Valuation Flashcards
What was the average rent in 2019 for non-LFA land?
£132/ha (£326/acre)
What was the average rent in 2019 for LFA land?
£27/ha (£67/acre)
Give an example of a special assumption
- When a holding is valued for the purpose of compensation for relinquishment of an agricultural tenancy, the valuer must exclude the impact of tenant’s improvements
What four values should a valuer assess for a valuation of a holding for the purpose of compensation for a relinquishment of tenancy?
- The value of the holding with vacant possession, without any consideration of tenant’s improvements
- The value of the holding if occupied by the tenant
- Compensation due to the tenant for tenant’s improvements
- Compensation to the landlord for dilapidations
What are the 5 RICS recognised methods of valuation?
- Comparable method
- Residual method
- Investment method
- Profits method
- Depreciated replacement cost method
What date did the latest red book come into effect?
31st January 2020
What is the definition of market value?
“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
What is special value?
An amount the reflects part or all of an asset which are only of value to a special purchaser
What are the three principle basis’ of value?
- Market value
- Equitable value
- Investment value
What is marriage value?
An additional element of value created by the combination of two or more assets, where the combined value is greater than the sum of the seperate values
Can special value be reflected in market value and equitable value?
Market value - no
Equitable value - yes
Can marriage value be reflected in market value and equitable value?
Yes, in both
Give examples of instances where valuations do not have to comply with the Red Book
- Pre-sale advice
- Supporting expert witness work
- For purely internal purposes where the valuation will not be passed to a third party
Name the 5 valuation technical and performance standards (VPS 1-5)
VPS 1 - Terms of engagement (scope of work)
VPS 2 - Inspections, investigations and records
VPS 3 - Valuation reports
VPS 4 - Bases of value, assumptions and special A’s
VPS 5 - Valuation approaches and methods
What is the abbrevation for valuation practice guidance applications (advisories)?
VPGA
How many VPGA’s are in the RICS Red Book?
Ten
Give some examples of VPGAs.
VPGA 1 – Valuation for inclusion in financial statements
VPGA 2 – Valuation of interests for secured lending
VPGA 3 – Valuation of businesses and business interests
VPGA 4 – Valuation of individual trade related properties
VPGA 5 – Valuation of plant and equipment
VPGA 6 – Valuation of intangible assets
VPGA 7 – Valuation of personal property, including arts and antiques
VPGA 8 – Valuation of real property interests
VPGA 9 – Identification of portfolios, collections and groups of properties
VPGA 10 – Matters that may give rise to material valuation uncertainty
What is the cost approach?
A value based on the principle that a buyer will pay no more for an asset than the cost to obtain an asset of equal quality, whether by purchase or construction
What is the income approach?
A value derived by converting future cash flows into a single current capital value
What is a special assumption?
An assumption that either assumes facts different from the actual facts, or that would not be made a typical market participant in a transaction on the valuation date.
What is Professional Standard 1 (PS 1)?
Compliance with standards where a written valuation is provided
What is Professional Standard 2 (PS 2)?
Ethics, competency, objectivity and disclosures
When can valuations depart from Red Book VPS 1-5?
- Agency advice
- When acting as expert witness
- Performing statutory functions
- Providing valuation for internal purposes
- Providing valuation advice in the course of a negotiation, or litigation where the valuer is acting as an advocate
What should be included in valuation Terms of Engagement (18 items)?
- Identification and status of valuer
- Identification of the client(s)
- Identification of other intended users
- Identification of the asset(s)/liability(ies) being valued
- Currency
- Purpose
- Basis of value (see VPS 4)
- Valuation date
- Nature and extent of investigations and limitations
- Nature and source of information relied upon
- Assumptions and special assumptions
- Format of the report
- Restrictions on use, distribution and publication
- Confirmation of compliance with IVS
- Fee basis
- Reference to complaints handling procedure
- Statement relating to monitoring by RICS
- Any limitations on liability agreed
What do the International Valuation Standards (IVS) 101 refer to Terms of Engagement as?
Scope of works
Who must be responsible for a valuation?
A name individual, who must be an RICS Registered Valuer
Can a property be revalued without re-inspection, if previously valued?
Yes, providing the valuer is satisfied that there have been no material changes to the physical attributes of the nature of its location since the last assignment
What should be included in inspection notes?
limits of inspection (e.g. could not enter property due to COVID-19) and inspection circumstances (e.g. time of year and weather conditions)
VPS 3 - Valuation Reports. What are the general principles?
- The report must clearly and accurately set out the conclusions of the valuation
- The report must deal with all the matters agreed between the client and the valuar in the terms of engagement
What is VPS 4?
Bases of value, assumptions and special assumptions
What are the bases of value as defined in the IVS?
- Market value
- Maket rent
- Investment value
- Equitable value
- Synergistic value
- Liquidation value
What is an assumption?
When it is reasonale for a valuer to accept that something is true without the need for specific investigation or verification
Give some examples of special assumptions
- Assuming planning has been granted
- A development has been completed (in accordance with a defined plan/specification)
- The property is vacant when it is in fact occupied
- The property is let on defined terms when it is in fact vacant