Valuation Flashcards
What are some exemptions from the Red Book?
Statutory valuations
Internal valuations
Agency valuations
Where can I find the definition of an assumption?
VPS 4- Bases of Value
What was the Grey Report?
Comissioned in 2020 by the RICS Standards and Regulations Board following feedback from market professionals.
13 recommendations all accepted by the RICS
Recommended that DCF is used as default for investment valuations
What were the overarching recommendations from the Gray Report?
Creation of independently-led valuation regulatory quality
assurance panel
For regulated firms to appoint a valuation regulatory officer
Further RICS guidance regarding behaviour and culture
Also recommended that DCF is used as default method of investment valuations
What is an example of a non-market transaction?
Connected parties
Lease renewal
Anchor Tenants
What is VPS 2 and what does it contain?
Property Inspection, Investigation, and Records
Sets out mandatory requirements for property inspections
Eg take reasonable steps to verify information
Eg extent of valuation to be agreed in terms
How would you adjust a net yield back to gross yield?
Apply the net yield to valuation then add purchasers costs:
Stamp Duty
Legal Fees
VAT
What is the capitalization rate?
Net Income divided by Capital Value
Used to estimate a potential return on an investment
What is VPGA 8?
Valuation of Real Property Assets
Offers guidance for inspections for valuation purposes
What programmes can I use to help inform covenant strength?
Companies House
Fame
What are VPS 1-5?
- Terms of Engagement
- Inspections, Investigations, and Records
- Minimum report requirements
- Bases of Value
- Valuation Methods
What is VPGA 10?
Matters that may give rise to valuation uncertainty
What is the definition of Investment Property for Financial Reporting Purposes?
Property held by the owner to produce rentals and/ or capital appreciation
Defined in International Acocunting Standards 40
What are the International Valuation Standards?
A guide for valuers globally to promote transparency and consistency
Define an In-Use or Operational Asset
A property that is occupied and used for the delivery of services, either discretionary or mandatory
What do Local and Central Government Asset Valuations Report to?
IFRS 16
Local govt- UK VPGA 4
Central govt- UK VPGA 5
Define existing use value
Estimated value of an asset in its current use, assuming buyer is granted vacant possession, and excluding any potential alternative use
UK VPGA 6
Which guidance did you refer to with regards to the North London Court?
International Financial Reporting Standards
UK VPGA 5
Government Financial Reporting Manual
What was the basis of value for the Industrial Property in Guildford?
Fair value, which in this instance equated to market value
Where in the Red Book can I find Ethics?
PS2
Define Investment Value
Value of a property over time to an owner for investment or operational objectives
Takes into account an current leases
Define Market Value
Estimated value of a liability or asset, exchanged between a willing buyer and seller on the open market as of the valuation date
What are some assumptions of Market Value?
Willing buyer and seller
Arms length transaction
Proper marketing
Parties acting prudently and knowledgeably
What is the investment method?
Valuation method to assess potential return on an investment through ongoing income
Where is existing use value defined?
UK VPGA 6
Where in the Red Book can I find bases of value?
VPS 4
Where in the Red Book can I find terms of engagement?
VPA 1
Define Fair Value
Amount a liability or asset would be estimated to exchange for in an orderly transaction between market participants as of the measurement date
Where is fair value defined?
International Financial Reporting Standards 13
Where in the Red Book can I find minimum requirements in a report?
VPS 3
What is an equivalent yield?
Average between the initial and reversionary yield
How did you know which cost directions to use for the GP Surgery?
The premises had recieved CMR prior to 01 April 2013.
Therefore 2004 directions apply
What is the methodology for the profits method?
Annual Turnover LESS costs
to achieve gross profit
LESS reasonable working expenses and operators remuneration
equals Fair Maintainable Operating Profit
Capitalise using market yield
Cross check with comparable sales
What is the comparable method methodology?
- Search
- Verify
- Assemble
- Adjust
- Analyse
- Report
What is a trade-related property?
A property designed for a trade related purpose, where the value reflects the trading potential
What are the notional lease terms for a DRR and where are they found?
Tenant Internal Repairing
15 years
3 yearly rent reviews
Found in NHS Cost Directions
How did you advise the client with regards to CMR?
Established that the 2004 Cost Directions were applicable.
I inspected the property to ensure all facts were correct.
I reviewed the lease and established it was to tenant Internal repairing and insuring terms.
I adjusted the actual rent to TIR terms by 2.5%
I used the comparable method to reach my opinion of CMR.
I apportioned this between the two surgeries
I advised the client of my opinion of CMR, and also that the actual reimbursable rent should be adjusted back by 2.5% .
What is a headline rent?
Rent once short term incentives have expired eg rent free period
What is the difference between the 2004 and 2013 NHS Cost Directions?
In 2004 directions:
Tandem parking spaces are included
Alternative Use Value can be considered for owner-occupied premises
What is the hierarchy of comparable rental evidence?
New Lettings to Open Market Value
Lease Renewals
Rent Reviews
What are the different categories of comparable evidence and where are they defined?
RICS Guidance Note: Comparable Evidence in Real Estate 2019
Cat A- Direct comps
Cat B- General comps
Cat C- other sources eg market reports
Where are the specifications of G surgeries found?
NHS Specification Standards for Infection Control
What are the different bases of value within the Red Book?
Market Value
Fair Value
Investment Value
Market Rent
