Valuation Flashcards
What is the definition of Market Value (MV)?
The estimated amount for which an asset or liability would exchange on the date of valuation between a willing buyer and a willing seller at an arm’s length transaction after all proper marketing and where both parties acted prudently, knowledgeably and without compulsion.
What are the Basis of Value?
- Market Value
- Market Rent
- Investment Value
- Fair Value
What is the definition of Fair Value?
‘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.’ (This definition derives from International Financial Reporting Standards IFRS 13.)
RICS Red Book - VPS 1-5
Valuation technical and performance standards
VPS 1 - Terms of Engagement
VPS 2 - Inspections, Investigations and records
VPS 3 - Valuation Reports
VPS 4 - Bases of value, assumptions and Special assumptions
VPS 5 - Valuation approaches and methods
RICS Red Book - PS
Professional Standards
PS 1 - Compliance with standards where a written valuation is provided
PS 2 - Ethics, competency, objectivity and disclosure
How to become a RICS registered valuer
There are 4 three key elements:
1 - Application Form, which sets out how you met the competency requirements for Valuer Registration
2 - A period of valuation based experience (maximum 100 days)
3 - A single case study submission using work-based evidence
4 - CPD record
Methods of Valuation
Comparable method
Investment method
Profits method
Residual method
Depreciated replacement cost (contractors method)
depreciated
replacement
cost (DRC)
The current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation.
equitable value
The estimated price for the transfer of an asset or liability between
identified knowledgeable and willing parties that reflects the respective interests of those parties (see IVS 104 paragraph 50.1).
income
approach
An approach that provides an indication of value by converting future cash flows to a single current capital value.
Intangible asset
A non-monetary asset that manifests itself by its economic properties. It does not have physical substance but grants rights and/or economic benefits to its owner.
Investment value
The value of an asset to the owner or a prospective owner for individual investment or operational objectives
Market Rent (MR)
The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and willing lessee on appropriate lease terms in an arms length transaction, after proper marketing an where the parties had each acted knowledgeably, prudently and without compulsion.
Marriage / Synergistic Value
An additional element of value created by the combination of two or more assets or interests where the combination value is more than the sum of the separate values
Special purchaser
A particular buyer for whom a particular asset has a special value because of advantages arising from its ownership that would not be available to other buyers in a market
Special value
An amount that reflects particular attributes of an asset that are only of value to a special purchaser
Valuation Terms of Engagement
- Identification and status of the valuer
- Identification of the client/s
- Identification of any other intended users
- Identification of the asset/s or liability/ies being valued
- Valuation/financial currency
- Purpose of valuation
- Basis/s of value adopted
- Valuation date
- Nature and source/s of the valuer’s work - including investigations and any limitations thereon
- All assumptions and special assumptions to be made
- Format of the report
- Restrictions on use, distribution and publication of the report
- Confirmation that the report will be undertaken in accordance with the IVS
- The basis on which the fee will be charged
- Where the firm is registered for regulation by RICS, reference to the firms complaints handling procedure, with a copy available on request
- A statement that compliance with these standards may be subject to monitoring under RICS’ conduct and disciplinary regulations
- A statement setting out any limitations on liability that have been agreed
RICS Red Book Valuation report contents
- Identification and status of the valuer
- identification of the cleint and any other intended users
- Purpose of Valuation
- Identification of the asset/s or liability/ies being valued
- Basis/es of value adopted
- Valuation Date
- Extent of investigations
- nature and source/s of the information relied upon
- Assumptions and special assumptions
- Restrictions on use, distribution and publication of the report
- Confirmation that the valuation has been undertaken in accordance with the IVS
- Valuation approach and reasoning
- Amount of the valuation/s
- Date of the valuation report
- Commentary on the material uncertainty in relation to the valuation where it is essential to ensure clarity on the part of the valuation user
- A statement setting out nay limitations on liability that have been agreed
when do VPS (Valuation technical and performance standards) 1-5 not apply
VPS 1-5 do not apply if the valuation is for:
- Providing agency or brokerage services
- acting or preparing to act as an expert witness
- Performing statutory functions
- Providing valuations to a client purely for internal purposes
- Providing valuation advice expressly in preparation for, or during the course of, negotiations or litigation, including where the valuer is acting as advocate
part 6 of the Red Book
Part 6 - International Valuation Standards
The Inheritance Tax Act 1984 Market Value
Market value is defined under S.160 of the IHTA 1984:
‘the price which the property might reasonably be expected to fetch if sold in the open market at that time, but that price shall not be assumed to be reduced on the grounds that the whole property is to be placed on the market at one and the same time’
What is the valuation date for an Inheritance Tax Valuation?
Date of death
Inheritance Act 1984 Agricultural Value definition
Agricultural Value is defined under S.115 (3) of the IHTA 1984, and must be used when calculating the value of property for APR:
‘the value which would be the value of the property if the property were subject to a perpetual covenant prohibiting its use otherwise than as agricultural property’
Reliefs available for Inheritance Tax
- Agricultural Property Relief at 100% or 50%
- Business Property Relief at 100% or 50%
- 7-year tapered relief
- £325k (which is transferable between spouses, max £650k)
- Annual gift limit of £3k p.a but increases to £6k if noting gifted in the previous year
- can gift £250 to as many people as you wish
- Gifts for weddings/civil partnerships max £5k
