Valuation Flashcards
What are the Valuation Technical and Performance Standards (VPS)?
VPS 1 – Terms of Engagement
VPS 2 – Inspection, investigation and records
VPS 3 – Valuation Report
VPS 4 – Bases of value, assumptions and special assumptions
VPS 5 – Valuation approaches and methods
What are the Valuation Practice Guidance Applications (VPGAs)?
VPGA 1 – Valuation for including in financial statement
VPGA 2 – Valuation for secure lending
VPGA 3 – Valuation of businesses and business interests
VPGA 4 – Valuation of individual trade related properties
VPGA 5 – Valuation of individual trade related properties
VPGA 6 – Valuation of intangible assets
VPGA 7 – Valuation of personal property, including arts
VPGA 8 – Valuation of real property interests
VPGA 9 – Identification of portfolios, collections, and groups of properties
VPGA 10 – Matter may rise to material valuation uncertainty
When does a valuation have to be Red Book compliant?
It is mandatory for all valuations to be Red Book compliant with the exception of the following purposes:
Advice expressly provided for/or during the course of negotiations or litigation
Tax/Rating purposes
Provided for solely internal valuations
You have said here it is important to have the RICS Global Standards worldwide, why is that?
It makes valuations consistent worldwide
What is included in the Terms of Engagements?
- Clients details
- Valuers details and status
- Basis of valuation
- Currency
- Fee
The rest are in the VPS 1 of the Global Red Book
You’ve said you were instructed on a retail unit in Barnes, please could you tell me how you were instructed?
Approached by a client to complete a valuation
Completed a conflict check and ensured I was competent to complete the valuation
Sent a fee quote, which they agreed with
Sent them Terms of Engagement in writing which they signed
How do you carry out a conflict check?
We send an email around the whole firm referencing the property as well as check our internal database
Prior to your inspection, you undertook statutory enquiries, what were these?
- Check title plan to check boundaries
- Check planning
- Flood risk
- Leases
What is an all risks yield?
this yield reflects all of the risks and rewards of the subject property
What is a net initial yield?
income as a percentage of capital value which reflects purchasers costs
What is a Gross Yield
Income as a percentage of capital value
What is a Equivalent yield
weighted average yield between term and reversion
What is a reversionary yield
the anticipated yield, which the initial yield will rise to once the rent reaches the ERV and when the property is fully let.
How do you use the hardcore method of valuation?
Bottom slice – capitalised the Market Rent by the yield into perpetuity. I applied a rack rented capitalisation yield on my bottom slice.
Deducted the current rent passing by the market rent, capitalised this with the yield. I applied a higher yield to the top slice to reflect the risk of over rented.
Then add together.
When would you use Hard Core Method?
When the property is over rented
Why is there a higher risk on the top slice?
Because it’s over rented - the tenant is more likely to default on payments as they are paying over the market rent
What are your purchasers costs?
6.8%
o 5% stamp duty
o 1% agents fee
o 0.5% legal fee
o The agents and legal fee both + 20% VAT
You mentioned a special assumption, what is it and how does this differ from an assumption?
Assumption – You don’t know either way, but it is likely it is the case e.g. assuming there is not rental arrears
Special assumption – something you know which is not the case e.g. assuming the property has planning permission when it doesn’t
How do you carry out a term and reversion valuation?
Value to the capital value of the income flow for the term by applying a capitalisation rate
on the reversion you would value the market rent into perpetuity at reversion and bring it back to todays value using the present value of £1
Why do you apply a higher yield to the reversion?
This rate considers the time value of money, as future cash flows are inherently riskier and less certain than current income. The higher yield acts as a reflection of this risk, adjusting the reversion’s value to today’s terms.
When would you use a term and reversion valuation?
When a property is under rented.
