Valuation Flashcards
What are the five methods of valuation?
Comparable
Residual
Investment
Profit
Cost (Depreciated Replace Cost method)
What is a yield?
A yield can be simply defined as the annual return on investment expressed as a percentage of capital value.
What is the RICS red book?
The RICS Red Book Global Standards sets out the mandatory standards valuers must adhere to when undertaking an external valuation that must be carried out in accordance with PS 1 and 2 and VPS 1-5 of the Red Book.
The Red Book seeks to uphold the highest standards and provide consistency across valuations.
What is the difference between an in-house appraisal and a red book valuation?
An-inhouse appraisal is used for the internal purposes of a firm or individual. A red book valuation however is used for external purposes such as lending or funding purposes.
To comply with red book requirements, what is required in the terms of engagement of a commission?
Identification and status of the valuer
Client details
Other intended uses of the valuation
Detail of the asset or liability being valued
Currency
Purpose of the valuation
Basis of value adopted
Valuation date
Nature and extent of the valuer’s work
All assumptions and special assumptions to be made
Format of the report
Restrictions on use, distribution and publication of the report
Confirmation that the valuation will be undertaken in accordance with the international valuation standards
Basis of how the fee will be calculated
Reference to the firms CHP with a copy available on request
Are you aware of an RICS professional standard relating to sustainability and valuation?
RICS Professional Standard - Sustainability and ESG in commercial property valuation and strategic advice (2022)
How do you decide which valuation method to apply?
Comparable - typically used to assess the market rent and market value of properties.
Investment - when there is an income stream to value
Residual - used for land or property with development potential. Output is market value of the land
Profits - also for income generating assets but for more specialist uses (hotels, golf course, petrol, care homes)
Depreciated Replacement Cost - used for specialised property that is rarely sold on the open market. Lack of comparable properties to use.
5 methods - When and why would you use one of these methods?
Comparable - to value floorspace (residential, commercial etc) and when there are many comparable transactions to draw evidence from. Use hierarchy of evidence. Cat A (direct like for like) Cat B (General market data (indices/historic evidence) Cat C (Other comps from other property type and locations)
Residual - for market value of land. Estimate GDV using comparable method, and make cost assumptions (BCIS/QS) and deduct developer fees and profit to obtain market value of the land
Income - Used when there is an income stream to value. Assess rental values and a market-based yield. Yield used needs to account for terms (rack rented or under rented until reversion. If growth explicit valuation is needed, an use DCF which reflects risk free rate plus a property risk premium.
Profits method - income method also used for income producing properties, however these are for more specialist types. Need to establish Fair Maintainable Operating Profit (FMOP) by a reasonably efficient operator(REO). This is based on assessment and analysis of Fair Maintainable Turnover (FMT). A market based profit multiplier is then used to convert FMT into a capital value.
DRC Method - The DRC method is based upon the assumption that the market will pay no more for the existing property than the amount it would cost to buy an equivalent site, plus the cost of constructing an equivalent building - used when there is no comparable date (oil refineries and airports. DRC. The basic steps involved include assessing the cost to replace the land and the building – with a modern equivalent, including all associated costs – before making appropriate deductions for depreciation and obsolescence.
What is a years purchase multiplier?
A YP multiplier is calculated by dividing 100 by the Yield of the property - demonstrates the number of years required for the income received to repay the purchase price
Give me an example of a good covenant and how this might impact a valuation.
Long tenancy term from a large multi-national covenant with strong financials - could apply a sharper yield to the valuation to reflect certainty of trade and income
What is PI Insurance (PII)?
Professional Indemnity Insurance - covers you against negligence claims made when a duty of care has been breached
Why do surveyors need PII?
Need to meet the RICS requirements for PII
This cover gives you protection in the event that you are accused of providing incorrect or faulty advice which causes financial loss to your client.
How did the decision in Hart v Large affect PII?
The High Court held that Mr Large was negligent because his inspection and report failed to identify the significant issues relating to damp. Mr Large also failed to advise, both within his report and during subsequent correspondence, to advise that Mr & Mrs Hart obtained a Professional Consultant’s Certificate (PCC) prior to purchase.
What level of PII cover does your firm have?
-
How would you distinguish limitations on liability in your valuations?
Surveyors should ensure that the terms of engagement that apply to their valuation reports include, where possible, a financial cap on liability
Clearly setting out in the retainer letter what the surveyor has agreed to do and what they have not agreed to do will help the surveyor to confine their liability to errors made in carrying out those specific tasks which they have agreed form part of their retainer.
Check
Where in your valuation report do you state any limitations on liability?
Red Book Global Standards requires valuers to include a statement in their terms of engagement and within the valuation report, setting out any limitations on liability that have been agreed
What is the SAAMCO cap?
The key concept behind the SAAMCO cap is that the liability of a professional advisor is limited to the specific loss that can be attributed directly to their professional negligence, rather than the entire loss suffered by the client. In other words, the professional advisor is only liable for the losses that were caused by their incorrect advice or negligence, and not for any losses that would have occurred even without their negligence.
Under the SAAMCO cap, is a valuer liable for losses due to a downturn in the market?
No
Under the SAAMCO cap, is a valuer’s liability usually limited to the overvaluation on the valuation date?
Yes - The valuer’s liability typically doesn’t cover losses occurring after the valuation date, unrelated to their negligence, such as market-driven declines in property value.
What would you do if you received a notice of a PII claim from a client or their solicitor?
Notify your insurer
Gather documentation and evidence relevant to the claim
Consult legal counsel
Communicate with the client
Operate with insurers investigation
Is there a difference between being negligent when undertaking a survey/valuation and providing negligent advice?
Survey/valuation negligence - occurs in the process of the valuation/survey itself. Negligence will arise linked to accuracy and thoroughness of the work performed
Advice - negligence pertains to errors or omissions in the advice provided to the client based on the survey or valuation results. Liability is associated with the quality and accuracy of the guidance given to the client.
Why does the Red Book exist?
Set of global valuation standards created to achieve high standards of integrity, clarity and objectivity in ensuring valuation best practice.
To ensure consistency, objectivity and transparency in valuation.
Tell me about a factor which may impact value.
Site condition. Contamination/ topography?
What is your duty of care as a surveyor when undertaking a valuation?
Valuers owe a duty of care towards their clients, both in contract and in tort (for negligence). They may also owe a duty of care towards third parties, in certain circumstances.
In a claim (for breach of contract or negligence), the Court will ask whether the ‘valuation given was one that no reasonable valuer in the actual valuer’s position could have given’ (RICS).
A claim for breach of contract can only be brought by a party to the contract, i.e. the client. However, if the valuer expressly accepts a duty of care (or is assumed to have done so) then they may also be liable to third parties (who were not party to the valuation contract or Terms of Engagement).
To whom do you owe this duty of care in valuation?
My client. And potentially third parties should the valuer expressly accept a duty of care (or is assumed to have done so)
Why is independence and objectivity important when valuing?
Need to provide valuations that are accurate and credible. Independence and objectivity are at risk when there is a conflict of interest. This may result in an incorrect valuation that could breach a duty of care to the client who may act off of a wrong valuation
Is there a separate UK Red Book?
No - UK National Supplement
What is the UK valuation guidance called?
RICS Valuation UK National Supplement (2019)- Updating to 2023.
Why does the UK guidance exist?
The Red Book Global Standards - gives advice for members and firms across the globe. The UK National Supplement is required to ensure advice is tailored to our jurisdiction
When was the Red Book last updated?
31 January 2022. Effective
When was IVS last updated
January 2022
What changes were made to IVS?
New Chapter IVS 230 Inventory - intangible assets standard
Which do you follow - the latest IVS or the Red Book Global?
The Red Book - as the RB adopts and applies standards set out within IVS
Which sections of the Red Book are mandatory and which are advisory?
PS 1 & 2 - Mandatory
VPS 1-5 - Mandatory except when its for negotiations, internal purposes, agency work
VPGAs - Advisory
What does PS1-2/VPS1-5/VPGAs relate to?
PS1 - Compliance with standards where a written valuation is provided
PS2 - Ethics, competency, objectivity and disclosures
VPS 1 - Terms of engagement
VPS 2- Inspections, investigations and records
VPS 3- Valuation Reports
VPS 4- Bases of Value, assumptions and special assumptions
VPS 5- Valuation approaches and methods
Valuation Practice Guidance Applications - VPGA 1-10 - these are advisory and provide guidance on best practice. They typically relate to valuations for specific purposes or of specific asset types, e.g. financial statements, secured lending, trade related property and portfolios
VGA 1 - Valuation for inclusion in financial statements
VPA 10 - Matters that may give rise to material valuation uncertainty
What type of advice does the Red Book cover?
The Red Book applies to written valuations,
If you provide preliminary advice / draft valuation report, what should you state in writing to your client?
- the opinion is provisional and subject to completion of the final report
- the advice is provided for the client’s internal purposes only and
- any draft is on no account to be published or disclosed.
- If any matters of fundamental importance are not reflected, their omission must be
declared.
What type of valuations might be relied upon by a third party?
Generally - Only those where the valuer has permitted third party reliance in the terms of the contract
However Certain types of valuation may be relied on by parties. This includes valuations for:
- a published financial statement
- a stock exchange, or similar body
- publication, prospectus or circular
- investment schemes (in the Americas, where applicable: investment programs), which may
take a number of forms in individual jurisdictions - takeovers or mergers.
Tell me what the definition of MR?
‘the estimated amount for which an interest in real property should be leased on the
valuation date between a willing lessor and a willing lessee on appropriate lease terms
in an arm’s length transaction, after proper marketing and where the parties had each
acted knowledgeably, prudently and without compulsion
Tell me what the definition of Market value?
The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and seller in an arm’s length transaction, after proper marketing and where the parties have each acted knowledgably, prudently and without compulsion
Tell me what the definition of investment value?
The value of an asset to the owner or a prospective owner given individual investment objectives
Tell me what the definition of fair value?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
FV may include a special purchaser which is excluded from MV. Definition from the IFRS
What is the difference between an assumption and a special assumption?
Assumption - An assumption is made where it is reasonable for the valuer to accept that something is true without the need for specific investigation. To be agreed
Special assumption - Assumed facts that differ from those existing at date of valuation. (when a site has planning when it doesn’t)
What would you include in a valuation report?
Valuer informer
Client details
Purpose of the valuation
Property details
Basis of value adopted
Valuation Date
Extent of valuation
Nature of sources of information relied upon
Assumptions and Special assumpiotns
Restrictions of valuation use
Confirmation of accordance with IVS
Valuation Approach
Amount of the valuation
Commentary on any uncertainty
What sources of information would you consider when preparing a valuation report?
Local agents
Molior, Landinsight, Rightmove
CoStar
Land registry
EPC register
Planning portal
If you have previously valued an asset, do you need to make any additional disclosures and what might they be?
PS 2 -
Where you’ve previously valued an asset. The following disclosures must be made in the ToE, in the report and any published reference to the report:
- the relationship with the client and previous involvement
- rotation policy
- time as signatory (how long you’ve been involved acting as signatory)
- proportion of fees (proportion of total fees paid by the client during the precedent year)
If your firm is too small to have a rotation policy or valuation panel, what else can you do to ensure objectivity?
An arrangement to comply with the standards of the principle should be adopted:
e.g. arrangement 1for the valuation to be periodically reviewed at intervals not greater than 7 years 0 would assist in showing the member is taking steps to maintain objectivity.
When might a conflict of interest exist in relation to a valuation instruction?
When the valuation is of a property adjacent to where you live, or someone you have a relationship with owns the propert
What must be included in your terms of engagement / valuation report?
Valuer details
Client Details
Purpose of the report
Identification of use of the report
Identification of the asset
Valuation currency
Scope of the report (extent of investigation)
Limitation of liability
Fee
Assumptions / Special Assumptions
Valuation date
Basis of value adopted
Sources of information upon which the valuer may rely
Format
Restrictions on use
Confirmation of accordance with IVS
Reference to CHP
Where is this covered in the Red Book? (ToE)
VPS 1
What is a restricted valuation service and can you provide one?
E.g. short time scales might make it impossible to undertaken a site inspection.
Such restrictions need to be identified and recorded in the ToE.
The valuer should consider if the restriction is reasonable, with regard to the purpose
for which the valuation is required.
If the valuer considers that it is not possible to provide a valuation, even on a restricted
basis, the instruction should be declined.
Be clear that restrictions and any resulting assumptions and the subsequent impact on valuation will be referred to in the report
How do you deal with limitations on inspection or analysis?
Agree limitations/restrictions in ToE and consider whether to accept or decline instruction, taking into account the purpose of the valuation/how it will be used, and the significance/impact of the restriction
Can you revalue a property without inspecting?
Red Book - VPS 2 Inspections
No - unless the valuer is satisfied that there are no material changes to the property and the area it is situated within. ToE - must state that this assumption has been made
What RICS guidance relates to the use of comparable evidence?
RICS Guidance Note Comparable Evidence in Real Estate Valuation
Published 2019
Re-Published 2023
What is an internal valuer?
In-house (employee) employed by the enterprise
Can an external valuer provide an internal purposes valuation?
It is therefore possible for an external
valuer to provide an ‘internal purposes’ valuation, though where that is done, the need for the
terms of engagement and written advice to be absolutely clear about non-disclosure to third
parties, and about the exclusion of liability, becomes even more crucial.
What happens if market conditions change between the valuation date and report date?
Checking
What is a Special Purchaser?
One to whom the property being valued has a particular attraction which it does not have for the market in general.
Is special value from a special purchaser reflected in MV?
Excluded from MV, but included in FV
Where does the definition of fair value come from?
Definition from the IFRS
Does this differ from MV?
The concept is consistent with each other, however FV may include special purchaser
When is fair value used?
Fair value is used in financial reporting when reporting the value of assets, liabilities, or other financial instruments.
Fair value is used to determine the value of investment properties, such as commercial buildings or rental properties, which are typically carried at fair value in the financial statements.
What are the 3 approaches under VPS5?
- Incomes – investment
- Cost – RLV, DRC
- Market approach - comparable
Approach - overall manner in which a valuation is taken
What is the Valuer Registration Scheme?
The Valuer Registration scheme is our quality assurance mechanism that monitors all registered RICS members who carry out valuations within the scope of RICS Valuation Standards “Red Book” in order to ensure consistent standards.
Are there any instances where certain sections of the Red Book may not apply?
However, there are 5 specific circumstances where VPS 1-5 may be unsuitable or inappropriate to comply with:
Providing agency or brokerage advice for an acquisition or disposal
Acting as an expert witness
Performing statutory functions
Providing a valuation purely for internal purposes, without liability and without communication to a third party
Providing valuation advice in the course of negotiations or litigation where the valuer is acting as an advocate
What is the basis of value under UK GAAP FRS 102?
Fair Value
What is a SORP?
Statement of Recommended Practice - sector-driven recommendations on financial reporting, auditing practices and actuarial practices for specialised industries,
When would you use EUV?
Existing use value (EUV) is to be used only for valuing property that is owner occupied by an entity for inclusion in financial statements.
What is the definition of EUV?
Same as MV - but with “the buyer is granted vacant possession”
The value of an existing property in its current use or condition. It represents the value of the property as it stands, assuming it continues to be used for its current purpose, without any changes or improvements.
What additional criteria apply to secured lending valuations?
Checking
What information should you specifically request for a secured lending valuation?
Checking
What is a regulated purpose valuation?
UK VPS 3
Regulated purpose valuations. Valuations for:
- Financial reporting
- use in takeovers and mergers
- collective investment schemes
- Unregulated property unit trusts
What additional disclosures must be made for a regulated purpose valuation?
Proportion of total fees paid to the client in the last year
Where it is anticipated that there will be a material increase in the proportion of the fees payable
What is the basis of value for a statutory valuation?
Check
What might a statutory valuation relate to?
Statutory valuations are usually required for the purposes of taxation or in cases of compulsory purchase (eminent domain acquisition), and therefore they must be undertaken in accordance with the relevant statutes.
What is the definition of the statutory basis of valuation?
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What is a statutory valuation
Statutory valuation is on a basis defined in law, and/or is required for a specific legal purpose.
What is the definition of the statutory basis of valuation?
Is this the same for all statutory valuations?
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What is a yield
A yield can be simply defined as the annual return on investment expressed as a percentage of capital value.
What is a Net Initial Yield?
A yield adjusted for purchasers costs
What is a reversionary yield?
Net reversionary yield (NRY) is the anticipated yield to which the initial yield will rise (or fall) once the rent reaches the estimated rental value.
Market rent divided by current price price on an investment at a rent below the market rent
What is an equated yield?
The equated yield is the yield on a property investment which takes into account growth in future income. (This is not applicable to reversionary situations, where the increase in income on reversion is to the market value as estimated at the present time.)
What is an equivalent yield?
Average weighted yield when a reversionary property is valued using an initial and reversionary yield
How would a yield reported from auction differ from a Net Initial Yield?
Auction Yield won’t account for purchasers costs (legal fees and surveyor fees)
What purchaser’s costs do you deduct from a valuation?
stamp duty land tax, agent and legal fees.
When do you deduct purchaser’s costs from a valuation?
Purchaser’s costs are typically deducted from the valuation when calculating the Market Value
How would you value a property in uncertain market conditions - does the Red Book give any guidance?
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How could you value a long leasehold interest?
Where remaining lease terms are longer
than 100 years, very little impact on value is assumed compared to a long lease or a freehold property
How does a term and reversion differ to a DCF?
DCF values the property based on the present value of all future cash flows.
DCF involves projecting future cash flows for each period, applying a discount rate to each cash flow to bring it to its present value, and summing up all the present values to arrive at the property’s current value. The discount rate used in DCF reflects the risk associated with the investment.
T&R is a simplified valuation approach that divides the property’s cash flows into two components: the income generated during a specific holding period (the “term”) and the reversionary value at the end of that period.
What is the difference between a growth explicit and a growth implicit yield?
Check
Give examples of each of these types of yield.
check
How would you value an under/over rented investment property?
Investment method -
Term and reversion method when under rented
Layer/hardcore method when over rented
Where can you find yield evidence from?
Comparable method of valuation
CoStar
Speaking to agents
Recently transacted evidence
What is the hierarchy of evidence?
Use hierarchy of evidence.
Cat A (direct like for like)
Cat B (General market data (indices/historic evidence)
Cat C (Other comps from other property type and locations)
Helps to appropriately apply evidence when using the comparable method of valuation
What would you do if comparable evidence was limited?
Valuers can also look further afield and at a wider range of evidence or indicators where direct comparables are limited.
In the case of uncertainty, the Red Book states that ‘valuers should not treat … a statement expressing less confidence in a valuation than usual as an admission of weakness … it is … a matter entirely proper for disclosure’.
Valuers should, therefore, ensure clients understand that unusual market conditions may lead to uncertain valuations, but that this will help them to make better informed business decisions.
What is NPV?
Net Present Value
The sum of the discounted cash flows of a project
Used to determine if an investment gives a positive return against a target rate of return
What is IRR?
Internal Rate of Return
The rate of return at which all future cashflows must be discounted to produce a NPV of Zero
Used to assess the total return for an investment opportunity making some assumptions regarding rental growth, re-letting and exit assumptions.
What is a term and reversion?
Used for reversionary investment (market rent more than passing rent) (under rented)
Term capitalised until next review/lease expiry at an initial yield
Reversion to market rent valued in perpetuity at a reversionary yield
What is a hardcore and topslice?
Used for over rented investments (passing rent more than market rent)
Income flow divided horizontally
Bottom slide - market rent
Top slice - Rent passing less Market Rent until the next lease event
High yield applied to top slice to reflect additional risk
What is a Discounted Cash Flow (DCF)?
Growth explicit investment method of valuation
DCF involves projecting estimated cash flows over an assumed investment holding period plus an exit value at the end of that period
What is a short-cut DCF?
Simplified version of the DCF.
Goes into less detail.
Instead of projecting cash flows for many years, short-cut DCF often uses a single-year cash flow estimate or a more simplified approach.
It may also use a rough approximation of the discount rate, such as the company’s cost of capital or a generic discount rate for similar investments.
When would you use a DCF?
Short leasehold interests
Phased development projects
Non-standard investment (with 21 year rent reviews)
Over-rented properties and social housing
What are the advantages of a DCF?
Extremely detailed
incorporates the time value of money
Doesn’t require comparables
Calculates IRR
Sensitivity analysis
What are the disadvantages of a DCF?
Requires significant data
Sensitive to the projections it relies on
What is a YP/PV/YP in perpetuity?
check
What is marriage value?
Marriage value is the increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease.
When would you include an element of hope value in a valuation?
What’s hope value?
Hope value is the value based on the expectation that land will get permission for development in the future, meaning that it is likely to be worth more
Can you include hope value in a secured lending / mortgage valuation?
Check
How does market value differ to investment value/fair value?
Fair Value - can include special purchaser value
Investment value - accounts for internal objectives of a firm
Is the profits/DRC method used for specialised or specialist property?
Profits - specialist
DRC - specialised
What type of properties would you use the profits method for?
Profits - Valuations of trade related property linked to profitability (Hotels, golf courses)
What type of properties would you use the DRC method for?
Specialised properties for which there is no comparable evidence (oil refineries, airports)
When would you use the profits method?
Used - where the value of the property depends on the profitability of its business and trading potential
Used for trade related property where there is a ‘monopoly’ position
What is intangible goodwill?
the intangible value that a company possesses beyond its physical assets and liabilities.
What is turnover / gross profit / net profit?
turnover - total revenue
Gross profit - revenue less cost of producing the product
Net profit - revenue less cost of all business expenses
What are the steps to providing a profits valuation?
Annual turnover (income)
Less costs/purchases = gross profit
Less reasonable working expenses =net profit
Less operators remuneration = adjusted net profit known as the Fair Maintainable Operating Profit (FMOP)
This can be expressed as the EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation)
Capitalised at an appropriate yield (years purchase multiplier to achieve market value)
Cross check with comparable sales evidence if possible
What is Fair Maintainable Turnover?
This is the annual level of trade (excluding VAT ) expected to achieve if operated in a reasonably efficient way.
What is a Reasonably Efficient Operator
Checking
Does the assessment of the REO include personal goodwill and trading potential?
excludes personal goodwill
does include trading potential
What is EBITDA?
(Earnings Before Interest, Taxation, Depreciation and Amortisation
What is Fair Maintainable Operating Profit?
The level of profit that a ‘reasonably efficient operator’ would expect to achieve on the assumption that the property is in good repair and suitably equipped
How do you calculate the divisible balance?
The divisible balance is the amount to be shared between the tenant and the landlord (as rent, or RV). The tenant’s share is the amount the tenant would require to commercially run the business, bearing in mind capital expenditure, profit and risk. The amount left over is the landlord’s share, or RV.
What accounts information would you want to review for a profits valuation?
The financial accounts for the business for the last 3 to 4 years as a minimum, and these then need to be carefully examined.
Do RICS provide any guidance on RLVs or valuing development property?
RICS Valuation of Development Property (February 2020)
What is an RLV?
Residual Land Valuation
What do holding costs typically include?
Rent received
Service charge
void periods
business rates
any other operating costs
How do you typically calculate developer’s profit?
GDV
less construction cost
less developer fees
less land value
= profit
What are the advantages/disadvantages of a RLV?
Advantage]
By comparing the residual land value with the asking price or the market value of the land, you can determine whether the project is worth pursuing or not
Flexible and easy to do sensitivity analysis
Disadvantage
assumptions at a point of time. We are long terms and therefore cannot predict
What is included in the development programme?
acquisition
planning
construction
hand over
sales
What RICS guidance relates to the valuation of development property?
RICS Valuation of Development Property (February 2020)
When would a cost approach be used?
Specialised property (airport, oil refinery)
When no other comps are available.
What is the supposition that a DRC is based upon?
The DRC method is based upon the assumption that the market will pay no more for the existing property than the amount it would cost to buy an equivalent site, plus the cost of constructing an equivalent building
What are the 3 components of the cost approach?
The cost approach considers the cost of land, plus costs of construction, less depreciation.
How do you assess the value of the land?
Check
How do you assess Gross Replacement Cost?
The GCRC is calculated by estimating the cost of replacing an existing permanent structure (including any improvements) with a structure made from the same materials and built to the same dimensions.
How would you deal with depreciation/obsolescence in DRC?
Check
What types of obsolescence are there?
a. physical deterioration
b. functional obsolescence and
c. economic obsolescence.
Is the cost approach a market valuation?
Can be used for the Market Valuation of Specialised properties only for valuations for financial statements
What liabilities may be created through valuation?
For example, if a property is overvalued, it may lead to financial losses for the buyer or investor when the property’s actual value is lower. Conversely, undervaluation can lead to missed opportunities with profit
Can create risk for lenders if underwriting valuation is wrong
What is a liability cap and when would one be used?
a liability cap refers to a contractual provision that sets a limit on the maximum financial liability that a chartered surveyor may incur as a result of their professional services
Explain why the RICS are carrying out an Independent Valuation Review
The Valuation Review was commissioned to future-proof practices in the valuation of real estate assets for investment purposes, as a result of feedback and rapidly changing market dynamics.
Who is leading this? (RICS Independent Valuation Review)
Peter Grey
Explain what you understand by the term, margin of error.
The margin of error is the possible degree of error while conducting a survey
Explain your understanding of K/S Lincoln v CBRE Hotels (2010).
where a valuer has used the wrong methodology (or perhaps no methodology at all) but luckily arrives at the right valuation or one that falls within an acceptable margin of error, the valuer will not have been negligent
Explain the precent set in Hyde and another v Nygate and another (2021) in relation to the valuation of high-profile development sites.
In a scenario where rents are static and the capital value increases, would you expect yields to increase or decrease?
They soften
What does heterogenous mean in terms of comparable evidence?
“heterogeneous” refers to a situation where the properties or assets being compared have significant differences or variations in their characteristics, making them not entirely alike or similar
