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Commercial Real Estate 2023 > Valuation > Flashcards

Valuation Flashcards

1
Q

What is an external valuer?

A

people with no material links to the asset

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2
Q

What is an internal valuer?

A

somebody that values assets for internal purposes

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3
Q

How would you commence an instruction?

A
  • Ensure competence
  • Do conflicts of interest check
  • Do Terms of Engagement.
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4
Q

What would you do if you were not competent for an instruction?

A
  • Decline instruction.
    -Refer to RICS find a surveyor website.
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5
Q

What would you check regarding conflicts of interest?

A

RICS professional statement on conflicts of interest

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6
Q

What would you check with the client before accepting the instruction?

A
  • The purpose of the valuation.
  • Does it need to be written, if so redbook.
    -Agree liability cap on indemnity.
    -Conflicts of interest.
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7
Q

What are the valuation standards?

A

RICS Valuation Global Standards (Redbook) effective Jan 2022 - APPLIES TO ALL VALUATIONS.

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8
Q

what is the UK supplement?

A

Global Standards 2017 -UK Supplement

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9
Q

What is the purpose of the redbook/ RICS Valuation Global Standards?

A

It sets out best practice, and provides uniformity for all valuations that are undertaken. To undertake a valuation the valuer must

  • be competent
    -issue terms of engagement
    -Inspect and Investigate
    -apple the Bases of Value
    -meet mandatory reporting requirements
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10
Q

Does the redbook advise on how to value?

A

NO

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11
Q

Does the redbook advise on how to value?

A

NO

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12
Q

why do you undertake statutory due dilligence for valuations?

A

to ensure there is nothing that would materially alter the value of the property

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13
Q

what types of statutory due dilligence would you undertake?

A
  • asbestos
    -planning
    -equality act
    -tenure/ title checks
    -epc
    -flooding
    -fire safety
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14
Q

what types of statutory due dilligence would you undertake?

A
  • asbestos
    -planning
    -equality act
    -tenure/ title checks
    -epc
    -flooding
    -fire safety
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15
Q

how do you calculate wault

A

add up all the unexpired rent, and divide it by the sum one years rent

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16
Q

What are the five main methods of valuation?

A

Profits
Contractors
Comparable
Investment
Residual

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17
Q

What are the three main valuation approaches?

A

Milk INside COSTa

-market,- comparable evidence
-income, - converting cash flows
-cost, - a reference to the price of the asset

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18
Q

what RICS guidance is there on comparable evidence?

A

RICS Guidance note Comparable evidence in Real Estate Vals 2019

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19
Q

What is the hierarchy of comparable evidence?

OLRTSI

A

open market lettings
lease renewal
rent review
third party determination
sale and leaseback

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20
Q

why is a lease renewal better than a rent review?

A

Rent reviews are often upwards only

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21
Q

When would you use the investment method?

A

When there is an income stream to value

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22
Q

How would you undertake the investment method?

A

Rent capitalised at a yield (or multiplied by YP) growth is implicit.

Implicit growth means equal to rate of return.

23
Q

what is a term and reversion valuation and when is it used?

A

term and reversion is used for assets that are underrented.

24
Q

how would you do a term and reversion valuation?

A

I would gather investment comps to find a net initial yield, I would then capitalise the passing rent until the break using the initial yield.

I would then identify the market rent and adopt a reversionary yield, and then capitalise this into perpetuity.

25
Q

what is an initial yield?

A

simple income yield for current income and price

26
Q

what is a reversionary yield?

A

market rent divided by current price on an investment let below MR

27
Q

when would you use the investment method?

A

when there is an income stream to value

28
Q

how would you value an overrented asset?

A

hardcore and layer method

29
Q

when would you use the profits method?

A

when the value of the asset is in the business

30
Q

when would you use contractors/ DRC?

A
31
Q

when would you use residual?

A
32
Q

how does a residual differ from dev appraisal?

A
33
Q

when would you use comparble?

A
34
Q

what would you consider when gathering comps?

A

Size, location, date, spec,

35
Q

can you tell me what you understand by market value?

A
36
Q

what is the purpose of the UK supplement?

A

It provides specific requirements of undertaking a UK valuation.

37
Q

can you tell me about the comparable method?

A

it is embedded in the other methods of valuation

38
Q

What is VPS 1

A

Terms of engagement

39
Q

What is VPS 2

A

Inspections, investigations, and records

40
Q

VPS 3?

A

Valuation reports

41
Q

what is VPS 4?

A

Bases of value

42
Q

what is VPS 5?

A

Valuation approaches and methods

43
Q

what is the difference between headline and net effective rent?

A

headline rent discounts incentives, net effective rent is the REAL MARKET RENT

44
Q

What is the hope value of land?

A

This is the value of the land with the expectation that you will get planning permission on it.

45
Q

what is the marriage value?

A

this is the value of two assets that arises from the merger of the two of them

46
Q

Can you tell me about the structure of the redbook?

A

Part 1 - Intro
Part 2 - Glossary
Part 3 - Valuation Pro Standards
VPS 1- TOE
VPS 2- INSPECTION
VPS 3- Valuation report contents
VPS 4- Bases of assumption
VPS 5 - Methods of valuing

47
Q

what is initial yield?

A

income/ price

48
Q

difference between synergistic value and marriage value

A

REDBOOK DEFINED TERMS
marriage value, difference in two assets when combined compared to alone.

synergistic value - when two assets are with more together than alone.

49
Q

What is an arms length transaction?

A

when there is no interest between the parties

50
Q

what is proper marketing

A

appropriate length of time per property, no set time frame

51
Q

what is a special assumption

A

presume the facts are different to what they actually are.

re Vacant possession, and planning

52
Q

equated yield?

A

IRR with growth of property investment

53
Q

Can you talk me through this specific example?

A
54
Q

you mention VPS 4, what is that?

A

Commercial Real Estate 2023 (13 decks)

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