Valuation Flashcards

1
Q

Name purposes of a valuation

A

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

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2
Q

What does VPS stand for?

A

Valuation practice Statements

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3
Q

What does PS stand for?

A

Practice Statements

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4
Q

Relevant red book

A

Red Book 2020

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

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5
Q

Purpose of Red book

A

Consistency, objectivity and transparency - COT

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6
Q

Why has the Red Book been updated?

A

IVS are updated on rolling program every 2 years.

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7
Q

Structure of Red Book - PS - VPS

A
PS1 - Compliance.
PS2 - Ethics and conflicts.
VPS 1 - ToE.
VPS 2 - Inspections.
VPS 3 - Reporting.
VPS 4 - Bases of Valuation.
VPS 5 - Valuation approach.
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8
Q

Structure of Red Book - VPGA

A

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

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9
Q

What the exceptions to following the red book?

A
  • 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

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10
Q

New concepts in Red book 2020

A

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

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11
Q

What is VPS 1

A

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

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12
Q

VPS 3 - reporting

A

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

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13
Q

UK Valuation Standards - Jan 2019

A

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

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14
Q

Talk through a Valuation example

A

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

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15
Q

What are the 5 valuation methods?

A

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

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16
Q

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

A

GN :

  • Comparable sources.
  • Hierarchy of evidence (best is a transaction on the subject property).
  • Recording comparable evidences.
  • Comparable analysis.
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17
Q

Tell me different yields

A
  • 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.
18
Q

What does ERV stand for?

A

Estimated rental Value

19
Q

When should term and reversion be used?

A

Property that is under rented

20
Q

When should hardcore and layer be used?

A

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

21
Q

When should hardcore and top slice be used?

A

When current rent is greater than market rent. Use NIY

22
Q

When should Discounted Cash Flow be used?

A

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

23
Q

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

A

Residual valuation gives land value

24
Q

What are typical professional fees in a valuation?

A

5.75%

25
Q

What is the Hierarchy of rental Evidence?

A

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

26
Q

Due diligence checks for vals

A

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.

27
Q

What are the 4 bases of valuation?

A

Market Value, Market rent, Fair value and Investment value

28
Q

Case law on inspection

A

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

29
Q

What does VPGA stand for?

A

valuation practice guidance – applications

30
Q

What are the 5 mandatory Valuation Practice Statements?

A
VPS 1 - ToE.
VPS 2 - Inspections.
VPS 3 - Reporting.
VPS 4 - Bases of Valuation.
VPS 5 - Valuation approach.
31
Q

Define assumption

A

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

32
Q

Define departure

A

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

33
Q

Define Market value

A

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.

34
Q

Define basis of value

A

Statement of the fundamental measurement assumptions of a val.

35
Q

Define special purchaser

A

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.

36
Q

Define special assumption

A

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

37
Q

Define Fair Value

A

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)

38
Q

What is IFRS

A

Internationl Financial Reporting Standards

39
Q

Summarise profits method

A

(Turnover - costs) capitalised

40
Q

When does RICS Valuation - Global standards apply?

A

In all valuations save a few exceptions.

41
Q

Tell me about different repairing covenants?

A
  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).
42
Q

Define investment Value

A

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