Vals Flashcards
What are principles set out in RICS Valuation - Global Standards 2021 (RBG)?
To maintain professional competence
To simplify and articulate clearly the need for documented terms of engagement
To focus more on sustainability and D&I
What is the structure?
Glossary
Intro
PS -
VPS - Valuation and Tecnhical Performance Standards
VPGA - Valuation Applications (NM)
IVS - International Valuation Standards
What are the 5 methods of valuation
profits
investment
DRC
Comparative
Residual
What is included in PS 1
Compliance with standards and practice statements
PS2
Ethics, competency, objectivity and disclosures
VPS 1
Terms of EngagementS
VPS 2
Inspection, Investigations and Records.
VPS3
Minimum requirements to be stated within the report
ID status of valuer
Client, other intended user, purpose of valatuon, ID of asset, basis of value, valuation date, extent of investigation, nature and source of info relied, assumption, special assumption, figures, approach and reasoning
VPS 4
BAses of value
MV?
Estimated amount for which an asset or liability should exchange
On valuation date
between willing buyer and seller
arms length transaction
after proper marketing
prudence, knowledge, without compulsion
Market Rent?
Estimated amount for which a property should lease:
on valuation date
between willing lessor and lessee
arms length transaction
after proper marketing
prudence, knowledge, without compulsion
Fair Value
(IFRS 13) Price received to sell an asset or paid to tfer a liability in an orderly transaction between market participants on the measurement date. Adopted by the International Accounting Standards Board
Investment Value?
Value to a particular owner, or prospective owner for individual investment or operational purposes. May differ from market value. Subject to investors requirement criteria
Marriage Value?
Value generated following the combination of two properties
Hope Value?
Value attributed to the assumption or ‘hope’ that future circumstances may change. eg. planning
Loan security purposes - why were you valuing?
I was valuing it for a bank, to provide advice on whether the asset was suitable to have a loan secured against it
Main drivers of value?
Tenure, condition, covenant strength, income profile, location, specification, ceiling height
What is an assumption/
Where reasonable for valuer to accept something as true, without need for specific investigation
What is special assumption?
Supposition that is taken to be true and accepted as fact, even though it isnt true
You say you measured the property (Angel) - to what
NIA after having advised on benefits of IPMS
Angel - what were specific characteristics of the site?
No lift access, on street access, corner position, poor office fit out, retail units in fair condition, single glazing, good ftc height
what is vps 1?
Terms of engagement
How did you know the property was overrented?
From analysis of leasing comparables in the area and the use of the hierarchy of evidence
Office - City of London, why were you valuing?
In line with IFRS 13 - accounts purposes
When is the measurement date?
What do you mean by relevant valuation standards?
Meeting IFRS 13, and also in compliance with RICS Valuation - Global Standards 2021
WHat is Global Standards (UK National Supplement) 2018?
Effective from Jan-19, clarifies that NS is not substitute for RBG but sits alongside it. User friendly, easy to read, new UK VPGAs such as
1 valuation for financial reporting
8 charity assts
10 secured lending purposes
Why is Darnall an inferior location in SHeffield ?
Not direct access to M1, outside Sheffield city centre, does not command as higher rental levels as closer to city
How did you measure the shed?
To GIA, after having explained benefits of IPMS 2
How did you assess tenant covenant strength?
D&B report. Not qualified to advise directly
What’s included in a groundsure report?
detailed environmental data on contaminated land, flood risk, ground stability and geological hazards.
Water ingress - what was this casued from?
Soiled rooflights
What would be an institutional grade industrial building?
Steel frame construction, 8metre eaves, electric roller shutter door, steel profile/brick cladding, between 5-10% office space, 40% site coverage of the shed, three phase power, 10% rooflights
WHat was the property built from
Why was single let a driver of value?
Income producing, secure, no asset managementHa
What method did you value uisng?
Term and reversion. There was a rent review in place but the provisions were not going to bring it up to market rent, so valued it on the assumption that the rent would revert at lease expiry
What damage may water ingress cause to the brickwork?
Blistering, spalling
Marylebone - who was ultimate freeholder?
Howard de Walden Estate
Was there sufficient evidence for VP comps?
Yes, and I used the hierarchy of evidence to specifically understand the asset’s value
What would be an example of a major defect?
Cracking in the walls, something in the design of the building itself rather than a latent defect
What is material uncertainty?
UK VPGA 10
Extraordinary circumstances where you can’t provide a certain amount of certainty regarding a valuation
Example – Covid-19, all valuations had a material uncertainty clause
When would you require PS2?
Do you have the skills, understanding and knowledge?
Conflict of Interest
Terms of Engagement
Equivalent Yield
Average weighted yield when a reversionary property is valued, somewhere between an initial and reversionary yield
What is in a ToE for a valuation?
Bases of value, currency, valuation date, special assumptions
When are PS not mandatory?
- Statutory function except for tax return
- Advice for negotiation or litigation
- Internal purposes, without liability, not communicated to third parties
- Agency or brokerage (except purchaser’s report)
- Providing evidence as expert witness
What’s included in VPS?
VPS 1 – Terms of engagement/assumptions & special assumptions
VPS 2 – Inspections, Investigations, Records
- Verify necessary info via inspection and investigation
- Proper records must be held of inspections and investigations – importance for ESG & sustainability
- Restricted info valuations are still Red Book Global compliant unless for one of functions above. Undertaken on basis of restricted info or without inspection. Following to be considered:
o Nature of restriction agreed in writing
o Consideration as to whether restriction is reasonable
o Restriction must be referred to in report
VPS 3 – Valuation reports, min requirements of report
VPS 4 - Bases of Value
VPS 5 – Valuation Approaches and Methods
What’s included in IVS?
VPGA 1 – Fair Value when included in financial accounts
VPGA 2 – Secured Lending, conflicts of interest
VPGA 8 – Valuation of real property interests, covers inspections and investigations. Emphasis on ESG and sustainability.
VPGA 10 – Material Uncertainty: Valuation report should not be misleading.
What’s included in PS?
PS 1 – Compliance with standards and practice statements
PS 2 – Ethics, Competency, Objectivity, Disclosures
- Act within rules of conduct (professional standards)
- Independence, objectivity, ID & mgmt of conflicts
- Terms of Engagement – compliance with minimum ToE requirements
What was the Pereira Gray Report?
Independent inquiry into real estate investment calculations (Dec-21)
- Raise concerns about ethical conduct
- DCF as principal model for investment valuations
- Developing a Valuation Compliance Officer role within firms
- Independent review of real estate investment valuation
- Diversity and inclusion
SDLT limits?
£0-£150,000 – 0
£150,001 - £250,000 – 2%
Over £250,000 – 5%
SDLT also payable on new leases and premiums payable
What is a net effective rent?
The agreed rental rate for the space, NPV of all the rental payments over the period of the lease, as well as any incentives that may lower these payments.
What is an all risks yield?
A growth implicit yield reflecting all prospects and risks attached to particular investment.
How would you conduct a DRC valuation?
I don’t have experience.
1. Value of land in existing use (assume Planning Permission exists)
2. Add current costs of replacing the building, plus fees less a discount for depreciation and obsolescence/deterioration
True yield?
Assumes rent paid in advance, not in arrears
Nominal yield?
Initial yield assuming rent paid in arrears (norm)
Gross yield?
Not adjusted for PCs
Net yield?
Adjusted for PCs
Equivalent yield?
Average weighted yield when reversionary property is valued using initial and reversionary yield
What is an IRR?
Rate of return at which all future cashflows must be discounted to produce NPV of 0.
Why do we use IRR?
Used to assess total return from investment opportunity making assumptions
What is a liability cap and why do we have it?
Liability caps limit the amount which a professional may be sued by their client in the event of negligence/breach of contract – aids risk management
What was Coleford Road’s construction type?
Steel portal frame with brick clad elevations
What was Alban Gate’s construction type?
Talk me through the profits method of valuation
Trade related property, where value depends on profitability of its business and trading potential.
- Accurate, audited accounts for 3 years
- Annual turnover - costs/purchases = gross profit
- Gross profit - reasonable working expenses = unadjusted net profit
- Unadjusted net profit - pay
= FMOP
Can be expressed as EBITDA - (earnings before interest, taxation, depreciation and amortisation)
- Capitalised at appropriate yield to achieve MV
- cross check with sales evidence
Angel - What was purpose of the valuation?
To see whether a loan could be secured against it?h
Which part of the Red Book does loan security valuations fall under?
VPGA 2
What are 5 methods of valuation?
DRC
Residual
Comparative
Investmnet
Profits
What do you do differently when valuing for loan security v accounting?
value from measurement date
Angel - What was market rent for the property?
£100 ZA, £40 per sq ft
What is a valuation for best consideration?
Angel - Why was the property overrented?
Short lease length unexpired and rent had increased due to RPI
Angel - How did this affect your cap rate
Higher cap rate to account for risk
Angel - Talk me through core and top slice
market rent at initial yield, passing rent less market rent at higher yield until next lease event
Angel - how did you incorporate incentives?
At lease expiry I incorporated 12 months rent free for a new 5 year term
What section of the Red book refers to reporting market rent?
VPS 4 - bases of value
Alban Gate - was the valuation red book compliant?
No, it was an accounts valuation for internal purposes
Is an accounts valuation financially regualted?
Yes, IFRS 13
What do you mean by all relevant valuation standards?
The standards of the Red Book - PS, VPS, IVS, VPGA
What is the full name of the Red Book?
RICS Valuation - Global Standards 2021 (Red Book Global)
What did the Red Book replace?
The RICS Valuation - Professional Standards (Global) 2017
The RICS Valuation - Professional Guidelines 2014 (UK)
The RICS Valuation - Standards (International) 2017
What is purpose of the Red Book?
Creates a set of valuation standards to achieve the highest standards of integrity, clarity and objectivity in adopting valuation practice.
What is a valuation for best consideration?
What is the difference between IVS and the Red Book and the UK national supplement?
IVS is a chapter within the Red Book, the UK national supplement sits alongside the red book
What three things should you consider as first steps before undertaking a valuation?
Your professional competence to undertake the valuation, your Independence (no COI), and Terms of Engagement.
What are the Three Valuation Approaches and Methods According to International Valuation Standards (IVS) 105 (Published by the International Valuation Standards Council, not RICS)
- The Income Approach (Converting Current and Future Cash flows into Capital Value)
- The Market Approach (Using Comparable Evidence in the Market)
- The Cost Approach (Considering value with reference to the Cost of Replacement or Purchase)
All Risks Yield
A. The remunerative rate of interest used in the valuation of fully-let property, let at market rent, reflecting all the prospects and risks attached to the investment. growth implicit
Define NPV
Net Present Value = sum of all the discounted cash flows of the project. Can be used to determine viability of an investment given a certain level of desired return.
Darnall - How was the leak cause?
Soiled roof light and blocked guttering
Darnall - What was the property’s EPC rating?
D
Darnall - What was the property’s construction?
steel frame clad building
What was the yard coverage?
1.25 acres
What was the use class of the property?
B1, B8
Marylebone - who was the LLH from?
The Howard de Walden Estate
What are the benefits of IPMS 3?
More accurate and granular, more modern, market standard
Marylebone - Why did you cross check with the investmnet method?
By way of sensitivity analysis
Marylebone - how long was your elasing void?
6 months
Marylebone - What was market rent?
£75.00psf
Marylebone - What term did you apply?
10 year term
Marylebone - How did this affect your rent free?
18 months
Which are not included as red book compliant valuations?
1.Advice during course of negotiations or litigation
2. performing a statutory function except for the 3. provision of a valuation to include in a tax return
4. Internal purposes with no 3rd party reliance
5. agency and brokerage work
Give me some examples of statutory dd for valuation
Asbestos register, business rates/council tax, contamination, equality act 2010 compliance, EPC check, flooding, legal title and tenure
What are the three steps to undertake at beginning of valuation?
CIT
Competence
Independence
Terms of Engagement
What are the stamp duty bands?
£0-150,000 - NIL
£150,001-£250,000 - 2%
Over £250,000 - 5%
what is SDLT payable on as well?
Grant of new leases, premiums payable. Calculated on NPV of lease, discounted at RPI
What is a party wall?
Stands astride boundary of land belonging to two or more different landowners
What type of valuations might be relied upon by a third party?
For example:
* A published financial statement
* Stock exchange
* Takeovers or mergers
What is an equated yield?
The yield on a property investment which takes into account growth in future income
How would a yield reported from auction differ from a Net Initial Yield?
Auction yields are gross yield they account for purchaser costs
How would you value a property in uncertain market conditions – does the Red Book give any guidance?
VPGA-10
Valuer must draw any attention to material uncertainty. It wont be reflected in the figure but in the report.
How could you value a long leasehold interest?
Ground rent deducted from gross income to calculate net rent received
Capitalised at a yield for the length of the lease to create market value
Dual rate tables adjust a LH valuation to be on same basis by using sinking fund. Not used in practice
How does a term and reversion and DCF differ?
DCF – explicit – expected future cash flows
Term and reversion – implicit
What is a Reasonably Efficient Operator?
Reasonably efficient operator:
* Where the valuer assumes that the market participants
* Are competent operators
* Acting in an efficient manner
How do you calculate the divisible balance?
An allowance made to the MR to reflect the tenant’s capital invested such as costs of trade inventory
What RICS professional standard would you have regard to when looking at comparables?
RICS Professional Standard: Comparable Evidence in real estate valuation (2019)
what is effective date of current red book?
1st Jan 2022
When is new one coming out?
Anticipated Q1/Q2 next year
What does PS1 relate to?
Compliance
What does PS2 relate to?
Ethics and competency
What is meant by the measurement date?
What is VPGA 10?
Material uncertainty, a statement where value may be impacted by extenuating circumstances.
Issued by RICS
What is a ransom strip?
Piece of land that releases development potential in a landlocked piece of land
What is relevant case for ransom strip?
Stokes v Cambridge
- Determined that if a parcel of land would allow access to develop a neighbouring property, in a compulsory purchase of the land its owner is entitled to one-third of the resulting property value.
Is it red book under accounts purposes?
Yes, need to use IFRS 13 and VPGA 1
What is difference between internal and external accounts?
Comes down to what the client expects of you. Has to be stipulated to be under IFRS 13 for Fair Value to kick in.
