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RICS APC 2022 > Valuation > Flashcards

Valuation Flashcards

1
Q

What is the Red Book?

A

Set of global valuation standards and details on mandatory practices for property valuations

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2
Q

What are the key principles of RICS Valuation – Global Standards 2021?

A

To ensure that high standards of inspection, investigation, analysis, definitions, justification and presentation are met

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3
Q

What are the key changes to the latest Red Book?

A
  • Compliance with Red Book must be stated in terms (no more part-Red Book)
  • Valuation for financial reporting purposes must provide ‘fair value’
  • Use of profits method for certain properties (list provided)
  • Emphasis on sustainability and ESG factors (definitions, inspections and reporting, commentary of secured lending)
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4
Q

What are the various purposes of a valuation?

A
  • Negotiations / litigation purposes
  • Agency purposes
  • Accounts purposes
  • Statutory purposes
  • Expert witness purposes
  • Secured lending purposes
  • Tax purposes (inheritance tax)
  • Performance management
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5
Q

What are the key factors that drive property value?

A
  • Location
  • Specification / condition
  • Want of repair
  • Tenancy profile
  • Market conditions
  • Planning considerations
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6
Q

What is PII?

A

Professional Indemnity Insurance – mandatory for surveyors working in practice

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7
Q

Why is PII cover important?

A

Protects clients, surveyors and third parties against negligence claims when there is a duty of care breached and claim for damages arises

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8
Q

Why is PII important to valuation?

A

If valuations are to be used by third parties, appropriate PII cover is required. Valuation is a particularly litigious area of surveying.

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9
Q

What cover do you have at your firm?

A

£5,000,000 cover

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10
Q

What is the RICS Review of Real Estate Investment Valuations 2021?

A

RICS Standards and Regulation Board commissioned this review, to improve confidence in valuations relief upon by third parties, predominantly for financial reporting purposes

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11
Q

Who led the RICS Review of Real Estate Investment Valuation 2021?

A

Peter Pereira Gray

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12
Q

What were some recommendations of the RICS Review of Real Estate Investment Valuations 2021?

A
  • Valuation Compliance Officer – cover valuation process and conduct
  • Quality Assurance Panel – dedicated independent panel under jurisdiction of RICS Standards and Regulation Board
  • Diversity and inclusion – should continue to be encouraged, specifically in the valuation profession
  • Valuation and Advisory activities – should be separated within firms
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13
Q

What is an internal valuer?

A
  • Employed by company to value the assets of the company

* Internal use only / No third-party reliance

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14
Q

What is an external valuer?

A

Has no material links with the asset to be valued or the client

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15
Q

What do you do before commencing a valuation instruction?

A
  • Competence – ensured I had the correct level of skill, understanding and knowledge (if not, refer client to RICS find a surveyor service on the RICS website)
  • Independence – ensured there were no conflicts or personal interests
  • Terms of engagement – set out in writing my confirmation of instructions, confirming my competence, and the extent and limitations of my inspection as the valuer
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16
Q

What might be included in statutory due diligence for valuation?

A
  1. Asbestos register
  2. Business rates
  3. Contamination
  4. Equality Act 2010 compliance
  5. Environmental matters
  6. EPC rating
  7. Flooding
  8. Fire safety compliance
  9. Health and safety compliance
  10. Highways
  11. Legal title and tenure
  12. Public rights of way
  13. Planning history and compliance
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17
Q

What is the timeline of a valuation?

A
  1. Receive instructions / check competence, conflicts / issue terms
  2. Due diligence / inspect and measure / market research
  3. Form opinion / report to client / archive records
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18
Q

What are the 5 methods of valuation?

A
  • Comparable method
  • Investment method
  • Profits method
  • Residual method
  • Depreciated replacement cost (DRC) method
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19
Q

What are 3 valuation approaches as defined in the Red Book (IVS 105)?

A
  1. Income approach – converting current and future cash flows into a capital value (investment, residual and profits methods)
  2. Cost approach – reference to the cost of the asset whether by purchase or construction (DRC method)
  3. Market approach – using comparable evidence (comparable method)
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20
Q

What is the comparable method?

A

Analysis of comparable transactions to form opinion of value

Used to value vacant property, as well as a supplementary method to other approaches

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21
Q

What is the methodology of the comparable method?

A
  1. Search / select comparables
  2. Confirm / verify details (calculate net effective rent as appropriate)
  3. Assemble comparables in schedule
  4. Adjust comparables using hierarchy of evidence
  5. Analyse comparables to form opinion of value
  6. Report value and prepare file note
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22
Q

What RICS guidance are you aware of covering comparable evidence?

A

RICS Guidance Note ‘Comparable Evidence in Real Estate Valuation’ 2019

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23
Q

What does RICS Guidance Note ‘Comparable Evidence in Real Estate Valuation’ 2019 cover?

A

Sets out best practice in the use of comparable evidence, specifically outlining the hierarchy of evidence

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24
Q

What is the hierarchy of evidence in comparable evidence?

A

Framework for comparables based on relative weight attached to different types of evidence

Category A – direct comparables (near identical properties with full accurate data available)

Category B – general market data (information from commercial databases, or demand/supply data)

Category C – other sources (evidence from other types of real estate in other locations, or wider market data such as interest rates, stock market movements)

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25
Q

How do you find relevant comparables?

A
  • Inspection of the area (agency boards)
  • Speak to local agents
  • Auction results
  • Internal databases
  • Market sentiment
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26
Q

What is the investment method?

A

Used when there is an income stream (capitalise rental income to produce capital value)

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27
Q

What are the types of investment method?

A
  • Conventional method
  • Term & reversion
  • Hardcore / layer
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28
Q

What is the conventional investment method?

A
  • Assumes growth implicit, valued into perpetuity
  • Calculated as Passing rent or Market Rent multiplied by years purchase = Market Value
  • Used for rack rented property
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29
Q

What is the term and reversion method?

A
  • Used for reversionary investments (Market Rent > Passing Rent), i.e. under-rented
  • Term capitalised at initial yield until break/expiry
  • Reversion to Market Rent valued in perpetuity at a reversionary yield
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30
Q

What is the hardcore / layer method?

A
  • Used for over-rented property (Passing Rent > Market Rent)
  • Income flow is divided horizontally
  • Bottom slice = Market Rent
  • Top slice = Passing Rent
  • Higher yield applied to top slice to reflect additional risk
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31
Q

What is a yield?

A

Measure of investment return, expressed as a percentage of capital invested

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32
Q

How do you calculate a yield?

A

Income divided by price x 100

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33
Q

How do you calculate years purchase?

A

100 divided by the Yield (100 / 5% = 20)

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34
Q

What major factors contribute to the ‘risk’ and therefore yield of a property?

A
  • Rental / capital growth prospects
  • Quality of location and covenant
  • Use of the property
  • Lease terms
  • Obsolescence
  • Voids
  • Security and regularity of income
  • Liquidity
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35
Q

What is a return?

A

Performance of an investment / property

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36
Q

How do you calculate the internal rate of return?

A

Discounted Cash Flow calculation

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37
Q

What is an all risks yield?

A

Remunerative rate of interest used in the valuation of a fully let property let at market rent reflecting all the prospects and risks attached to the particular investment

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38
Q

What is a true yield?

A

Assumes rent paid in advance not in arrears

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39
Q

What is a nominal yield?

A

Initial yield assuming rent is paid in arrears

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40
Q

What is a gross yield?

A

Yield not adjusted for purchasers’ costs

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41
Q

What is a net yield?

A

Resulting yield adjusted for purchasers’ costs

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42
Q

What is an equivalent yield?

A

Average weighted yield when a reversionary property is valued using an initial and reversionary yield

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43
Q

What is an initial yield?

A

Simple income yield when a reversionary property is valued using an initial and reversionary yield

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44
Q

What is a reversionary yield?

A

Market rent divided by current price on an investment let at a rent below the market rent

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45
Q

What is a running yield?

A

The yield at one moment in time

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46
Q

What is the Discounted Cashflow Technique (DCF)?

A

Growth explicit investment method of valuation, which involves projecting cash flows over an assumed holding period to calculate an exit value, discounted back to present value to provide rate of return

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47
Q

When is DCF used?

A
  • Short leasehold interests and properties with income voids or complex tenures
  • Phased development projects
  • Some ‘Alternative’ investments
  • Non-standard investments
  • Over-rented properties and social housing
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48
Q

What is a simply methodology using DCF to find market value?

A
  1. Estimate cash flow
  2. Estimate exit value
  3. Select discount rate
  4. Discount cash flow at discount rate
  5. = Net Present Value
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49
Q

What is the Net Present Value (NPV)?

A
  • Sum of discounted cash flows of the project
  • NPV can be used to show if investment gives positive return against a target rate of return
  • Positive NPV = investment exceeded target rate of return
  • Negative NPV = investment has not met target rate of return
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50
Q

What is the Internal Rate of Return (IRR)?

A

Rate of return at which all future cashflows must be discounted to produce a NPV of zero
Used to assess the total return of an investment, given assumptions on rental growth, re-letting and exit assumptions

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51
Q

How do you calculate IRR?

A
  1. Input current market value as negative cash flow
  2. Input projected rents over holding period as positive value
  3. Input projected exit value at the end of the term assumed as positive value
  4. Discount rate (IRR) is the rate chosen which provides NPV = 0
  5. If NPV > 0, then target rate of return is met
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52
Q

What is the profits method?

A

Used when the value of the property depends upon the profitability of its business and its trading potential

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53
Q

What are some properties you would use the profits method to value?

A
  • Pubs
  • Petrol stations
  • Hotels
  • Guest houses
  • Nurseries
  • Leisure and healthcare properties
  • Care homes
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54
Q

What is needed to use the profits method?

A

Accurate and audited accounts for 3 years

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55
Q

What is the methodology of the profits method?

A

EBITDA (or Fair Maintainable Operating Profit) capitalised by appropriate yield to achieve market value

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56
Q

How would you arrive at the Fair Maintainable Operating Profit or EBITDA?

A 
Annual turnover (income received)
	Less costs/purchases
	= Gross profit
	Less reasonable working expenses
	= Unadjusted net profile
	Less operator’s remuneration
= Adjusted net profit known as the Fair Maintainable Operating Profit (FMOP) – can be expressed as the EBITDA
Capitalised at appropriate yield to achieve Market Value
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57
Q

What is the residual method?

A

Form of development appraisal, using market inputs to find the market value of the site

Can be based on simple residual valuation or the DCF method

All inputs taken at the date of valuation

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58
Q

What is a simple methodology for a residual method valuation?

A

What is a simple methodology for a residual method valuation?
• Calculate Gross Development Value (GDV)
• Less Total Development Costs (TDC) and Developers Profit
• = Residual Site Value

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59
Q

What RICS guidance is there on residual valuations and development property?

A

RICS Guidance Note ‘Valuation of Development Property’ 2019

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60
Q

What are the limitations of residual valuation methodology?

A
  • Accurate information
  • Does not consider timing of cash flows
  • Sensitive to minor adjustments
  • Implicit assumptions hidden and not explicit
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61
Q

What is the Depreciated Replacement Cost method?

A

Also known as Contractors method, used where direct market evidence is limited or unavailable

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62
Q

What properties would you use the DRC method to value?

A
  • Ancient monument
  • Lighthouse
  • Sewage works
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63
Q

What are the purposes of a DRC valuation?

A
  • Accounts purposes for specialised properties
  • Rating valuations of specialised properties
  • Used for owner occupier property
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64
Q

What is a simple methodology of the DRC method?

A
  1. Value of the land in its existing use (assume planning permission exists)
  2. Add current cost of replacing the building plus fees, less a discount for depreciation and obsolescence/deterioration
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65
Q

What are the types of obsolescence that must be accounted for?

A
  • Physical obsolescence – wear and tear
  • Functional obsolescence – design or specification no longer fits function
  • Economic obsolescence – changing market conditions for use of the asset
66
Q

What RICS guidance is there on DRC method?

A

RICS Guidance Note on Depreciated replacement costs method of valuation for financial reporting 2018

67
Q

Are DRC valuations compliant with the Red Book?

A

This method is not suitable for Red Book compliant valuations for secured lending purposes

68
Q

What is the latest Red Book?

A

RICS Valuation Global Standards 2021

69
Q

When did the latest Red Book become effective?

A

31st January 2022

70
Q

What is the structure of the Red Book?

A
  1. Part 1 – Introductions
  2. Part 2 – Glossary
  3. Part 3 – Professional Standards (PS)
  4. Part 4 – Valuation technical and performance standards (VPS)
  5. Part 5 – Valuation applications (VPGA)
  6. Part 6 – The International Valuation Standards (IVS)
71
Q

What does PS 1 cover?

A

Compliance with standards and practice statements where a written valuation is provided

Also covers when valuations are exempt from being Red Book compliant

72
Q

When are valuations exempt from Red Book compliance?

A
  1. Negotiation or litigation
  2. Statutory function (except statutory return to tax authority)
  3. Internal purpose (no liability, no 3rd party)
  4. Agency or brokerage work
  5. Evidence as an expert witness
73
Q

What does PS 2 cover?

A

Ethics, competency, objectivity and disclosures

74
Q

What does PS 2 say about professional and ethical standards?

A

Valuers must follow RICS Rules of Conduct

75
Q

What should valuers apply when reviewing information and data before relying on it?

A

Professional scepticism

76
Q

What does the Red Book say about managing conflicts (PS 2)?

A
  • Need informed consent
  • Separate individuals for each side
  • Physical separation of individuals
  • Information and data held separately
  • Compliance officer must oversea, without being involved in either instruction
77
Q

What does VPS 1 cover?

A

Terms of engagement (IVS 101 Scope of work) – minimum requirements

78
Q

What must be confirmed in Red Book Terms of Engagement as a minimum?

A

a. Identification and status of the valuer
b. Identification of the client
c. Identification of any other intended users
d. The asset to be valued – if a portfolio then lotting of assets should be considered
e. Currency
f. Purpose of the valuation
g. Basis of value
h. Valuation date
i. Extent of investigation
j. Nature and source of the information to be relied upon
k. Assumptions and special assumptions to be made
l. Format of the report
m. Restrictions for use, distribution and publication
n. Confirmation of Red Book Global/IVS compliance
o. Fee basis
p. Complaints handling procedure to be made available
q. Statement that the valuation may be subject to compliance by the RICS
r. Limitation on liability agreed

79
Q

What are some of the minimum requirements of Red Book terms?

A
  • Identification and status of valuer
  • Purpose of valuation
  • Basis of value
  • Fee basis
  • Confirmation of Red Book compliance
  • Complaints handling procedure
80
Q

What does VPS 2 cover?

A

Inspections, investigations and records

81
Q

Do you have to inspect a property for it to be Red Book?

A

No – desktop valuations can be under the Red Book also. This must be agreed / stated in writing.

82
Q

If undertaking a valuation without an inspection, or with restricted information, what should you consider?

A
  1. Nature of the restriction agreed in written terms
  2. Implications of the restriction in writing
  3. Whether restriction is reasonable with regard to purpose of valuation
  4. Restriction must be referred to in the report
83
Q

What does VPS 3 cover?

A

Valuation Reports (IVS 103 Reporting) – minimum requirements

84
Q

What are the minimum requirements to be stated within a Red Book valuation report?

A

a. Identification and status of the valuer
b. Client and any other intended users
c. Purpose of valuation
d. Identification of the asset to be valued
e. Basis of value
f. Valuation date
g. Extent of investigation
h. Nature & source of information relied upon
i. Assumptions and special assumptions
j. Restrictions on use, distribution and publication
k. Instruction undertaken in accordance with IVS standards
l. Valuation approach and reasoning
m. Valuation figure(s)
n. Comment on market uncertainty
o. Statement setting out any limitations on liability that have been agreed

85
Q

What are some of the minimum requirements of Red Book reports?

A
  • Identification and status of valuer
  • Identification of asset to be valued
  • Extent of investigation
  • Assumptions and special assumptions
  • Valuation approach
  • Valuation figure(s)
86
Q

What does the Red Book say about draft reports / advice?

A
  • Must be marked as draft, and that it cannot be shared
  • Subject to completion of final report
  • Valuer cannot be influenced by client for the final report
  • Any changes to draft must be noted on file with reasons provided
  • Any additional information provided by client after draft report must be stated in the report
87
Q

What does VPS 4 cover?

A

Bases of value, assumptions and special assumptions

88
Q

What bases of value are defined in the Red Book?

A
  1. Market value
  2. Market rent
  3. Fair value
  4. Investment value
  5. Equitable value
  6. Liquidation value
89
Q

What is Market Value?

A

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

90
Q

What is Market Rent?

A

The estimated amount for which an in interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion

91
Q

What is Investment Value?

A

The value of an asset to a particular owner or prospective owner for individual investment or operational objectives

92
Q

What is Fair Value?

A

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

93
Q

What is an assumption?

A

An acceptance of something to be true without need for specific investigation, e.g. outcome of a lease event

94
Q

What is a special assumption?

A

A supposition that is taken to be true, even if it is not. E.g. assuming that planning consent will be granted

95
Q

What does VPS 5 cover?

A

Valuation approaches and methods

96
Q

How many VPGAs (Valuation Practice Guidance Applications) are there?

A

10

97
Q

What are some of the key VPGAs?

A
  • VPGA 1 – Valuation for inclusion in financial accounts
  • VPGA 2 – Valuations for secured lending
  • VPGA 8 – Valuation of real property interests
  • VPGA 10 – Matters that may give rise to material valuation uncertainty
98
Q

What does VPGA 1 cover?

A

Valuation for inclusion in financial accounts (fair value to be adopted)

99
Q

What does VPGA 2 cover?

A

Valuation for secured lending

100
Q

What does the Red Book say about conflicts for secured lending?

A
  • Any previous, current or expected involvement to be disclosed to the lender
  • Previous involvement means last 2 years
  • If a conflict cannot be avoided it must be declined
101
Q

What some examples of conflicts under VPGA 2?

A
  • Longstanding professional relationship with prospective borrower or owner
  • When valuer gains a fee from introducing borrower to lender
  • If there is a financial interest in the property holding or prospective borrower
  • When the valuer is retained to act in the disposal or letting of the completed development
102
Q

What additional information must be included in valuation reports for secured lending (under VPGA 2)?

A
  • Disclose any involvements or conflicts to be managed in terms of engagement
  • Valuation methodology and calculation provided
  • Recent transactions or provisionally agreed prices of the subject property
  • Environmental considerations
  • Sustainability of the property for mortgage purposes
  • Any other factors that may contradict definition of market value
103
Q

What does VPGA 2 say about sustainability?

A

Sustainability factors are becoming a more significant influence and valuations for secured lending should always have regard to their relevant to the instruction

104
Q

What does VPGA 8 cover?

A

Valuation of real property interests – covers inspections and investigations with emphasis on ESG and specific environmental constraints and sustainability issues

105
Q

What does VPGA 10 cover?

A

Matters that may give rise to material uncertainty

106
Q

What does the Red Book say about material uncertainty (VPGA 10)?

A
  • Valuation reports must not be misleading

* Valuer must draw attention to and comment on any issues resulting in material uncertainty

107
Q

What is the UK National Supplement?

A

Sets out requirements for members on the application of the Red Book within UK jurisdiction

108
Q

How is the UK National Supplement 2018 structured?

A

18 VPGAs (Valuation Practice Guidance Applications)

109
Q

What are some of the key changes to the updated UK National Supplement 2018?

A
  • Easy to read, with clear advice on what is and is not mandatory
  • Makes it clear that the supplement augments the Red Book for UK jurisdiction
  • It is not a substitute for the Red Book
  • For financial reporting valuations, there is greater differentiation between UK GAAP and IFRS requirements
  • New section on valuation for commercial lending
110
Q

What is the structure of the UK National Supplement 2018?

A
  • Part 1 – Introduction
  • Part 2 – UK Professional Valuation Standards – mandatory
  • Part 3 – UK Valuation Practice Guidance Applications – advisory
  • Part 4 – Summary of changes from Red Book UK 2014 (revised 2015)
111
Q

What are some key UK VPGAs in the UK National Supplement 2018?

A
  1. Valuation for financial reporting
  2. Valuation of registered social housing providers’ assets for financial statements
  3. Valuation of charity assets
  4. Valuation for commercial secured lending purposes
  5. Valuation for residential mortgage purposes
  6. Valuation of registered social housing for loan security purposes
  7. Valuation for CGT, Inheritance Tax, SDLT and ATED
112
Q

What does UK VPS 3 of the National Supplement cover?

A

Regulated purpose valuations (RICS valuation monitoring)

Valuations relied on by third parties who have not commissioned the valuation and they are subject to valuation monitoring

113
Q

What are the five valuation purposes subject to monitoring under UK VPS 3?

A
  1. Financial reporting (company accounts)
  2. Stock Exchange listings/inclusion in prospectuses and circulars
  3. Takeovers and mergers
  4. Collective investment schemes
  5. Unregulated property unit trusts
114
Q

What RICS guidance is there on ESG and sustainability in valuation?

A

RICS Guidance Note ‘Sustainability and ESG in commercial property valuation and strategic advice’ 2021

115
Q

What does RICS Guidance Note ‘Sustainability and ESG in commercial property valuation and strategic advice’ 2021 cover?

A
  • Glossary of terms covering terms of engagement, inspection, valuation purpose and reporting
  • Advice relating to sustainability characteristics, considerations and risks
116
Q

What margin of error do you apply to you valuations?

A
  • Residential -/+ 5%
  • Commercial -/+ 10%
  • Unique property -/+ 15%
117
Q

What is hope value?

A

Value arising from expectation of future circumstances affecting the property may change, e.g. planning permission or the realisation of marriage value

118
Q

What is marriage value?

A

Created by a merger of interest – physical or tenurial (e.g. freeholder buying LLH)

119
Q

What is required for valuation for charities?

A

Obtain Section 119 of the Charities Act 2011

120
Q

What is Stamp Duty Land Tax for commercial property currently?

A

£0 - £150,000 = Nil
£150,001 - £250,000 = 2%
Over £250,000 = 5%

121
Q

What is Stamp Duty Land Tax for residential property currently?

A 
£0 - £125,000 = Nil
£125,001 - £250,000 = 2%
£250,001 - £925,000 = 5%
£925,001 - £1,500,000 = 10%
Over £1,500,000 = 12%
122
Q

What is a surrender and renewal valuation?

A

When a landlord/tenant wants a surrender of the current lease and grant of a new lease simultaneously. Calculation of a premium to reflect the change in value of leasehold interest

123
Q

What is special value?

A

Generated when there is a special purchaser for the transaction, where advantages of ownership would arise that are not available to other buyers in the market. E.g. adjoining property

124
Q

How do you value build costs?

A

Calculate the cost of reinstatement of the building without a profit

125
Q

How do you value long leaseholds?

A
  • Rent received less ground rent (=net rental income)
  • Capitalised at an appropriate yield for the remaining length of the lease
  • = Market value of leasehold interest
126
Q

What are premiums?

A

Capital payment made by one party to another

127
Q

What reasons are premiums paid?

A
  • Paid by incoming tenant of retail property to secure prime shop
  • Paid by incoming tenant to represent fixtures and fittings
  • Paid by incoming tenant for leasehold interest, to represent positive difference between passing rent and market rent (known as profit rent)
  • Sum paid by landlord to a tenant for the surrender of a leasehold interest and grant of a new lease
128
Q

What are purchasers costs?

A
  • Stamp Duty – prevailing rate
  • Agents fees – 1.0% of purchase price + VAT
  • Solicitors fees – 0.5% of purchase price + VAT
129
Q

What is a WAULT?

A

Weighted Average Unexpired Lease Term

130
Q

What are three approaches to calculate net effective rent?

A
  1. Straight line method
  2. Straight line method assuming time value of cash flow using a yield
  3. Use of DCF
131
Q

How do you calculate net effective yield (straight line method)?

A

Headline Rent x (Term – Rent free) / Term = Net Effective Rent

132
Q

What is a ransom strip?

A

Piece of land which controls the access to another piece of land

133
Q

How can you value a ransom strip?

A

The Upper Tribunal (Land Chambers) suggests value of ransom strip could be 15% - 50% of the development value unlocked by the inclusion of the ransom strip within the proposed development scheme

However, it is a case by case basis

134
Q

What is zoning?

A

Valuation technique used to create a unit for comparison of retail properties

Rationale is that rental values reduces away from the street

Halving back principle with 6.1m zones (20 ft)

135
Q

How would you decide what depth zones to apply?

A

Depends where the unit is located – some prime London retail streets have 9.14m zones

136
Q

How would you determine what % increase/decrease to apply to a basement or 1st floor area?

A

Usually treated as A/10 approximately or a flat rate

137
Q

If a shop had a return frontage, how would you account for this in zoning?

A

Usually add 10% uplift

138
Q

What is an ITZA measurement?

A

Area in terms of zone A

139
Q

What is natural zoning?

A

When property zones reflect physical changes in the building, such as steps

140
Q

What is mirror zoning?

A

Can be used for a shop with two main frontages

141
Q

What is ‘masking’?

A

Used for valuation of ‘hidden’ or obscured areas

142
Q

What are party walls?

A

A wall that stands astride the boundary of land belonging to two or more different land owners

143
Q

What are Rights of Light?

A

The right to light of a building arises after twenty years uninterrupted enjoyment of light without the consent of a third party by way of an easement with a prescriptive right

144
Q

What RICS guidance is there on rights of light?

A

RICS Guidance Note on Rights of Light 2016

145
Q

What RICS guidance did you follow during the pandemic?

A

Covid-19 and valuation practice alerts

146
Q

What guidance do the RICS Covid-19 valuation practice alerts provide?

A

States the need to ensure that inspections and use of data do not lead to reduced standards

Also provided a statement regarding ‘material uncertainty’ under VPS 3 and VPGA 10 of the Red Book to include in valuation reports where there has not been sufficient evidence

147
Q

What is the current RICS Covid 19 valuation practice guidance?

A

The most recent version was published July 2021, however this was withdrawn in March 2022

148
Q

What is the RICS Valuer Registration Scheme (VRS)?

A

Regulatory monitoring scheme for all valuers carrying out Red Book valuations

149
Q

What are the three aims of the VRS scheme?

A
  1. Improve quality of valuation and ensure highest possible standards
  2. Meet RICS requirement to self-regulate
  3. Protect and raise the status of the valuation profession as the leading expertise in valuation
150
Q

To register as RICS Registered Valuer, what information is required in respect of valuation work undertaken?

A
  • Type of valuations
  • Purpose of valuations
  • Number of valuations
  • Firms total fee income from Red Book Global valuation in the last year
  • What data sources are used
  • Quality assurance audit procedures in place
  • History of any negligence claims and notifications
151
Q

What are the bases of a rent review?

A
  • Upward only to market rent
  • Indexation (RPI or CPI linked with cap and collars)
  • Turnover rents
  • Stepped increases
152
Q

What are the four usual assumptions of a rent review?

A
  1. Property available to let on open market by willing tenant and a willing landlord for a term of years as stated
  2. Property is fit and available for immediate occupation and use
  3. All covenant observed by landlord and tenant
  4. Property may be used for purpose set out in lease
153
Q

What are the three usual disregards during a rent review?

A
  1. Any effect of goodwill on tenants occupation
  2. Ignore goodwill attached to the property
  3. Tenants improvements if landlord consent has been granted for the works
154
Q

What is the notional term of the lease?

A

The length of term to be valued (also known as the hypothetical term)

155
Q

What is the hierarchy of evidence (for rent reviews)?

A

Framework for relative weight attached to comparable evidence (according to The Handbook of Rent Review, Reynolds & Bernstein)

156
Q

What are the top 3 types of evidence under Reynolds & Bernstein hierarchy of evidence?

A
  1. Open market lettings
  2. Rent review & lease renewals
  3. Independent expert determinations
157
Q

What are some major lease terms that affect value?

A
  • Lease length/term certain
  • Break clauses
  • Alienation
  • Repairing obligations
  • User clauses
  • Rent review pattern and basis of valuation
  • Security of tenure provisions
  • Impact of a restrictive lease clause upon value
158
Q

If a tenant has a weak covenant, what might a landlord request?

A
  • AGA

* Rent deposit

159
Q

What are some requirements of a rent deposit?

A
  • Personal to the tenant
  • Must be legally documented in rent deposit deed / money held separately
  • Interest to tenant
  • Agreed terms for the release of the monies
  • Details of the release mechanism to be stated in the deed
  • Can include top up mechanisms for rent review uplifts
160
Q

What is usually requested for a rent deposit?

A
  • Bank, accountant and 2 trade references
  • Previous/existing landlords reference
  • 3 years audited accounts/business plan/credit rating (Dun & Bradstreet)
161
Q

What is the profits test?

A
  • Net profit for tenants business must be 3 times the rent for 3 consecutive years
  • OR, net asset value of the business must be 5 times the rent

RICS APC 2022 (7 decks)

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