Valuation

Question 1

Name purposes of a valuation

Answer 1

1) Loan Security
2) Rating
3) Accounts
4) L&T functions
5) Tax
6) Corporate real estate advice

Question 2

What does VPS stand for?

Answer 2

Valuation practice Statements

Question 3

What does PS stand for?

Answer 3

Practice Statements

Question 4

Relevant red book

Answer 4

Red Book 2020

RICS Valuation - Global Standards 2020 (w.e.f 31st jan 2020)

Question 5

Purpose of Red book

Answer 5

Consistency, objectivity and transparency - COT

Question 6

Why has the Red Book been updated?

Answer 6

IVS are updated on rolling program every 2 years.

Question 7

Structure of Red Book - PS - VPS

Answer 7

PS1 - Compliance.
PS2 - Ethics and conflicts.
VPS 1 - ToE.
VPS 2 - Inspections.
VPS 3 - Reporting.
VPS 4 - Bases of Valuation.
VPS 5 - Valuation approach.

Question 8

Structure of Red Book - VPGA

Answer 8

1 - Financial Statements (asset valuation for accounts).

2 - Loan Security.

3 - Business valuation.

4 - Trade-related valuation (profits method).

5 - Plant and equipment.

6 - Intangible assets.

7 - Personal property (arts & antiques).

8 - Valuation of real property (valuation checklist).

9 - Portfolio valuation.

10 - Uncertainty

Question 9

What the exceptions to following the red book?

Answer 9

• PS must be followed in written vals.
• VPS not manadatory for:
  1) Statutory basis
  2) Negotiation or litigation - e.g. rent review.
  3) Internal purposes only.
  4) Agency - marketing appraisal.
  5) Expert witness val

ALIES

Question 10

New concepts in Red book 2020

Answer 10

PS 1 - AVM - automated valuation model included.
PS 2 - professional scepticism - must have questioning mind.
VPS 3 - reporting - must mention sustainability where relevant.

Question 11

What is VPS 1

Answer 11

TOE - minimum terms, client may require more.

Include:

a) Valuer ID and status.
b) ID client.
c) ID other users.
d) ID of assets or liabilities.
e) Val currency
f) Purpose of val.
g) Basis(es) of value
h) Val date
i) Nature and extent of valuer’s work
j) Nature and sources used
k) Assumptions and special assumptions
l) Report format
m) use restrictions of report
n) Confirm undertaken to IVS
o) Basis of fee calculation
p) Registered firms provide info on complaints handling procedure.
q) State compliance with standards subject to RICS monitoring and disciplinary regulations
r) Limitations and liabilities

Question 12

VPS 3 - reporting

Answer 12

a) Valuer ID and status.
b) ID client and others
c) Purpose of val.
d) ID Asset
e) Basis(es) Value
f) Val date
g) Extent of Val
h) Nature and information sources used
i) Assumption and special assump.
j) Restrictions on use
k) Confirm using IVS
l) Val approach and reasoning
m) Amount of valuation
n) Date of report
o) Comments on material uncertainty
p) Limitations and liability

Question 13

UK Valuation Standards - Jan 2019

Answer 13

Important parts
VPGA 1 - Valuation for financial reporting: general matter (IFRS and GAAP).
VPGA 10 - Valuation for Commercial secured lending purposes

Question 14

Talk through a Valuation example

Answer 14

1) Property - Location
2) Purpose of valuation
3) Basis of valuation i.e. Market Rent
4) ToE
5) Method of Valuation
6) Technique
7) Advice

Question 15

What are the 5 valuation methods?

Answer 15

1) Comparable
2) Investment
3) Residual and development appraisal
4) Profits
5) DRC (contractors for rating)

Question 16

Comparable evidence in real estate valuation - 1st edi Oct 2019

Answer 16

GN :

• Comparable sources.
• Hierarchy of evidence (best is a transaction on the subject property).
• Recording comparable evidences.
• Comparable analysis.

Question 17

Tell me different yields

Answer 17

• Equated yield - IRR with explicit growth.
• Nominal yield - Initial yield assuming annually in arrears.
• True equivalent yield - calculated on actual payment pattern
• Net initial yield - The passing rent / gross property value including notional acquisition costs.
• Equivalent yield - yield across term and reversion.
• Gross initial yield - FRV/price.
• All risks yield - risk, return, growth.

Question 18

What does ERV stand for?

Answer 18

Estimated rental Value

Question 19

When should term and reversion be used?

Answer 19

Property that is under rented

Question 20

When should hardcore and layer be used?

Answer 20

For institutional investment market i.e. prime offices.
Also useful when reversion is close in time.
Use equivalent yield.

Question 21

When should hardcore and top slice be used?

Answer 21

When current rent is greater than market rent. Use NIY

Question 22

When should Discounted Cash Flow be used?

Answer 22

When investor has target rate of return. If NPV is greater than 0 then.
Can then calculate IRR

Question 23

What is the difference between a development appraisal and a residual valuation?

Answer 23

Residual valuation gives land value

Question 24

What are typical professional fees in a valuation?

Answer 24

5.75%

Question 25

What is the Hierarchy of rental Evidence?

Answer 25

1) New letting 2) Lease Renewal 3) Rent review (if market basis) 4) Independent expert 5) Opinion 6) Arbitration/court 7) Asking rents

Question 26

Due diligence checks for vals

Answer 26

1) Am I competent 2) Conflicts 3) Confirm instruction in writing 4) ToE 5) Asbestos register 6) Business rates 7) Contamination 8) Equality Act compliance 9) Environmental matters 10) Flooding 11) Fire safety compliance.

Question 27

What are the 4 bases of valuation?

Answer 27

Market Value, Market rent, Fair value and Investment value

Question 28

Case law on inspection

Answer 28

Webb and Blemain vs eSruv 2012 - valuer criticised for inadequate research, method and for not inspecting. Above degree of error (5% is usual acceptance)

Question 29

What does VPGA stand for?

Answer 29

valuation practice guidance – applications

Question 30

What are the 5 mandatory Valuation Practice Statements?

Answer 30

``` VPS 1 - ToE. VPS 2 - Inspections. VPS 3 - Reporting. VPS 4 - Bases of Valuation. VPS 5 - Valuation approach. ```

Question 31

Define assumption

Answer 31

A supposition taken to be true. Valuer not required to investigate to prove something is true.

Question 32

Define departure

Answer 32

Special circumstances where mandatory application of these global standards may be inappropriate.

Question 33

Define Market value

Answer 33

Estimated amount for which an asset or liability should exchange on valuation date between willing parties, in an arms length transaction, after proper marketing and where parties acted knowledgeably, prudently and without compulsion.

Question 34

Define basis of value

Answer 34

Statement of the fundamental measurement assumptions of a val.

Question 35

Define special purchaser

Answer 35

a particular buyer for whom a particular asset has special value because of advantages arising from its ownership that would not be available to other buyers.

Question 36

Define special assumption

Answer 36

An assumption that assumes facts that differ from the actual facts existing at the val date or not typical for the market.

Question 37

Define Fair Value

Answer 37

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

Question 38

What is IFRS

Answer 38

Internationl Financial Reporting Standards

Question 39

Summarise profits method

Answer 39

(Turnover - costs) capitalised

Question 40

When does RICS Valuation - Global standards apply?

Answer 40

In all valuations save a few exceptions.

Question 41

Tell me about different repairing covenants?

Answer 41

1. Put and keep - to put and keep the premises in good repair (more onus on the tenant). 2. To maintain good repair - tenant not required to place property in a better repair than at commencement of lease (schedule of condition).

Question 42

Define investment Value

Answer 42

the value of an asset to a particular owner or prospective owner for individual investment or operational objectives. (worth)