Valuation Flashcards
Define bases of value
Statement of fundamental measurements assumptions used in a valuation
Why was the Red Book Introduced
Mandatory rules and best practice guidance and related commentary for asset valuations
Can you give me some examples of VPGA?
Valuation of plant and equipment
Valuation of tangible assets
Valuation of personal property, including arts and antiques
Valuation of interests for secured lending
Valuation for inclusion in financial statements
What is in a valuation report
What 2 rates make up he YP dual rate?
Accumulative rate
Remunerative rate
How would you value a leasehold interest
Capitalise profit rent at YP dual rate or YP dual rate tax adjusted, or single rate
How do you value a long leasehold interest?
Rent received less ground rent = net rental income
Capitalise net rental income for remaining term
= MV of leasehold interest
When would you us a dual rate investment calculation?
To value a leasehold interest with value
- When a leasehold interest has a profit rent and unexpired term of 1 year
Give examples of when you would use DCF?
Phased development projects
Large multi-let properties with frequently changing income
Alternative investments
Short leasehold interests and properties with income voids or complex tenures
Benefit of using DCF
It is very detailed
Doesn’t require comparable
Allows for sensitivity analysis
Can be used on complex multi-let properties
Includes all major assumptions of the business
What is the SAAMCO cap?
Claimant can only recover loss that falls within the scope of the duty of care assumed by the negligent defendant professional adviser
Under the SAAMCO cap, is the valuer liable for losses due to a downturn in the market?
No, only the amount the property was over-valued but not a down-turn in the market.
What would you do if you received a notice of a PII claim from a Client or their solicitor?
Notify my teams partner and our solicitor / insurers
Is there a difference between being negligent when undertaking a survey / valuation and providing negligent advice?
Yes, negligent undertaking a survey could involve missing defects or poor due diligence
Negligence when providing advice could be not recommending further investigations, or not outlining the limits of the inspections/investigations
What is your duty of care as a surveyor when undertaking a valuation?
Duty to take all reasonable skill and care
Duty to be professional and undertake proper due diligence
To whom do you owe a duty of care when undertaking a valuation?
The Client
Why is independence and objectivity important when valuing?
Confidentiality of information
Conflicts of interest
Which do you follow, the IVS or the Red Book Global?
International Valuation Standards are adopted and applied throughout the RICS Red Book Global Standards
What type of valuations might be relied upon by third parties?
Regulated purpose valuations (i.e financial statements)
If your firm is too small to have a rotation policy or valuation panel, what else can you do to ensure objectivity?v
RICS advises every 7 years rotation, but depends on frequency of valuation
Have valuation reviewed by another member
What is a restricted service valuation and when can you provide one?
Restrictions on a valuation such as short timescale or limitations on inspection
Yes can provide, however must be agreed by the Client and specifically stated in terms of engagement
How do you deal with limitations on inspection or analysis?
Agree with Client beforehand and only undertake if possible.
State in terms of engage and explicitly say Client has agreed
Can you value a property without inspecting?
Yes, however must agree in terms of engagement and disclose that the valuation is not to be relied upon.
Where does the definition of fair value come from?
IFRS 13
When is fair value used?
Financial reporting – IFRS 13
What are the 3 approaches under VPS 5
Market approach (comparable)
Income approach (Investment, residual, profits)
Cost approach (DRC)
What is the Valuer Registration Scheme?
Risk monitoring and quality assurance program
What are the bases of value under UK GAAP FRS 102?
Fair value
When would you use EUV?
To describe what property or land is worth in its current form
What is a regulated purpose valuation?
Valuation relied upon by third parties
E.g financial statements, stock exchange listings, takeovers and mergers
What is the bases of value for a statutory valuation?
Market Value
What is a yield?
Measure of investment return – annual income expressed as % of property price
What is NIY?
Simple income yield - current income expressed as a % current price
What is reversionary yield?
Yield once passing rent has adjusted to the level of market rent
What is an equated yield?
Internal rate of return taking into account growth
What is an equivalent yield?
Weighted average yield
Average between initial yield and reversionary yield
Difference between a growth implicit yield and growth explicit yield
Growth implicit yield – prospect of rental growth is factored into the yield
When would you use a dual rate investment calculation?
Valuing a leasehold interest
What is marriage value?
An additional element of value created by the combination of two or more assts (where the combined value is more than the sum of the separate values)
When would you use an element of hope in a valuation?
Hope value is the value based on the expectation that land will get permission for development in future
- May be used in a residual valuation
What is dual capitalization rate and when would you use one?
Uses Accumulative rate and renumeration rate
For leasehold interest
How do you calculate a tenants proportion of rent in a profits valuation?
A % of net operating profit, or divisable balance is taken to arrive at the Market rent
Usually at 50%
What is fair maintainable turnover?
The level of trade that a reasonably efficient operator would expect to achieve on the assumption that the property is in good repair and suitably equipped
What is a reasonably efficient operator?
Concept where the valuer assumes that the market participants are competent operators, acting in an efficient manner, of a business conducted on the premises
What is personal good will?
Intangible value that arises from the efforts or reputation of a business owner or any other individual
What is intangible good will?
Intangible asset that is associated with the purchase of one company by another – such as brand reputation
What is synergistic value?
Synergistic value arises from the combination of two or more assets to create a new assets that has a higher value than the sum of the individual assets
