Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

APC > Valuation > Flashcards

Valuation Flashcards

1
Q

What is included in Terms of engagement

A

Property address
The borrower
Conflicts of interest
Identification of valuer
Basis of value
Valuation date
Assumptions and special assumptions
Basis of fee and how it is calculated
CHP
PII

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What due diligence is carried out, when undertaking a valuation

A

Business rates
Contamination
EPC’s
Flood risks
Legal title and tenure
Planning history

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the five methods

A

Comparative
investment
Profits
Residual
Depreciated replacement cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is an internal valuer

A

Employed by company to value companies assets for internal use. No third part reliance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is an external valuer

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What to check when taking on an instruction

A

Competence
Independence - no conflict
Terms of engagement - in writing and receive written confirmation prior to starting work. state competence and extent and limitations of the valuers inspection

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is included in Statutory due diligence

A

Asbestos register
Business rates/council tax
Contamination
Equality Act 2010 compliance
Environmental matters - high voltage power lines, electricity sub stations
EPC rating
Flooding
Fire safety compliance
Health and safety checks
Legal title and tenure - check boundaries
Planning history

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Explain valuation process from beginning to end

A

Receive instruction from client
Check competence
Check independence
Issue terms
Receive signed terms
Gather information - leases, title document, OS plans
Due diligence
Research market and assemble comparables
Inspect and measure
Undertake valuation
Draft report
Check with another surveyor
Finalize and sign report
Report to client
Invoice
Ensure valuation file in good order before archiving

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the five methods of valuation

A

Comparative
Investment
Profits
Residual
Depreciated replacement cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What does IVS 105 set out

A

Valuation approaches and methods such as
Income approach
Coast approach
Market approach

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the income approach

A

used for investment, Residual and Profits method.
Converting current and future cash flows into a capital value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is Cost approach

A

DRC method - reference to the cost of the asset whether by purchase or construction

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is Market approach

A

Comparative method - using comparable evidence available

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the methodology of comparable method

A

Search and select comparables
Confirm/verify details and analysis head rent to give net effective rent as appropriate
Assemble comparables in schedule
Adjust comparables using the hierarchy of evidence
Analyse comparables to form opinion of value
Report value and prepare file note

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

comparable method - What is the guidance note

A

RICS Guidance Note Comparable Evidence in Real Estate 1st edition 2019

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

comparable method - what is the purpose of RICS Guidance Note Comparable Evidence in Real Estate 1st edition 2019

A

Advice in dealing with situations where there is limited availability of evidence and sets out hierarchy of evidence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Why might there be a lack of evidence

A

Inactive market
Rapid changes in the market leading to out of date data
Unusual property
Local market may lack transparency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the hierarchy of evidence

A

Cat A - direct comparables
Cat B - General market data
Cat C - Other sources

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is defined as direct comparables

A

completed transactions - near identical with full verified details
completed transactions - similar with full verified details
being marketed with offers
Asking prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How to find relevant comparables

A

Agents boards in location
speak to local agents
Auction results
In-house records/database and websites - costar, EGI, internal SQUID

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is the investment method

A

used when there is an income stream
Rental income is capitalized to produce a capital value
Conventional method assumes growth implicit valuation approach
An implied growth rate is derived from the market capitalisation rate (yield)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the conventional method?

A

Rent received or market rent X years purchase = Market value
Important for comparables for rent and yield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Explain term and reversion method

A

Used for reversionary investments (market rent more than passing rent)
Term capitalised until next review/lease expiry at an initial yield
Reversion to market rent valued in perpetuity at a reversionary yield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Explain Layer/hardcore method

A

Used for over rented investments
Income flow divided horizontally
Bottom slice = market rent
Top slice = rent passing less market rent until next lease event
higher yield applied to top slice to reflect additional risk
Different yields used depending on comparable investment evidence and relative risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Explain what a yield is

A

A measure of investment return expressed as a % of capital invested
Income/100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How to calculate years purchase

A

dividing 100 by the yield this will give the number of years for income to pay back purchase price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

what are the risks that determine the yield

A

prospects of rental and capital growth
quality of location and covenant
use of property
lease terms
voids
security and regularity of income
liquidity

28
Q

What is an all risks yield

A

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

29
Q

True yield

A

assumes rent is paid in advance not in arrears

30
Q

Nominal yield

A

initial yield assuming rent is paid in arrears

31
Q

Gross yield

A

The yield not adjusted for purchasers costs

32
Q

Net yield

A

The resulting yield adjusted for purchasers costs

33
Q

Equivalent yield

A

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

34
Q

Initial yield

A

Simple income yield for current income and current price
Passing rent / value of property

35
Q

Reversionary yield

A

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

36
Q

Running yield

A

The yield at one moment in time

37
Q

What is the purpose of the profits method

A

used for valuations of trade related property where there is a monopoly position
used where the vale of the property depends upon the profitability of its business and its trading potential
Used for pubs, petrol stations, hotels, guest houses, children’s nurseries, leisure and healthcare properties and care homes
basic principle is the value of the property depends on the profit generated from the business, not the physical building or location
must have accurate and audited accounts if possible for 3 years
use estimates/business plan if needed for a new business
adjust for maturity of business and any unacceptable or exceptional items of expenditure

38
Q

How to do the profit methodoligy

A

Annual turnover (income received) - costs/purchases = gross profits
Less reasonable working expenses= net profit
Less operators remuneration = adjusted net profit know as Fair Maintainable Operating Profit (FMOP)
EBITDA = earnings before interest, taxation, depreciation and amortization
Capitalized at appropriate yield to achieve market value
Cross check with comparable sales evidence if possible

39
Q

What is the Residual method used for

A

Used to find market value for land that the purchaser intends to build an investment on.

40
Q

How to carry out a residual method

A

Calculate development value which is
total area X market rent = estimated annual market rent capitalized using an all risks yield
less construction costs, site preperation, planning costs, professional fees, contingency, marketing costs & fees, finance = residual land value.

41
Q

What is depreciated replacement cost method used for

A

Only used where direct comparable evidence is not available and they do not make a profit specialized properties as sewage works, lighthouses, oil refineries docks, schools, churches
For owner-occupied property
For accounts purposes for specialized properties and rating valuations

42
Q

How to calculate depreciated replacement cost method

A

Value of land (planning permission assumed) + current cost of replacing the building plus fees less a discount for depreciation

43
Q

What is the overarching document from RICS for valuations

A

RICS Valuation - Global Standards 2021 (Red Book Global) effective Jan 2022

44
Q

What were the changes to the red book

A

The need to comply with RBG and terms of reference must be clear that it is/isnt RBG compliant
Valuation for financial purposes
reference to the use of profits method for certain trade related property valuations
Sustainability and ESG factors such as with inspections and reporting valuers should have regard and use this as integral part of valuation

45
Q

PS1 - When do valuations not have to be red book compliant

A

during negotiations or litigation providing advice expressly provided
performing a statutory function unless in a stat return to tax authority
provided as part of agency or brokerage work
for giving evidence as an expert witness

46
Q

PS2 - Ethics, competency, objectivity and disclosures

A

Must act in accordance to RICS rules fo conduct
must be independent and no be influenced by any situation
Should apply skepticism when reviewing information and data before relying on it
Must understand clients requirements and demonstrate competence

47
Q

What does VPS1 Terms of engagement state should be included

A

ID and status of valuer
ID of client and other intended users
The asset to be valued
Currency
Purpose and basis of valuation
Valuation date
Extent of investigation
nature and source of info to be relied upon
Assumptions and special assumptions
format of report
restrictions for use
confirmation of Red Book Global
Fee basis
CHP
Statement of valuation compliance by the RICS
Limitation on liability agreed

48
Q

What are assumptions

A

where it is reasonable for the valuer to accept something is true without specific investigation

49
Q

What is a special assumption

A

It is a belief without proof that something is true and accepted as fact even though it is not true - assuming planning permission has been granted

50
Q

VPS 2 - Inspections, investigations and records

A

Valuer must carry out inspection to verify information
Desk top valuation is red book compliant unless part of PS1

51
Q

VPS 2 what should a desk top valuation factor

A

Nature of the restriction agreed in writing
Valuation implications of restriction confirmed in writing
Consider if the restriction is reasonable
The restriction must be mentioned in the report

52
Q

VPS 2 - revaluation

A

Valuing without inspection only if valuer is sure no material change or in location since last valuation
Must be confirmed in terms of engagement

53
Q

VPS 3 - reporting - minimum requirements

A

ID and status of valuer
Client and intended users
Purpose of valuation
ID of asset to be valued
Basis of value
Valuation date
Extent of investigation
Nature & source of information relied upon
Assumptions and special assumptions
Restrictions on use
Undertaken in accordance with IVS standards
Valuation approach and reasoning
Valuation figure
date of report
Comment on market uncertainty
Statement setting out any limitations on liability that have been agreed

54
Q

VPS 4 Basis of value, assumptions and special assumptions - Market Value definition

A

The estimated amount for which an asset or liability should exchange on the valuation date
between a willing buyer and willing seller
in an arms length transaction
after proper marketing
where the parties had each acted knowledgably, prudently and without compulsion

55
Q

VPS 4 Basis of value, assumptions and special assumptions - Market Rent

A

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
where the parties had each acted knowledgably, prudently and without compulsion

56
Q

VPS 4 Basis of value, assumptions and special assumptions - Fair Value (IFRS13)

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
The basis of valuation is now required if the international financial reporting standards have been adopted by the client
It is adopted by the international accounting standards board
The RICS view is that this definition is generally consistent with the definition of market value

57
Q

VPS 4 Basis of value, assumptions and special assumptions - Investment value

A

The value of an asset to a particular owner or perspective owner for an individual investment or operational objectives
May differ from market value
This is sometimes used as a measure of worth to reflect the value against the clients own investment criteria

58
Q

VPS 5 Valuation Approaches and Methods (IVS 05)

A

Valuers are responsible for choosing and justifying their valuation approach
Can be more than one approach used

59
Q

VPGA 1 Valuation for inclusion in financial accounts

A

Fair value used for all IFRS adopted accounts
prescribed Performance standards must be adhered to

60
Q

VPGA 2 Valuations for secure lending

A

Any previous or current involvement in the past 2 years should be stated.
If anyone thinks this is a conflict then the instructions should be declined

61
Q

VPGA 2 Conflicts included for secured lending

A

longstanding professional relationship with owner or borrower
If valuer will gain a fee from introducing the transaction to the 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

62
Q

VPGA 2 what is included in a report for secured lending

A

Details of any COI
Valuation methodology adopted
Information that recent transaction or offer is at market value
If enquiry does not provide information valuer must state
environmental consideration
comment on suitability for mortgage purposes
Anything that could effect the price
any other factor that could impact market value or assumptions
Sustainability factors should have relevance to the instruction

63
Q

VPGA8 Valuation of real property interests

A

Emphasis on ESG and specific environmental constraints.
The need to consider environmental factors such as storm or flood risk, indirect factors (carbon emissions, physical risks (heat or wildfire and transition risks (Carbon emissions)

64
Q

VPGA 10 Matters that may give rise to material valuation uncertainty

A

Report must not be misleading
draw attention to issues resulting in material uncertainty
A standard caveat should be used

65
Q

Part 6 International Valuation Standards 2017 (mandatory)

A

General standards such as terms of engagement, approaches to and bases and methods of valuation as well as reporting
Asset standards - requirements to specific asset types such as real property and development property

66
Q

What is WAULT

A

Weighted Average Unexpired Lease Terms

67
Q

How do you calculate WAULT

A

Current rent x years left for each tenant
Add up each tenants total rent
divide this number by the current rent

APC (18 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions