Valuation Flashcards
1
Q
What are the first steps you should take at the start of any valuation?
A
1) Competence (SUK)
2) Conflict of Interest
3) Terms of Engagement
2
Q
What are some examples of Statutory Due Diligence necessary for any valuation?
A
Statutry Due Diligence checks can include:
Asbestos Register
Business Rates
Contamination
Equality Act (2010) compliance
Environmental Matters (High voltage power lines, telecoms masts etc)
EPC Rating
Flooding Risk (check Environmental Agency)
Health & Safety compliance
Fire Safety compliance
Legal title and tenure (check the boundaries / ownership, Land Registry).
Planning History (e.g. check if conservation area / Listed)
3
Q
Why are statutory due diligence checks carried out in valuation?
A
To check there are no material matters which could impact on the value
4
Q
What are the 3 Valuation Approaches?
A
Income Approch (converting cash flow into capital value, i.e the investment method, residual method and profits method)
Cost Approach (reference to the cost of the asset, i.e. Depreciated Replacement Cost method).
Market Approach (Using comparable evidence, i.e. Comparative method)
5
Q
What are the 5 methods of Valuation?
(COMMON QUESTION)
A
- Comparative Method
- Investment Method
- Profits Method.
- Residual Method.
- Depreciated Replacement Cost (DRC).
6
Q
Please describe how you would use the Comparative Method to value a property?
(COMMON QUESTION)
V IMPORTANT ONE
A
With reference to the RICS Professional Standard: “Comparable Evidence in Real Estate Valuation” (2019).
Methodology - SIX steps:
- Source Comparables
- VERIFY details and analyse to get a Net Effective Rent.
- Create schedule of comparables.
- Adjust comps in relation to the Hierarchy of Evidence.
- Analyse to form opinion of value (MR / MV).
- Stand back & look. Report value & prepare file note.
7
Q
When using the comparative method, is there any specific guidance you adhere to?
(What is the RICS Guidance for comparable method)
A
RICS Professional Standard: Comparable Evidence in Real Estate Valuation (2019). This was republished as a Professional Standard in 2023.
It specifically outlines the Hierarchy of Evidence
8
Q
What is the Hierarchy of Evidence in Comparable Valuation?
(COMMON QUESTION)
A
Framework for comparables based on weighting:
Category A = DIRECT COMPARABLES
- Data from the subject property itself (the best)
- Completed transactions of near-identical properties
- Contemporary, full and accurate information
Category B = GENERAL MARKET DATA
- Published sources / Commercial Databases (e.g. CoStar). Importance will depend on verification.
- Historic evidence
- Supply / Demand data
Category C = OTHER SOURCES
- Wider market data (interest rates, stocks & shares).
9
Q
What makes a good comparable?
A
Huge focus on “Contemporary” in the Hierarchy of Evidence (“Contemporary, full and accurate information”).
The best comparable will be an almost identical property, next door to the subject property which transacted yesterday and you have full information on the deal. Think:
- Contemporary (recent)
- Location
- Similarity
- Transparency
- Arms-length, open market transaction
10
Q
How would you find comparable evidence?
A
Inspection of the local area to find ‘TO LET’ boards
Speaking with local agents
CoStar / property databases and VERIFY the information
11
Q
What would you do when there is a lack of comparable evidence?
(This is a good question)
A
Have to rely on older data and ‘quoting’ prices.
Also look down the Hierarchy of Evidence and consider Category B / C evidence such as supply and demand data.
Always consider market sentiment at the time when there is a lack of comparable evidence.
You could also look at using an alternative valuation method which is less reliant on comparable evidence.
Also consider VPGA 10 “Matters that give rise to Material Uncertainty”.
12
Q
When would you use the Investment Method?
A
When there is an income stream to value.
The rental income is ‘capitalised’ to produce a capital value.
13
Q
What are the different types of Investment Method?
A
Conventional Investment Method (Rack-Rented)
Term & Reversion (Under Rented)
Hardcore Layer (Over Rented)
14
Q
Outline the basics of the conventional investment method?
A
The rental income is capitalised to produce a capital value
Growth Implicit valuation approach - growth is derived from the yield. Often the “All Risks Yield”
Used when a property is rack-rented.
15
Q
When would you use the Term & Reversion method?
A
Used for reversionary investments (under-rented) i.e. when the properties passing rent is below the market rent.
The ‘Term’ (passing rent) is capitalised until the next lease event at an initial yield.
The ‘Reversion’ to market rent is capitalised into perpetuity at a reversionary yield.
16
Q
When would you use the Hardcore Layer method?
A
When the property is over-rented, i.e. passing rent is more than the market rent.
I would divide the income stream horizontally.
Bottom Slice = Market Rent.
Top Slice = Passing Rent - Market Rent until next lease event.
Higher yield applied to the top slice to reflect additional risk. Yield derived from comparable evidence.
17
Q
If you had a rack-rented property, how would you value it?
A
The rental income is capitalised (by a yield) to produce a capital value.
Establishing the yield would then allow me to capitalise the rental income by the Years Purchase (YP).
18
Q
What is a Yield?
A
Reflects a return on an investment, expressed as a percentage (%).
(remember the higher the yield, the riskier the asset is perceived to be).
19
Q
How would you calculate a yield?
A
Two ways to establish a yield:
1) Rental Income / Property Price x 100
2) Comparable evidence. Use Central London Yield Guides to cross check.
20
Q
What is the difference between the YP and the Yield?
A
YP is the inverse ratio of the yield.
YP = (1 / Yield).
21
Q
What are typical Prime Rents and Prime Yields in central London for:
1) Offices
2) Retail
3) Industrial
A
Offices:
Prime Yield (West End) = 3.5%
Prime Yield (City) = 4%
Prime Headline Rent (West End) = £125 per sq ft
Prime Headline Rent (City) = £82.50 per sq ft
Yield for retail = 6% (high street)
Yield for industrial = 3.5% - 4% (although have softened recently).
22
Q
What is an ‘All-Risks’ Yield?
A
Yield which encompasses all the risks, uncertainties and prospects of an investment.
Used on a fully let property at market rent.
(Growth + Risk implicit)
23
Q
What is an Initial Yield?
A
The simple income yield for current income and current price.
It will be the rental income / price x 100.
24
Q
What is a Reversionary Yield?
A
Used when under-rented.
It is the market rent / current price on an investment that’s under rented.
25
What is an Equivalent Yield?
The weighted average yield between the initial and the reversionary yield.
26
When would you use the DCF technique?
Valuations where the projected cash flows are explicitly estimated over an assumed investment holding period.
E.g.
- Short leasehold interests and properties with income voids or complex tenures.
- Phased developments projects
- Non-standard investments
27
Describe how you would calculate investment value using the DCF technique?
Involves projecting estimated cash flows over a finite period.
1. Estimate cash flow for duration (break down income - all expenditure)
2. Estimate exit value (at end of holding period)
3. Select discount rate
4. Discount cash flow
5. Sum of the DCF is NPV.
You're discounting back to the present day at a discount rate (aka IRR to reflect levels of risk).
28
What is the Net Present Value (NPV)?
The sum of the DCF.
It shows if the investment will likely give a positive return at the investors target rate of return (IRR).
Positive NPV = The investment has exceeded the investor's target rate of return.
Negative NPV = The investment has not achieved the target rate of return.
29
What is the Internal Rate of Return (IRR)?
An IRR is the discount rate at which the NPV of all income streams will equal zero.
Used to assess the total return from an investment.
30
What can a valuer use if they don’t have a software package to calculate the IRR?
How do you choose your discount rate?
Linear Interpolation
Find a discount rate that produces a negative and positive NPV, then interpolate between the two.
31
When would you use the Profits method?
Used for TRADE-RELATED property.
When the value of the property depends upon the PROFITABILITY of its business and trading potential.
E.g. pubs, hotels, petrol stations, leisure, care homes
32
How would you undertake a valuation using the Profits method?
Basic principe is the value depends on PROFIT generated from the business (not the physical building).
- Get past 3 years' audited accounts
- Establish Fair Maintainable Operating Profit (FMOP) by deducting costs/expenses to get the net profit.
- EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation) capitalised at an appropriate yield to find Market Value.
Cross check with comparable sales evidence if possible.
33
What is the Residual method of valuation?
Used to establish the RESIDUAL LAND VALUE of a development opportunity.
Used to determine the Market Value (land price) of a development site based on market inputs.
This is a form of development appraisal.
34
How would you carry out the Residual method of valuation?
1. Estimate the GROSS DEVELOPMENT VALUE (GDV) (the vaue of the completed development) using market assumptions (at the current date of valuation).
2. Subtract Construction Costs (build costs)
3. Subtract Developers profit (planning costs, professional fees)
Remainder = Residual Site Value.
(Cross check using the comparative method based on land sales).
35
What are the limitations of the Residual Method?
1. Reliant on accurate information / inputs (getting build costs in a volatile market)
2. Highly sensitive - small adjustments can mean big change.
3. Doesn't consider the timing of payments
4. Assumptions are hidden and deals with finance in a basic manner.
36
What Guidance is available with regards to the Residual Method?
RICS GN 'Valuation of Development Property' (2019)
- Cross check other land sales using comparative method
- Sensitivity Analysis
- DCF for complex schemes
37
What is the difference between a Development Appraisal and a Residual Valuation?
Development Appraisal: establish the viability/PROFITABILITY of a proposed development using a CLIENTS inputs.
Residual Valuation: establish the MARKET VALUE (residual land value) of a site using MARKET inputs.
38
What is the Depreciated Replacement Cost (DRC) used for?
DRC is used when a specialist, unique asset that does not produce an income is to be valued.
Used for 'Owner-Occupied' property rarely sold on the open market.
Should only be used when no comparable evidence & for specialised property - method of "last resort".
E.g. Light House, Oil Rig, ancient monument.
DRC used for a Dilapidated ancient monument / castle because it can't be converted.
39
Why is the Depreciated Replacement Cost a method of last resort?
Because it assumes a correlation between cost and value (when there is not).
40
What is the methodology for using the Depreciated Replacement Cost (DRC)?
1. Value the land (site value) in its existing use (assuming planning permission exists)
2. Add current cost of replacing the building with a modern equivalent (estimated using BCIS). Then depreciate based on age and obsolescence (functional, technical and economic).
41
Using the DRC method you need to estimate the amount of depreciation appropriate for physical, functional and economic obsolescence - explain each.
PHYSICAL = Result of wear and tear/deterioration over the years.
FUNCTIONAL = Where design or specification no longer fulfils function it was originally designed for.
ECONOMIC = Changing market conditions for use of the asset.
42
What does the Red Book say about Depreciated Replacement Cost?
NOT suitable for secured lending purposes.
Used for specialised properties only for inclusion in their financial statements.
43
How do you calculate Net Effective Rent?
(COMMON QUESTION)
This is how you devalue a headline rent with a rent-free period to produce a Net Effective Rent.
I use the straight line basis in Excel until the next lease event.
To do this - aggregate the cost of all rental payments (to include rent-free period and any other incentives) and divide by the lease length.
I would deduct a 3-month fitting out period from the rent-free before devaluation (unless the space was ready fitted).
44
What incentives would you be looking at analyse in a Net Effective Rent?
Rent-free period
Premiums
Stepped rent
45
Apart from the straight line method which is great - how else could you calculate the net effective rent?
YP approach/time value of money (as used by the Valuation Office Agency). Technically this is the best approach but not widely used.
DCF.
46
When you are analysing your comparables - what is the hierarchy you give to rental evidence?
1. New Letting (Open Market Letting)
2. Lease Renewal
3. Rent Review
47
What is the Red Book (2022) and what is it's purpose?
(COMMON QUESTION)
RICS Global Standards ("Red Book") effective from 31st January 2022.
The Red Book IS a set of global standards which set out procedural rules and guidance for written valuations.
Purpose = Consistency, Objectivity and Transparency (COT) on a global scale.
48
What is the purpose of the RICS Red Book?
(REMEMBER COT)
Purpose = CONSISTENCY, OBJECTIVITY & TRANSPARENCY on global scale.
49
What are the 2022 updates all about in a nutshell? What are the key changes from the previous Red Book?
(HOT TOPIC)
1. Sustainability and ESG factors (the main update to the Red Book).
- Glossary definition of ESG included.
- For inspections + reporting (VPS 2 and VPS 3) - valuers should have regard to the relevance of sustainability and ESG factors.
- Language is clearer and more robust throughout towards ESG.
2. Valuation for Financial Reporting Purposes (VPGA 1). References to IFRS 13 and the need to provide Fair Value measurements.
3. Reference to the use of the Profits Method (VPGA 4) for trade-related valuations.
50
Why is the RICS Red Book updated frequently?
Because the IVS (International Valuation Standards) are updated on a rolling programme every 2 years.
The 2020 edition of the Red Book needed minor updates to remain aligned with IVS 2022 and to increase focus on sustainability + ESG.
51
When is the next Red Book likely to be published?
Early next year (2024)
52
What are the sections of the RICS Global Standards ('Red Book' 2022)?
1. Introduction
2. Glossary
3. Professional Standards (PS)
4. Valuation Technical & Performance Standards (VPS)
5. Valuation Applications (VPGA)
6. International Valuation Standards (IVS)
53
What are the PS, VPS and VPGA's?
(COMMON QUESTION - KNOW THESE)
PS 1 - COMPLIANCE with standards & practice statements where a written valuation is required (the exceptions!).
PS 2 - ETHICS, competency, objectivity and disclosure.
VPS 1 = Terms of Engagement (ToE)
VPS 2 = Inspection and Investigation
VPS 3 = Valuation Reports
VPS 4 = Bases of Value, assumptions and special assumptions
VPS 5 = Valuation Methods + Approaches
VPGA 1 = Financial Accounts
VPGA 2 = Loan Security Valuation
VPGA 8 = Valuing Real Property Interests
VPGA 10 = Matters that may give rise to material uncertainty.
54
What role does International Valuation Standards (IVS) play in the formation of the Red Book?
IVS are the global standard setter for professional valuation.
Therefore, their policy on best practice is implemented into the real estate valuation profession via the Red Book.
RICS is a member of the International Valuation Standards Council (IVSC) which produces the IVS. Then RICS will produce the Red Book to align with these - often every 2 yrs.
55
What is the benefit of IVS' involvement in the formation of the Red Book?
Consistency, Objectivity, Transparency on global stage.
56
What is Professional Standard (PS) 1?
COMPLIANCE with standards where a written valuation is required.
(Basically - when is a valuation a Red Book valuation) ... ALL valuations are Red Book valuations, apart from 5 BIG Exemptions ....
The 2022 change made Red Book compliance binary. It either is or is isn't (no such thing as partial red book valuation).
57
What are the 5 exceptions of when a Red Book is no longer mandatory?
(A VERY COMMON QUESTION)
When would a valuer not need to follow VPS 1-5?
As per (PS1), all valuations are Red Book apart from the following:
1) Negotiation / Litigation (e.g. rent review)
2) Statutory Purposes (carried out by Statutory officer)
3) Purely for Internal Purposes (internal)
4) Agency Work (market appraisal)
5) Expert Witness (duty to court)
Remember "ALIES" ... Agency, Litigation, Internal, Expert witness, Statutory purposes.
58
What is the difference between an Independent Expert and Expert Witness?
Independent Expert = Used in rent review disputes to determine rent.
Expert Witness = Can be any profession called to give expert evidence to a court of law and they do not have duty to client, they have a duty to the court.
59
What is Professional Standard (PS) 2?
ETHICS, Competency, Objectivity, Disclosure:
Must comply with the RICS Rules of Conduct (2022)
Must carry out:
- Competence Check (SUK)
- Conflict of Interest check
- Signed Terms of Engagement
60
What is in Valuation Technical & Performance Standards (VPS) 1?
(What would you expect to see in Terms of Engagement for a Red Book Valuation) - Please give me an outline ...
(COMMON QUESTION - what did you include in your valuation ToE?)
(Get a good handful of these)
Identification and Status of the Valuer (set out ID and RICS Registered Valuer status).
Identification of the Client (intended user)
Identification of the asset being valued
Currency used
PURPOSE of the valuation (Is it for accounts, loan security, tax)
Bases of Value adopted (Fair Value, Market Value)
VALUATION DATE
Extent of the investigation (Did you physically inspect or was it restricted information)
Nature and source of the information to be relied upon
ASSUMPTIONS and SPECIAL ASSUMPTIONS to be made
Format of the report
Confirmation that the valuation will be of Red Book Global/IVS compliance
The basis on which the fee will be calculated.
Complaints Handling Procedure must be made available in ToE.
A statement settng out any limitations on liability.
61
Why is ensuring Terms of Engagement so important for valuation?
The contractural basis of your relationship with the client is an important defence against negligence claims.
62
What is an Assumption? How does it differ from a Special Assumption?
Assumption = Where it is reasonable to assume something is true, WITHOUT the need for a specific investigation (e.g. all title documents are believed to be true / no deleterious materials).
Special Assumption = Where something is taken as fact even though it is NOT true (e.g. assuming planning permission will be granted, or assuming Vacant Possession if property is let).
Must be clearly stated in Terms of Engagement!
63
What is VPS2 ?
Inspection and Invesitgation
64
What does VPS 2 state about inspections?
Valuers must verify the information being relied upon for a valuation to ensure it's accuracy.
Records must be held of inspections and investigations.
65
According to VPS 2, is it permitted for a valuer to conduct a revaluation without re-inspecting the property?
Must not provide a revaluation without re-inspecting.
(Unless valuer is satisfied there has been no material changes to the property since the last inspection, confirmed in ToE + valuation report).
Nature of the restriction must be stated in Terms of Engagement and valuation report.
66
What is a restricted information valuation?
When a valuer is instructed to value on the basis of restricted information or without physical inspection.
67
Is a Desktop valuation still Red Book compliant?
Yes - all valuations are Red Book apart from the 5 exemptions in criteria outlined in PS1 (Negotition / Litigation, Statutory Purposes, Purely for internal purposes, for Agency work or for Expert Witness).
68
What does VPS 3 of the Red Book cover?
Valuaton Reports (reporting).
69
Please outline what is included in VPS 3?
What do you include in a Valuation Report?
Identification and Status of the Valuer (set out ID and RICS Registered Valuer status).
Identification of the Client (and any other intended users)
Purpose of valuation (Accounts purposes, loan security valuation, tax).
Identify the asset being valued
Bases of Value (Fair Value, Market Value)
VALUATION DATE
Extent of investigation (Did you physically inspect or was it restricted information)
Nature & source of the information relied upon.
Assumptions and Special Assumptions
Confirmation that the report has been undertaken in accordance with the IVS/Red Book
Valuation Approach used and reasoning why (also comment on ESG / Sustianability).
The valuation figure(s)
Date of valuation report
Comment on MATERIAL UNCERTAINTY in relation to the valuation.
Statement setting out any limitations on liability
70
With regard to VPS 3, please tell me about giving draft valuation advice?
You can give preliminary draft valuation advice ... but it MUST be market as draft, for internal purposes, cannot be relied upon and cannot be published.
A draft valuation report must clearly state it is a draft and subject to completion of final report.
Valuer must also remain impartial and not be influenced by the client.
71
What is VPS 4?
(This is a big one especially based on my submission)
Bases of Value, Assumptions and Special Assumptions.
72
What are the different RICS Bases of Value?
Market Value
Market Rent
Fair Value
Investment Value
73
Define Market Value?
(COMMON QUESTION)
The estimated amount for which an asset should EXCHANGE:
- On the valuation date
- Between a willing buyer and seller
- In an arm's length transaction
- After proper marketing
- Where the parties had acted knowledgeably, prudently and without compulsion.
74
Define Market Rent?
The estimated amount for which an asset should be LEASED:
- On the valuation date
- Between a willing lessee and lessor
- In an arm's length transaction
- After proper marketing
- Where the parties had acted knowledgeably, prudently and without compulsion.
75
Name me some important VPGAs?
VPGA 1 = Valuations for Inclusion in Financial Accounts
VPGA 2 = Valuations for Secured-Lending Purposes
VPGA 8 = Valuing Real Property Interests
VPGA 10 = Matters that may give rise to material uncertainty
76
With regard to VPS 4, when is Fair Value required?
If the International Financial Reporting Standards (IFRS) have been adopted by the client.
Fair Value is most often used for valuations for Financial Accounts purposes.
The RICS' view is that this definition is generally consistent with the definition of the Market Value.
77
What is Fair Value and when is it used?
Used for Financial Accounting Purposes (IFRS 13 adopted).
Fair Value = The price that would be recieved to sell an asset in an orderly transaction between market participants at the MEASUREMENT DATE.
78
What is the difference between Market Value and Fair Value?
(CRUCIAL QUESTION)
There is a subtle different between Market Value and Fair Value - but it's quite a key one.
The Red Book defines Market Value as:
The estimated amount which an asset or liability should exchange:
- On the valuation date
- Between a willing buyer & a willing seller
- In an arm's length transaction
- After proper marketing.
Whereas Fair Value is:
"The price that would be recieved to sell an asset at the MEASUREMENT DATE.
(What this essentially means is Fair Value is the "MUTUALLY BENEFICIAL VALUE" between buyer and seller).
(Market value is influenced by market forces).
RICS' view is that Fair Value is generally consistent with the definition of Market Value.
79
What is Investment Value?
The value of an asset to a particular owner or prospective owner for individual investment or operational objectives.
Used as a measure of worth against the clients own investment criteria (e.g. IRR).
Investment Value basis is often used with a DCF.
80
What is the difference between an Assumption and a Special Assumption?
Assumption = Where it is reasonable to assume something is true, WITHOUT the need for a specific investigation (e.g. all title documents are believed to be true / no deleterious materials).
Special Assumption = Where something is taken as fact even though it is NOT true (e.g. assuming planning permission will be granted, or assuming Vacant Possession if property is let).
Must be clearly stated in Terms of Engagement and the Valuation Report!
81
What is VPS 5?
Valuation Approaches and Methods
(3 Approaches - Income Approach, Cost Approach, Market Approach)
(5 Methods - Comparative, Investment, Profits, Residual, DRC)
82
What does VPGA stand for and how many are included in Part 5 Valuation Applications?
Valuation Practice Guidance Applications - there are 10 of them.
83
What does VPGA1 say?
VPGA1 = Valuation for inclusion in Financial Accounts.
Fair Value to be adopted for all IFRS adopted accounts.
84
With VPGA 2, would you carry out a Conflict of Interest check any differently because it is a secured lending valuation?
Yes - they are enhanced Conflict of Interest where any previous, current or potential involvement with the prospective borrower MUST be disclosed to the lender.
You cannot accept an instruction if there has been a conflict within the last TWO years, not even manage it ...
Disclose the methodology taken
Comment on any environmental considerations
Comment on whether it is suitable for loan-security
85
What does VPGA 8 state about valuation of real property interests?
- Covers inspections and investigations with particular emphasis on ESG / Sustainability
- Identifies ESG issues including the need to consider direct valuation factors (storm or flood risk) and indirect valuation factors (carbon emissions)
86
What does VPGA 10 state about Matters that may give rise to material uncertainty?
Material Uncertainty
A valuation report must not be misleading
Report should comment on any issues resulting in material uncertainty in the valuation on the specified date
Do not use a standard caveat
87
What is included in International Valuation Standards (IVS) of the Red Book?
These are the same as VPS 1-5
IVS 101 - Scope of Work (Terms of Engagement)
IVS 102 - Inspection and investigations
IVS 103 - Valuation reporting
IVS 104 - Bases of Value
IVS 105 - Valuation approaches and methods
88
What is the purpose of the UK National Supplement?
What is the relationship between the Red Book Global and the UK National Supplement?
Emphasis that the content of the National Supplement is SUPPLEMENTARY to the Red Book and is no substitution for it.
Most of the advice is not mandatory but is for advisory guidance only.
It supplements the Red Book for valuations that are subject to UK jurisdiction.
('The Extra Bit')
89
What is the acceptable Margin of Error in a Valuation?
Between 10% - 15% depending on the facts.
Dunfermline Building Society vs. CBRE (2017) - CBRE fended off a £2.5m negligence claim as the Market Value was within the Margin of Error (+/- 15%).
90
What is Hope Value?
The value from the expectation that future circumstances affecting the property may change.
E.g. propsect of securing planning permission
91
What is Marriage Value?
Created by a merger of interests (either physical or tenure). The value gained by joining two interests together.
Undertake a before and after valuation and calcuate level of marriage value.
92
What is a Special Purchaser?
A buyer for whom a particular asset has a special value that is not extended to others in the market.
E.g. adjoining property
93
What assists with the valuation of a Charity?
The Charities Act (2022)
Charities must obtain a written report for Charities Act purposes on Disposals - to ensure the decision to dispose of an interest in property by the Trustees is in the Charities best interest.
94
What did you learn from your CPD on Charities Act? What are the latest changes to the Charities Act (2022)?
- Greater Flexibility
- Widened the pool of who can give advise for disposals - no longer qualified surveyor but 'designated advisor' to include Estate Agents and Agricultural Valuers
- No longer need to 'market' the disposal - relaxed the requirement to advertise the property
- Simplified the advice points the advisor is required to cover in the report
95
What is a premium?
A premium is a capital payment (lump sum) made by one party to another. This can arise in different scenarios such as:
The sum of money paid by a Landlord to a tenant for the surrender of a leasehold interest and the grant of a new lease.
A sum of money paid by an ingoing tenant for a leasehold interest to refelect the difference between passing rent and market rent
A REVERSE PREMIUM is where the outgoing tenant pays a new tenant to incentivise them to enter a lease.
96
What is the WAULT?
Weighted Average Unexpired Lease Term (to the first lease event).
97
What is SDLT?
Stamp Duty Land Tax
Rate of tax payable by a purchaser charged on an incremental basis at different rates - depending on the portion of the purchase price that falls into each rate band.
98
What are SDLT rates for a purchaser?
£0 - £150,000 = Nil
£150,001 - £250,000 = 2%
£250,001+ = 5%
99
What are the drivers of value?
Lease terms, specification, location, asset class, market conditions
100
What sections of the Red Book are mandatory and which are advisory?
Professional Standard (PS) = MANDATORY
Valuation Technical and Performance Standards (VPS) = MANDATORY
Valuation Practice Guidance Applications (VPGA) = ADVISORY
International Valuation Standards (IVS) = MANDATORY
101
What does the RICS Guidance Note: Sustainability and ESG in Commercial Property Valuation (2021) outline?
Almost a companion volume to the Red Book Global.
It covers the glossary definitions of ESG and sustainability.
It also looks at the process end-to-end and the role of sustainability at each stage.
102
Who conducted an independent review of Real Estate Investment Valuations?
Peter Pereira Gray (in 2021)
103
What were the key takeaways from Peter Pereira Gray's independent review of Real Estate Investment Valuations (2021)?
The RICS have accepted all 13 recommendations - a flavour of these are:
1. DCF strongly advised to become the principal model applied in investment valuations.
2. The Conflict of Interest implication (robust mandatory valuer rotation is recommended).
3. Focus on analytical techniques
4. Creation of a Valuation Compliance Officer role within regulated valuation providers.
5. Continue to build a diverse and inclusive valuation profession.
104
What does RICS say regarding Cladding?
Grenfell tragedy highlighted the dangers of aluminium composite material (ACM).
Flats over 18m high with this cladding have become unmortgageable and values have crashed.
The UK Government have sought to enable the valuation of tall, residential buildings through the introduction of EWS1 (Exterior Wall Survey) - to provide reassurance to lenders on the type of cladding.
There is also the Fire Safety Act (2021) and Building Safety Act (2022) to enhance regulations for buildings safety.
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What is the Valuer Registration Scheme?
Valuer Registration Scheme is a risk monitoring and quality assurance programme which checks compliance with the RICS Red Book.
