Vals from Q&A Flashcards
What is the Professional standard on comparable evidence?
RICS Professional Standard, Comparable Evidence in Real Estate Valuation 2023
What it the RICS Professional Standard, Comparable Evidence in Real Estate Valuation 2023?
Guidance document published by the RICS to provide best practice for using comparable evidence in real estate valuations. Aspects include:
* What constitutes a comparable transaction
* Guidance on sourcing, verifying and analysing comparable transactions
* Importance of ensuring data is accurate, current and adjusted appropriately
* Best practice for presenting comparable evidence in valuation reports
* Ensuring compliance with RICS Valuation, Global Standards (Red Book) – aligns with IVS
Prior to taking on a valuation instruction, what should you undertake?
CIT
* Competence (SUK) – if not competent then refer to the RICS Find a Surveyor Service on the RICS website
* Independence – check for conflicts and personal interests
* Terms of engagement – set out in writing our full confirmation of instructions to the client prior to starting work and receive written confirmation of instruction, confirm the competence of the valuer, the extent and limitations of the valuer’s inspection must be stated
What is the Hierarchy of evidence?
- Category A – Direct comparables of contemporary – completed transactions of near-identical properties for which full and accurate information is available
- Category B – General market data that can provide guidance – info from published sources, indicies, demand/supply data for rent, owner-occupation or investment, historic evidence.
- Category C – Other sources – background data, interest rates, stock market movements
What are the 5 methods of valuations?
- Comparable
- Investment
- Profits
- Residual
- Contractor
When might valuations be except from VPS 1-6?
- Providing agency or brokerage services
- Providing valuations to a client purely for internal purposes, on express contractual terms that exclude the valuer’s liability
When was the RICS Global Standards updated? What are the main changes?
January 2025
* Alignment with the new IVS 2025
* Emphasis on sustainability and ESG factors, reflecting the growing importance of environmental and social considerations
* Requires valuers to rotate off engagements to ensure they remain objective.
Which parts of the Red Book are Mandatory?
Part 3 – PS – Professional Standards (1&2)
Part 4 – VPS (Valuation technical Professional Standards 1-6)
Part 5 – VPGA – Valuation Practice Guidance applications – are advisory
How do loan security reports differ from other valuation or accounts reports?
- Specifically prepared for lenders to assess a property’s suitability as security for a loan. Unlike standard valuation reports, they focus on risk, liquidity, and marketability in case of borrower default.
- Loan security reports include a forced sales value and market risk commentary
- Loan Sec – Must comply with RICS Red Book Global Standards
- Loan Sec – assess how quickly and efficiently the lender could dispose of the asset if required
- Accounts reports have less emphasis on the risk and more focus on the book value and the compliance with reporting standards.
- Loan security reports require deeper due diligence on factors affecting the lender’s ability to recover their loan.
What are some features that must be included in a loan security report?
- SWOT analysis
- Whether the property has been purchased in the last 12 months
- Suitability for loan security – yes/no
What are some reasons why banks would not lend on an asset (loan security)?
- High Risk areas such as a high risk flood zone
- Short Leases
- Structural Issues - if the property has significant structural defects such as foundation problems
- No EWS1 Form
What is Fair Value?
Fair Value (IFRS 13) = price that would be received to sell an asset in an orderly transaction between market participants at the measurement date
How does Fair Value, differ from Market value?
RICS considers the definition of MV comparable to FV
You said you looked at new build houses as well as refurbished period houses, did you see a difference in value?
Yes, generally new build houses had a higher rate psf due to the new build premium to account for warranties and the modern construction standards.
New Build Premium 10%
What makes a property suitable for secure lending?
A property is suitable for secure lending if it can be easily sold and holds enough value for the lender to recover their money if the borrower defaults and is unable to pay back their loan.
How many storeys was your block in Charlton?
What was the construction?
Four storeys, from basement to third floor
Cavity brick wall construction, UVPC casement windows
What VPGAs are relevant to your work?
VPGA 1 - Valuation for Financial Accounts
VPGA 2 - Valuation for Secure Lending
UK VPGA 11 - Valuation for UK residential property
Why do you use fair value?
If its IFRS then required to use, as well as for UK GAAP
What kind of accounts valuation was this?
Annual Valuation Purposes
What accounting basis was your instruction for?
IFRS13 – Fair Value reporting
Was the passing rent different from the market rent?
No, the units were let less than 3 months prior to the valuation therefore the market rent was similar to the passing, therefore the evidence from the block itself was the most salient
Why did you use the investment method over the comparable method?
Income producing asset, there was limited comparable units of that size (250 sq ft)
Why did you look at NIY rather than GIY?
All our comparables were in NIY.
NIY is preferred in the industry as it provides a more accurate reflection of the investment return as it deducts for costs. GIY can often overstate returns and does not factor in landlord expenses.
What is Net Initial Yield?
The resulting yield adjusted for purchasers costs
