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APC GC > Valuation > Flashcards

Valuation Flashcards

1
Q

What date is RICS Global Standards?

A

2021

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2
Q

What is the format of the global standards?

A

Professional Standards (PS), Valuation Technical and Performance Standards (VPS), and Valuation Applications (VPGA)

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3
Q

What are the PS, VPS, and VPGA’s

A

PS1 - Compliance with standards and practise statements where a written valuation is required.
PS2 - ethics, competency, objectivity and disclosure.

VPS 1 - TOE
VPS 2 - Inspection and investigation
VPS 3 - Valuation reports
VPS 4 - bases of value, assumptions and special assumptions
VPS 5 - valuation approaches and methods

VPGA 1 - Financial accounts
VPGA 2 - loan security
VPGA 8 - Valuing real property interests
VPGA 10 - matters that may give rise to material uncertainty.

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4
Q

What is included in VPGA 2

A

Loan sec
Sufficient COI checks are carried out
Any previous involvement
Any conflicts that cannot be avoided instruction should be declined.

Disclose the methodology taken
comment on any environmental consideration
comment whether it is suitable for loan security.

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5
Q

Valuation Approaches?

A

Cost approach (DRC)
Income Approach (profits and investment)
Market Approach ( comparative)

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6
Q

Valuation methods

A

Investment method
Profits method
comparable method
risidual method
DRC

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7
Q

What valuations did you do?

A

Epsom - industrial - Rack rented - fair value
Tottenham - distribution - owner occupied - Fair value
Holborn - tax purposes- under rented
Ipswich - Fair value - rack rented

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8
Q

Talk me through your valuation of your industrial unit in Epsom

A
  • Valuation for internal management accounts purposes
  • So I reported fair value
  • I carried out a COI prior
  • I adopted the investment method as it was income producing
  • Carried out a comps search to find MR and MV
  • Analysed the property to be rack rented at £13 psf.
  • I provided my opinion of fair value
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9
Q

Talk me through the valuation you did on your tottenham distribution unit

A
  • property was owner occupied
  • report for financial reporting so i reported the fair value of the property
  • adopted the comparative method of valuation
  • I looked for VP comps to assess the capital value rates in the area
  • I also considered newly let units and what yield they reflected. Our would reflect a weaker yield as it was vacant.
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10
Q

How do you find comps?

A

using online databases, calls with agents and CLuttons’ internal database

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11
Q

Talk me through the comparative method

A

search for comps, confirm comps, assemble a schedule, put into hierarchy of evidence, analyse comps, report values.

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12
Q

Talk me through Hierarchy of evidence?

A

Catagory A - direct comparables, nearby transactions, near identical properties.

Catagory B - general market data, info from published sources, historic evidence, demand/ supply data for rent.

Catagory C - other sources, transactional evidence from real estate types, other background data such as stocks and interest rate, MSCI.

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13
Q

What are the drivers for value?

A

lease terms, specification, location, assset class, market conditions

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14
Q

Talk me through your valuation on Holborn

A
  • for inheritance tax purposes - valuation date was the date of death.
  • I measured and inspected the property etc
  • fully let and income producing
  • adopted the investment method of valuation
  • used comps to assess the MR and appropriate yield
  • Assessed the MR to be slightly under-rented.
  • poor configuration and layout.
    I applied cap ex costs to the valuation and expiry void of 18 months which included rent free and fit out period.
  • Advised the client that the MR for the property following refurbishment, it could achieve a MR of £50 psf.
  • Cap ex costs of £75 psf based on building surveyors insight.
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15
Q

Talk me through your valuation in Ipswich

A
  • financial reporting purposes
  • reported fair value
  • measured to IMPS 3 and NIA.
  • adopted the investment method as the property was income producing. Market value in its existing state.
  • assessed the property to be rack rented and applied a yield into perpetuity. I applied a weaker yield.
  • advised the client that potential cap ex costs of £75 psf could increase rental value. which could achieve a higher rent psf.
  • unfurbished rent was £8 psf and £10 psf.
  • refurbished rent was £10 psf and £15 psf.
  • advice on conversion was given. I took high level consideration and carried out a residual site val but reported it wasnt viable for this scheme - costs were too high.
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16
Q

What is the WAULT?

A

Weighted average unexpired lease term

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17
Q

How do you calculate the WUALT?

A

weighted by the contracted rent

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18
Q

How do you work out your net effective rent?

A

Take your headline rent. Using straight line basis to the end of the lease or next lease event.

3-month fitting out period is deducted from the rent-free period.

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19
Q

Talk me through the valuation of long leasehold interest?

A

take the rental income - ground rent.
Capitalise the income on the remaining term of the lease
= MV of LLI.

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20
Q

Stamp duty bands? commercial

A

£0-£150k - Nil
£150.01 - £250k - 2%
£250k plus - 5%.

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21
Q

Stamp duty for residential

A

£0-£250k - 0%
£250-£925k - 5%
£925 - £1.5m - 10%
over £1.5m - 12%

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22
Q

What is hope value

A

the value from the expectation that future circumstances affecting the property may change.

E.g. planning permission.

23
Q

What is marrriage value?

A

created by a merger of interests.

24
Q

What are the margins for error?

A

5% resi
10% commercial
15% property of special interest

25
Q

What VPGA is used for valuation of CGT and inheritance tax?

A

VPGA 15

26
Q

How did you calcualte your stamp duty and what are the bands?

A

So I selected UK budget 2016 on Argus which calculates the Stamp duty. however I am aware of the bands which are as follows:

£0-£150k 0%
£150k-£250k 2%
£250k+ 5%

27
Q

What are the residential stamp duty bands?

A

£0-£250k nil
£250-£925 - 5%
£925-£1.5 - 10%
£1.5+ 12%

28
Q

What is exempt from CIL?

A

– charities and social housing

29
Q

What standards from RICS Global standards are used for vals?

A

PS1+2, VPS 1-5 and VPGA,1, 2, 8, 10, 15

30
Q

What yields are there

A

Initial yield, equiv and reversionary

31
Q

what is the reversionary yield?

A

This is your market rent divided by current price of an investment let at a rent below MR.

32
Q

You used the comparative method, what is this?

A

This is used by looking at comparable evidence in order to find your opinon of MR and an appropriate yield to apply to a fully let investment.

There are six steps to comparative method: search for comps, confirm comps, assemble comps, put into hierachy of evidence, analyse comps, report value.

3 catagories of comps, catagory A, B and C.

33
Q

What are the drivers for value?

A

lease terms (WAULT), market conditions, location, specification

34
Q

What lease terms are important for valuation?

A

break clauses, rent reviews, term, restrictive use

35
Q

How do the above terms impact value?

A

if there is a short ULT in a bad market, could affect the nitial yield and reflect a lower value.
If there is a rent review, it could impact your opinion of market rent.

36
Q

What else impacts value?

A

risk

37
Q

What advice did you give about refurbishment and how do current market trends impact this?

A

consulted building surveyors and BCIS to determine an appropriate rate psf to apply to the cap ex costs. with office space, market commands grade A spec, so your cap ex costs may be higher for these.

38
Q

What did you mean by larger occupiers

A

I meant single occupiers to occupy the unit in Ipswich, not multi-let due to its configuration.

39
Q

What value do you report for financial? Same as MV?

A

Fair value. in line with IFRS 13. It is the value that must be reported for accounting.

the price that would be received in order to sell an asset in an orderly transaction between market participants at the measured date.

RICS view this as generally consistent with Market value.

40
Q

Is there another definition for fair value?

A

I have only reported on fair value in line with the stated definition and in line with IFRS 13.

41
Q

How would a single occupied property, your example in Holborn, affect the yield and value?

A

more risk with a single let property, no diversity in income stream. If they are a weak covenant this may need to be reflected in your valuation.

42
Q

Ipswich:
- Was there planning?
- How did you assess?
- Was it worth more?
- What would you consider in a residual?

A

No planning
assessed the property using investment method. Carried out a high level appraisal on the potential to convert to residential however it was viable due to rstrictions on listed buildings.
you would consider the market rents and yields in the area,

43
Q

WHat is a special purchaser>

A

someone who is willing to pay over the market price for an asset due to them having an interest in the property. e.g. a tenant who may want to buy their home or office for example.

44
Q

What is the RICS valuer registration scheme?

A

RICS RVS I believe has to be signed up to by your firm if you are providing red book valuations. It basically is a risk monitoring and quality assurance programme which checks compliance with the red book.

45
Q

When would you use a DRC and talk through the process?

A

DRC is the depreciated replacement cost method of valuation.

It is used for properties such as castles and lighthouses.

DRC works by valuing the land in its existing use (assuming planning permission exists), add current costs of replacing it plus fees. The takeaway a discount for depreciation and deterioration.

46
Q

What is a DCF and when would you use it an explain?

A

DCF is a discounted cash flow. Part of the investment method.

Used when looking to assess he return on an investment using valuation.

Estimate the exit the cash flow over a period.
estimate the exit value at the end of the holding period.
Choose a discount rate
Apply a discounted rate to the cashflow to discount it to the present day.
value the sum of the completed discounted cash flow which produces a NPV.

negative usually means its a negative return. Positive usually means it is a positive return.

47
Q

Describe the profits method?

A

The profits method is used when the value of an asset depends on the profitability of its business and trading potential.

Take your annual turnover less costs = gross profit.
take off operating cost and other costs to get to your EBITDA
The capitalize this at an appropriate yield to achieve market value.

48
Q

Talk me through the hard core layer method.

A

Used as part of the investment method for over rented properties.

split in two with the bottom slice showing the market rent. Top slice reflects the difference between the MR and passing rent.

a higher yield is applied to your/ weaker to your top slice to reflect the risk.

49
Q

Was your buildin listed, if so talk about it?

A

Yes, grade II listed.

Only carry out internal works. Costs too high as per the development appraisal we carried out on the property

50
Q

What is the freeholders duty with a listed building?

A

They have a positive obligation to repair and maintain the building.

51
Q

What are the risk to lenders?

A

the borrower defaults and cant repay their mortgage.

The lender is left with the property at the value you reported and have to try and sell it.

52
Q

How do you carry out credit checks? .

A

Using dunn and bradstreet reports.

53
Q

How does a D&B report work?

A

So it assesses the company based on searched on a number of sources such as companies house. Alll checked and approved by accountants.

Provides a failure score, dilinqency score and D&B rating.

Failure score - predicts the likelihood the business will need to seek legal advice rated 0-100

Dilinquency score - looks at the company over the next 12 months and assesses the likelihood to the property making severe deliquency payments. seeking legal relief from creditors.

D&B rating - rated using a letter and number. Letter analysis its net work, number analysis its level of risk.

APC GC (18 decks)

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