Valuation Flashcards
What three steps are most important to undertake a valuation instruction?
Competence
Independence
Terms of engagement
What statutory due diligence is required for a valuation?
Flooding checks
Fire safety compliance
Health & Safety compliance
Highways
Legal title
Planning history
What are the 5 methods of valuation?
Comparative - Using comparable evidence that you have verified
Investment method - Used when the property is income producing
Conventional method: rent x yp = Market value
Term & reversion: Capitalise the term until the next review/renewal at an initial yield. Reversion to market rent valued in perpetuity at a reversionary yield
Profits method - Used for trade related property which depends on its profitability (pubs, restaurants etc)
Residual method - Used for calculating the value of the land in a potential development
Contractor’s method - Used for sites that there is no market evidence for as it is a specialised property such as a lighthouse.
Red book:
What are the bases of value? VPS 4
Remember there is an increased focus on sustainability and ESG in the Red Book Global
Market value - The estimated amount for which an asset or liability should exchange
Market rent - The estimated amount for which an interest in real property should be leased
Investment Value - The value of an asset to a particular owner or prospective owner for individual investment or operational objectives
Fair value - The price that would be received to sell an asset in a transaction between market participants at the measurement date
What are the Valuation technical performance standards VPS?
VPS 1 - Terms of Engagement
VPS 2 - Inspections, Investigations & Records
VPS 3 - Valuation reports
VPS 4 - Bases of Value, Assumptions and special assumptions
VPS 5 - Valuation approaches and methods
What are the relevant Valuation Practice Guidance Applications VPGA’s?
VPGA 1 - for inclusion in financial accounts
VPGA 2 - For secured lending purposes
VPGA 8 - Valuation of real property interests (special emphasis on ESG)
Talk me through your valuation in Dartford
Would you like me to talk you through the valuation from instruction or just the valuation?
From instruction, we received a request from a client to undertake a secured lending valuation of an unoccupied industrial unit in Whitstable. Initially, I checked I was competent to undertake the instruction, I then confirmed there were no conflicts of interest before issuing our terms of engagement to the client for signature, including my understanding of the client’s instructions.
The unit was owner occupied so I took the approach of using the special assumption of vacant possession and collected comparable evidence to understand the market rent, which I did using comps from the same industrial park and verified them with the relevant agents
Once I had calculated the market rent, I assumed void costs and a rent free period of 6 months. I then applied an equivalent yield that I had gauged from comparables to come to my opinion of value.
Talk me through your valuation in Whitstable
To
What is the difference between the YP and the yield
The YP is the inverse ratio of the yield
What is the definition of hope value?
an element of market value in excess of the existing use value, reflecting the prospect of some more valuable future use
What is included in VPGA 2?
Dealing with conflicts of interest for secured lending valuations
Reporting procedures - Acknowledges that sustainability factors are becoming a more significant influence & the valuation methodology adopted.
What are the FIVE exclusions from red book valuations?
- If the report is being produced in preparation for or during negotiation or litigation
- If the report is for internal purposes only and not communicated to any third party
- If the report is being produced for a statutory function unless it is for a statutory return to a tax authority
- If the report is being produced in expectation of agency instruction
- If the report is being produced in expectation of giving evidence as an expert witness.
What is an assumption?
These are made when it is reasonable for the valuer to accept something is true without specific investigation
What is a special assumption?
