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Valuation > Valuation > Flashcards

Valuation Flashcards

1
Q

What are the 5 methods of valuation?

A

1 - Comparable method
2 - Investment method
3 - Profits method
4- Residual method
5- Contractors methods / Depreciated Cost Replacement Method

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2
Q

What method of valuation would you use for a incoming producing property which is under- rented?

A

Investment method, using the term and reversion.

You would decrease the yield in the term to show the property is under-rented.

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3
Q

What is the profits methods and how does it work?

A

The profits method is used for income producing properties but specialist properties such as Hotels, care homes, petrol stations and pubs.

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4
Q

What is the red book?

A

Issues by RICS as part of the commitment to promote high standards in valuation worldwide

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5
Q

Why does the red book exist?

A

To support high standards in valuation delivery worldwide. The publication details mandatory practices for RICS members undertaking valuation services.

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6
Q

Is there a separate red book for the UK?

A

Since 2015, there has been a separate UK supplement to the red book.

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7
Q

What are the five exceptions to the red book?

A

1- Agency Work ( disposing/ acquiring)
2- Internal use only for the client
3- For litigation purposes
4- A statutory Function
5- Giving evidence as an expert witness

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8
Q

Name 4 of the bases of value

A

1- Market value
2- Fair value
3- Investment value / worth
4- market rent

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9
Q

What is Market Value?

A

The estimated amount for an assets which should exchange on the valuation date, between a willing seller and willing buyer at an arm’s length transaction after proper marketing, where the parties have acted knowledgeable, prudently and without compulsion

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10
Q

What is market rent?

A

The estimated amount an asset should be leased on the valuation date between a willing lessor and lessee, on appropriate terms in an arms length transaction, where the parties have acted knowledgable, prudently and without compulsion.

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11
Q

What is fair value?

A

The price that would be received to sell an assets in a orderly transaction between market participants at the measurement date.

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12
Q

What is investment value?

A

The value of an asset to a particular owner, for individual investment or cor occupational objectives.

This may differs from market value and used a measure of worth to reflect the value to a certain individual.

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13
Q

What is the overall purpose of the red book?

A

Consistency, objectivity and transparency are fundamental to building and sustaining public confidence and trust in valuation.

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14
Q

What does COT stand for when asking what the purpose of the red book is?

A

Consistency, Objectivity and Transparency.

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15
Q

All Risk Yield

A

The rate that reflects all prospects and risks attached to a property/ tenant

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16
Q

True yield

A

Assumes the rent is paid in advance and not arrears

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17
Q

Nominal yield

A

Initial yield assuming rent paid in arrears

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18
Q

Gross yield

A

Yield mot adjusted showing purchaser costs

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19
Q

Net yield

A

Yield showing purchasers costs

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20
Q

Equivalent yield

A

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

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21
Q

Reversionary yield

A

Market rent / divided by current price of an investment let out at below market rent

22
Q

Running yield

A

A yield at one moment in time

23
Q

What is Net Present Value

A

The sum of the discounted cash flows

24
Q

What is internal rate of return

A

The rate of return which all future cash flows must be discounted to produce a NPV of 0

25
Q

What is the structure of the red book?

A

Part 1 - introduction
Part 2 - Glossary
Part 3 - Professional standards (PS)
Part 4 - Valuation technical and performance standards (VPS)
Part 5 - Valuation Applications (VPGA)
Part 6 - The international valuation standards (IVS)

26
Q

What is an assumption

A

Accept that something is true without the need for investigation

27
Q

What is a special assumption

A

Something you accept to be true and fact even though it is not true

Eg a let property is vacant

28
Q

Three valuation approaches

A

Income approach
Cost approach
Market approach

29
Q

The timeline of a valuation instruction

A

1- Receive instructions from client
2- check competence
3 - conflict of interest check
4- Issue terms of engagement
5- Receive signed terms of engagement
6- Gather information- leases etc
7- undertake due diligence- planning etc
8- inspect and measure
9- research market / collect and varify comparables
10- Undertake valuation
11- draft report
12- Stand back - have report checked by another surveyor
13- finalise and sign report
14- report to client
15- issue invoice
16- Ensure valuation is filled correctly

30
Q

What is the Stamp Duty for commercial

A

0-£150,000 = 0
£150,001 - £250,000 = 2%
£250,001 + = 5%

31
Q

What is VPGA 1?

A

For financial statements

32
Q

What is VPGA 2?

A

Secured lending

33
Q

What is VPGA 3?

A

Valuation for business and business interests

34
Q

What is VPGA 4?

A

Individual trade related properties

35
Q

What is VPGA 5?

A

Plant and equipment

36
Q

What is VPGA 6?

A

Intangible assets

37
Q

What is VPGA 7?

A

Personal property including arts and antiques

38
Q

What is VPGA 8?

A

Real property assets

39
Q

What is VPGA 9?

A

Portfolios, collections and groups of properties

40
Q

What is VPGA 10?

A

Matters that may give arise to material uncertainty

41
Q

What is professional standard 1 (PS1)

A

Compliance with standards when a written valuation is provided

42
Q

Professional standards 2 (PS2)

A

Ethics, competency, objectivity and disclosures

43
Q

Valuation technical and performance standards (VPS1)?

A

Terms of engagement ( scope of work)

44
Q

Valuation technical and performance standards (VPS) 2?

A

Inspection, investigation and records

45
Q

Valuation technical and performance standards (VPS) 3?

A

Valuation reports

46
Q

Valuation technical and performance standards (VPS) 4?

A

Bases of value, assumptions and special assumptions

47
Q

Valuation technical and performance standards (VPS) 5?

A

Valuation approaches and methods

48
Q

Valuation headings in report

A

1- Identity of Valuer and status
2- client and other users of report
3- purpose of valuation report
4- assets being valued
5- Basis of value
6- valuation date
7- extent of valuation investigation
8- Nature and soured of information
9- Assumptions and special assumptions
10- Restrictions of use
11- instructions undertaken in accordance with IVS
12- Valuation approaches
13- Valuation Figure
14- Date of report
15- Comment on Market uncertainty
16- Statement setting out any limitations

49
Q

Under VPS 1, what should be in TOE?

A

Identity of client
Currency
Client
Property
State any other users
Purpose of valuation
Basis of value
Valuation date
Extent of investigation
Nature / source of information eg leases
Assumptions and special assumptions
Restrictions
Confirmation of red book compliance + IVS
Fee
CHP
PII

50
Q

When does the new UK National Supplement come into effect?

A

1st May 2024

51
Q

What are some of the changes to the UK supplement?

A

1- Rotation Policy = every 5 years, the valuer needs to change, every 10 years, the firm needs to change.

2- Sustainability and ESG - this has become integral part of valuation reporting

52
Q

How do you calculate using the profits method?

A

Annual turnover
LESS costs/ purchases
= gross profit
LESS reasonable business expenses
= unadjusted profit
LESS operators remuneration
= Adjusted profit

X yield

Valuation (1 decks)

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