuation approaches & Methods of Valuation.
_________________________________________________________________________________

VPGA 1 - Financial Reporting

VPGA 2 - Loan Sec

VPGA 8 - Real Property Assets

VPGA 10 - Material Uncertainty Clauses
__________________________________________________________________________________

6, International Valuation Standards (IVS)

40
Q

RICS Valuation - Global Standards (UK Supplement) 2018

A

UK VPGA 1 - Financial Reporting
UK VPGA 8 Charity assets
UK VPGA 10 - Loan Sec
_____________________________________________________________________

UK VPS 3 - Regulated Purpose Valuations
1. Financial reporting

APC 2023 Spring GB (9 decks)

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