Valuation

Question 1

What is covered by terms of engagement VPS1

Answer 1

Status of valuer
Id of client
Id of other users
Id of asset being valued
Valuation currency
Purpose of valuation
Bases of value adopted
Valuation date
Nature and extent of valuers work
Nature and sources of information upon which they will rely
All assumptions and special assumptions to be made
Format of report

Question 2

Can you conduct a revaluation of a property and not inspect?

Answer 2

Yes if you are satisfied that there hasn’t been any material changes to property. Must confirm this in the terms of engagement

Question 3

What 3 sections of the red book are mandatory

Answer 3

Professional standards
Valuation technical and performance standards
International valuation standards

Question 4

What are the red book professional standards?

Answer 4

PS2, ethics, objectivity, competency and disclosures
Members must act in accordance with 5 rics rules of conduct

Question 5

What are the valuation technical + performance standards?

Answer 5

VPS 1 TOe
VPS 2 inspections investigations and records
3 valuation reports
4 bases of value, assumptions and special assumptions
5 valuation approaches and methods
Tony is very bloody vicious

Question 6

What factors must a valuer consider when undertaking a desktop validation? (4)

Answer 6

Must have agreed toe
Must disclose possible implications in writing
Must consider whether it is reasonable
Must refer to the restriction in the report

Question 7

What types of valuations are excluded from the red book? (5)

Answer 7

Statutory
Agency
Internal
Negotiation/litigation
Expert witness

Question 8

5 methods of valuation

Answer 8

Comparative
Investment
Profits
Residual
DRC

Question 9

3 valuation approaches

Answer 9

Market - comparative
Cost - DRC
Income - profits/DCF/redisual

Question 10

Notes on DCF investment method

Answer 10

DCF
Growth explicit investment method
Cashflow discounted to the present day at a discount rate
GN - DCF for commercial property investments 2010
-estimate cashflow (income less expenditure)
-estimate exit value
-select discount rate
-discount cashflow at discount rate
-value is the sum of the completed DCF to find the NPV

Question 11

When is Profits method used and why and give an example

Answer 11

Used where there is a trade related property

Where the value of the property depends on the profitability of its business and its trading potential
E.g pubs, petrol stations, hotels, care homes
Principle that the value of the property depends on the profit generated from the business

Question 12

Method of profits method?

Answer 12

Mist have audited accounts if possible of 3 years
Method:
-annual turnover
Less costs and purchases
= gross profit
Less reasonable working expenses
=unadjusted profit
Less operators remuneration
Adjusted net profit FMOP
Can be expressed as EBITDA
Capitalise at an appropriate yield
Cross check against possible comps

Question 13

Definition of all risks yield ARY

Answer 13

The remunerative rate of interest used of a fully let property let at market rent reflecting all prospects of risk attached to the investment

Question 14

Define True yield

Answer 14

Assumes rent is paid in advance not in arrears

Question 15

Define nominal yield

Answer 15

Initial yield assuming rent is paid in arrears

Question 16

Define gross yield

Answer 16

Yield not adjusted to purchasers costs

Question 17

Define net yield

Answer 17

Yield Adjusted for purchasers costd

Question 18

Define equivalent yield

Answer 18

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

Question 19

Initial yield

Answer 19

Simple income yield for current income and current price

Question 20

Define Reversionary yield

Answer 20

Market rent divided by current price on an under-rented property

Question 21

Define running yield

Answer 21

The yield at one moment in time

Question 22

Define net present value

Answer 22

Used to determine if an investment gives a positive return against the target rate of return
If NPV is positive the TRR has been exceeded
If negative NPV then it hasn’t been achieved

Question 23

When and how is investment method used

Answer 23

Used when there is an income stream to value

Rental income is capitalised

Question 24

What is conventional investment method

Answer 24

Rent X YP in perp
Important on comps for rent and yield

Question 25

Why would a term and reversion method be used and explain the method

Answer 25

When there is a reversionary investment

Capitalise until next lease event
Reversion in perp at reversionary yield