Valuation Flashcards
1
Q
What is an internal valuer?
A
- Employed by company to value the assets of the
company/enterprise - Valuation for internal use only
- No third party reliance
2
Q
What is an external valuer?
A
- Has no material links with the asset to be valued or the client
3
Q
What are the three steps to first undertake before commencing work on a valuation instruction?
A
- Competence
- Do you have the correct levels of skills?
- If not, refer to the RICS Find a Surveyor service - Independence
- THINK FIRST
- Check for any conflicts or personal interests - WHO & WHY? - Terms of Engagement
- Set out in writing full confirmation of instructions to the client
- Prior to starting work = receive full written confirmation
4
Q
Why are statutory due diligence checks done for valuations?
A
To check that there are no material matters which could impact upon the valuation
5
Q
What are some examples of statutory checks?
A
- EPC rating
- Legal title + tenure
- Planning history + compliance
- Council Tax
- Flooding
6
Q
What are the five main methods of valuation?
Not in Red Book
A
- Comparative method
- Investment method
- Profits method
- Residual method
- Contractors method (Depreciated replacement cost)
7
Q
What does IVS 105 Valuation Approaches and Methods set out?
Red Book!
A
This document sets out the three valuation approaches which are:
1. Income approach (residual/profits)
2. Cost approach (DRC)
3. Market approach (Comparable method)
8
Q
What is the income approach?
A
- Converting current + future cash flows into a capital value (i.e. Investment, Residual + Profits methods)
9
Q
What is the residual method?
(submission)
A
Used to establish the site value
10
Q
What is the residual method process?
A
- Establish GDV
- Less build costs + less developers profit
= Site Value
11
Q
What is the cost approach?
A
- Reference to the cost of the asset whether by purchase or construction (i.e. DRC method)
12
Q
What is the market approach?
A
- Using comparable evidence available (i.e. Comparable Evidence)
13
Q
What is the hierarchy of evidence?
A
The relative weight attached to different types of evidence
1. Cat A - (direct comps, near identical properties)
2. Cat B - (general market data that can provide guidance)
3. Cat C - (other sources of transactional evidence)
14
Q
What is the six steps would you take when collecting comparable evidence?
A
- Search them
- Verify them
- Assemble them
- Adjust them
- Analyse them
- Report them
15
Q
What is the RICS Professional Standard on Comparable Evidence?
A
RICS Professional Standard: Comparable Evidence in Real Estate Valuation 1st Edition, 2019.
Reissued as a Professional Standard in April 23
16
Q
When would you use term and reversion?
A
- Used for reversionary investments
i.e. when under-rented
(Market Rent more than Passing Rent)
17
Q
When would you use layer/ hardcore method?
A
- Use for over rented investments
(Passing rent more than Market Rent)
18
Q
What is the conventional investment method?
A
Market Value = rent received/market rent x years purchase (100/yield)
The conventional method assumes growth implict valuation approach
(submission)
19
Q
How to find relevant comparables? (NOT METHODOLOGY)
A
- Inspection
- Visit/speak to local agents
- Auction results
- In house records/databases + websites
- Market sentiment can be important where there is a lack of transactional evidence
- The date of evidence is crucial, hence the focus on “contemporary”in the hierarchy above
20
Q
When is the investment method used?
A
Used when there is an income stream to value
The rental income is capitalised to produce a capital value
21
Q
What is the ARY?
A
- The remunerative rate of interest used in the valuation of fully let property let at market rent reflecting all the prospects + risks attached to the particular investment
22
Q
What is the NPV?
A
Net Present Value
- The sum of the discounted cash flows of the project
- Can be used to determine if an investment gives a positive return against a target rate of return
23
Q
What is IRR?
A
Internal Rate of Return
- The rate of return at which all future of cashflows must be discounted to produce a NPV of zero
24
Q
What is the purpose of the Profits Methods of valuation?
A
Used for valuations of trade related property , where there is a ‘monopoly’ position (pubs, petrol stations, hotels)
Principle = the value of the property depends on the profit generated from the business, not the physical building or location
25
What is the methodology of the profits method of valuation?
- Adjusted net profit (FMOP) which can be expressed as the EBITDA
- Capitalised at the appropriate yield (years purchase multiplier) to achieve market value
- Cross check with comparable sales evidence if possible
26
What is EBITDA?
Earnings Before Interest, Taxes, Depreciation, and Amortization
27
What is the structure of the Red Book?
Part 1 - Introduction
Part 2 - Glossary
Part 3 - Professional Standards (PS)
Part 4 - Valuation Technical and Performance Standards (VPS)
Part 5 - Valuation Practice Guidance Applications (VPGA)
Part 6 - The International Valuation Standards (IVS)
28
What is the latest RICS Red Book?
RICS Valuation - Global Standards 2021 ("Red Book Global") effective from 31st January 2022
29
What were the changes to the Red Book from the previous edition?
1. The need for compliance with RBG + adequate ToR to reflect this
- ToR must be clear + unambiguous
2. Valuation for financial reporting purchases
- reference to IFRS 13 + 16
3. Reference to the use of the Profits Method for certain trade-related property valuations
4. Sustainability and ESG factors
5. Definitions and scope of valuations contained within the International Valuation Standards (IVS)
30
What must be included in the terms of engagement?
A. Identification and status of the valuer
B. Identification of the Client
C. Identification of any other intended users
D. The asset to be valued - if a portfolio then lotting of assets should be considered
E. Currency
F. Purpose of the valuation
G. Basis of value
H. Valuation date
I. Extent of investigation
J. Nature and source of the information to be relied upon
K. Assumptions and special assumptions to be made
L. Format of the report
M. Restrictions for use, distribution and publication
N. Confirmation of Red Book/IVS compliance
O. Fee basis
P. CHP to be made available
Q. Statement that the valuation may be subject to compliance by the RICS
R. Limitation on liability agreed
31
What is PS 1?
Compliance with standards where a written valuation is provided
32
What are the five exceptions for using the Red Book Global?
1. Providing agency or brokerage advice for an acquisition or disposal
2. Acting as an expert witness
3. Performing statutory functions
4. Providing a valuation purely for internal purposes, without liability and without communication to a third party
5. Expressly providing advice in preparation for or during course of negotiations or litigation
33
What is PS and is it mandatory?
Professional Standards and they are mandatory WORLDWIDE
34
What is PS2?
Ethics, Competency, Objectivity and Disclosures
35
What does PS2 outline?
1. Professional and Ethical Standards
- Members undertaking valuations must act in accordance with the RICS Rules of Conduct
2. Independence, objectivity and the identification and management of conflicts of interest:
- The valuer/firm must act objectively and independently and not be influenced by situation which could threaten professional objectivity
- Professional Scepticism when reviewing information and data before relying on it
- Detailed advice on dealing with COI
3. Terms of Engagement
- Members must understand the clients requirements and comply with the minimum terms of engagement. Members must be able to demonstrate professional competence
36
What is VPS 1?
Terms of Engagement (IVS 101 Scope of Work)
37
What does the Red Book say on TOE?
Provides a list of minimum matters which must be confirmed in writing to the client as a minimum PRIOR to commencing a Red Book Global valuation
38
What is an Assumption?
These are made where it is reasonable for the valuer to accept that something is true without the need for specific investigation
39
What is a special assumption?
An assumption that is taken to be true and accepted as fact, even though it is not true
40
Please can you give me an example of a special assumption?
Assuming planning consent has been granted for a particular use - CHECK
- on the special assumption of completion of the proposed scheme and assuming Plots 1 & 2 are built at the same time
41
Does a client have to agree to a Special Assumption?
Yes - this must be agreed in writing prior to the commencement of the instruction CHECK IS THIS FOR ASSUMPTIONS TOO
42
What is VPS 2?
Inspections, Investigations and Records
43
What does VPS 2 say with regards to inspections?
Valuers must take the steps to verify the necessary information being relied upon for a valuation to ensure the information is professionally adequate for its purpose
44
Under VPS 2 - What is a desktop valuation known as?
Restricted Information (desk top) valuations (no inspection undertaken)
45
Why would a bank client request a valuation with a restricted marketing period?
Banks need to know what the value of property would be if their client defaults. This would result in a quick sale hence the restricted marketing period.
46
What factors should be considered by the valuer when they are instructed to undertake a valuation of restricted information or without physical inspection?
1. The nature of the restriction must be agreed in writing in the TOE
2. The possible valuation implications of the restriction confirmed in writing
before the value is reported
3. The valuer should consider whether the restriction is reasonable with
regards to the purpose of the valuation
4. The restriction must be referred to in the report
47
What is a Restricted Information (desk top) valuations (no inspection undertaken)?
When a valuer is instructed to undertake a valuation on the basis of restricted information or without a physical inspection
48
When can a Revaulation (Without re-inspection) occur? VPS 2
A revaluation without re-inspection of the property previously valued must not be undertaken unless the valuer is satisfied that there have been no material changes to the property or nature of its location since the last inspection
This must be confirmed in the TOE and in the valuation report
49
Example of a Revaluation you have done?
Wyndham Mews, London
- Property valued in 2022 (inspected)
- Revalued in 2023
- Stated in assumptions + confirmed in writing in TOE that valuation to be undertaken on desktop basis + condition of the property considered to be same as 2022 valuation
50
What does VPS 2 say on records?
Proper records must be held of the inspections and investigation and of other key inputs in an appropriate business format
Note the importance given to ESG and Sustainability
51
What are the minimum requirements under VPS 3?
A. Identification and status of the valuer
B. Client and any other intended users
C. Purpose of valuation
D. Identification of the asset to be valued
E. Basis of value
F. Valuation date
G. Extent of investigation
H. Nature and source of the information to be relied upon
I. Assumptions and special assumptions to be made
J. Restrictions for use, distribution and publication
K. Instruction undertaken in accordance with IVS standards
L. Valuation approach and reasoning
M. Valuation figure(s)
N. Date of valuation report
O. Comments on market uncertainty
P. Statement setting out any limitations on liability that have been agreed
52
What is VPS 3?
Valuation Reports (IVS 103 Reporting)
53
What advice does PS2 3.12 -3.15 say on preliminary (draft) valuation advice?
In providing a client with preliminary advice or a draft report/valuation in advance of completion
The member must state that:
- The opinion is provisional + subject to completion of the final report
- The advice is provided for client's internal purposes only
- 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
54
What is VPS 4?
Bases of Value
The valuer must determine the basis of value that is appropriate for every valuation to be reported
55
What are the six definitions of value under VPS 4?
1. Market Value
2. Market Rent
3. Fair Value (IFRS 13)
4. Investment Value
5. Equitable Value (IVS 104)
6. Liquidation Value
56
What is the definition of Market Value?
The price an asset should expect to fetch if sold on the open market at the valuation date
CHECK
The estimated amount which an asset or liability should exchange:
- On the valuation date
- Between a willing buyer and a willing seller
- In an arms length transaction
- After proper marketing
- Where the parties had acted knowledgeably, prudently and without compulsion
57
What is the definition of Market Rent?
The estimated amount which an interest in real property should be leased:
- On the valuation date
- Between a willing lessor and a willing lessee
- In an arms length transaction
- After proper marketing
- Where the parties had acted knowledgeably, prudently and without
compulsion
58
What is the definition of fair value (IFRS 13)?
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
- This basis of valuation is now required if the International Financial
Reporting Standards have been adopted by the client
- It is adopted by the International Accounting Standards Board
- The RICS view is that this definition is generally consistent with the
definition of Market Value
59
What is Investment Value?
The value of an asset to a particular owner or prospective owner for individual investment or operational objectives
- This may differ from Market Value
- This is sometimes used as a measure of worth to reflect the value
against the clients own investment criteria
60
What is Equitable Value (IVS 104)?
The estimate price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interest of those parties
- Not used in the UK
61
What is Liquidation Value?
This basis of value can be used for a group of assets sold in a piecemeal basis considering the costs of getting the assets into a saleable condition
- Not used in the UK
62
What is VPS 5?
Valuation Approaches and Methods
63
What does VPS 5 outline?
- Valuers are responsible for choosing and justifying their valuation approach and use of model
- In some cases, more than one approach may be appropriate
64
What are the ten VPGAs?
1. VPGA 1 Valuation for inclusion in financial statements
2. VPGA 2 Valuation of interests for secured lending
3. VPGA 3 Valuation of businesses and business interests
4. VPGA 4 Valuation of individual trade related properties
5. VPGA 5 Valuation of plant and equipment
6. VPGA 6 Valuation of intangible assets
7. VPGA 7 Valuation of personal property, including arts and antiques
8. VPGA 8 Valuation of real property interests
9. VPGA 9 Identification of portfolios, collections and groups of properties
10. VPGA 10 Matters that may give rise to material valuation uncertainity
65
What is a VPGA?
Valuation Practice Guidance Application
66
What is VPGA 1?
Valuation for inclusion in financial statements
67
What does VPGA 1 outline?
Fair value will be adopted for all IFRS adopted accounts
Prescribed performance standards must be adhered to
68
What is VPGA 2?
Valuation of interests for secured lending
69
What does VPGA 2 highlight?
Dealing with conflicts of interest for secured lending valuations
Reporting procedures
70
Under VPGA 2 what examples of involvement may result in a COI?
1. A longstanding professional relationship with the prospective
borrower or owner
2. When the valuer will gain a fee from introducing the transaction to
the lender
3. If there is a financial interest in the property holding or prospective
borrower
4. When the valuer is retained to act in the disposal or letting of the
completed development on the subject property
71
Under VPGA 2 what is procedures for dealing with a COI?
1. Disclosure to the lender - any previous / current / anticipated involvement
2. Previous involvement is defined as being in the past two years - but can be longer in some circumstances
3. If the valuer or client considers that a COI is unavoidable the instruction should be declined
4. The valuer is responsible to accept / refuse the instruction with regard to the ROC
5. If the conflict can be managed this must be agreed with the client and recorded in writing within the TOE and valuation report
72
What does VPGA 2 outline on reporting procedures?
(main ones as well as minimum requirements of a valuation report)
As well as the minimum requirements of a valuation report:
The valuer should be able to advise whether to agree to the loan or in the case the borrower defaults
- Must report if the property is suitable for mortgage purposes
- Any circumstances which the valuer is aware of that could affect price
- Comment on any environmental considerations
- Disclosure of any COI identified or arrangements agreed
- Where a special assumption has been used - any material difference between the reported value with and without that special assumption
73
Any other additional information is included under VPGA 2 reporting procedures?
1. Valuation Methodology adopted
2. Recent transactions of the subject and the extent to which that information has been relied upon
3. Where the enquiry does not reveal any information, the valuer will make a statement to that effect in the report
4. Any other factor that potentially conflicts with the definition of MV or its underlying assumptions
5. Any other relevant normal valuation enquiries are undertaken
6. Acknowledges that sustainability factors are becoming a more significant influence and valuations for secured lending should have appropriate regard to their relevance to the instruction
74
What is VPGA 8?
Valuation of real property interests
75
What does VPGA 8 outline?
1. Covers inspections and investigations with particular emphasis on ESG and specific environmental constraints and sustainability issues
2. Identifies ESG and Sustainability issues including the need to consider:
Direct Valuation Factors (Storm/Flood risk)
Indirect Valuation Factors (resilience or carbon emissions)
Physical Risks (heat or wildfire)
Transition Risks (regulatory change or carbon emissions)
76
What is VPGA 10?
Matters that may give rise to material valuation uncertainty
77
What does VPGA 10 outline?
- A valuation report must not be misleading
- The valuer should clearly draw attention to, and comment on, any issues resulting in material uncertainty in the valuation on the specified date relating to the risk surrounding the valuation of the asset
- A standard caveat should not be used
78
What is Part 6 International Valuation Standards 2017? (Red Book)
Mandatory
"General Standards" = address matters such as terms of engagement, approaches to and bases and methods of valuation as well as reporting
"Asset Standards" = which provide requirements relating to specific types of asst, such as real property and development property
79
What is the latest UK national supplement?
RICS Valuation - Global Standards (UK National Supplement, 2018)
80
What is the UK National Supplement?
1. Effective from 14th January 2019
2. Sets out clarification that the national supplement augments the Red Book Global requirements for valuations in the UK and is not substitute for it
3. Provides specific requirements for members on the application of the Global Standards to valuations undertaken subject to UK jurisdiction
4. It contains 18 Valuation Practice Guidance Applications (UK VPGAs) - regrouping many to become more user friendly
5. Most of the advice is not mandatory but is for advisory guidance
81
What were the key changes to the UK National Supplement, 2018?
1. More user-friendly with clear advice on what is and what is not mandatory
2. Clarity that the UK national supplement augments the Red Book Global for valuations in the UK
3. New UK VPGAs have been included for the valuation of central government assets, local authority assets and registered social housing providers assets
4. For financial reporting valuations, there is greater differentiation between UK GAAP and IFRS requirements
5. New section on valuation for commercial lending
82
What are the contents of the UK National Supplement?
Part 1 - Introduction
Part 2 - UK Professional and Valuation Standards (Mandatory)
Part 3 - UK Valuation Practice Guidance Applications (Advisory)
Part 4 - Summary of changes from Red Book UK 2014 (revised 2015)
83
What are some of the UK VPGAs ?
UK VPGA 1 = Valuation for financial reporting: general matters
UK VPGA 2 = Valuations for other regulated purposes
UK VPGA 8 = Valuation of charity assets
UK VPGA 10 = Valuation for commercial secured lending purposes
UK VPGA 11 = Valuation for residential mortgage purposes
UK VPGA 15 = Valuation for CGT, Inheritance Tax, SDLT and ATED
84
What is UK VPGA 8?
Valuation of charity assets
85
Where is fair value mentioned in the UK National Supplement?
UK VPGA 1.3
86
What are the five purposes of the valuations under UK VPS 3?
CHECK
Valuations for FIVE purposes:
1. Financial Reporting (Company accounts)
2. Stock Exchange listings/inclusion in prospectuses and circulars
3. Takeovers and mergers
4. Collective investment schemes
5. Unregulated property unit trusts
87
Are Secured lending valuations regulated purpose valuations?
Secured lending valuations are NOT regulated purpose valuations as they are not relied upon by third party or the public interest
88
What are the valuation monitoring requirements?
Inspections by RICS’ professional regulation team now take place
There is an annual declaration for all members who undertake regulated valuations. The length of time, purposes, extent and duration of the firms relationship with the client has to be outlined.
89
What other information has to be provided as part of valuation monitoring requirements?
In the last financial year whether percentage fee income from the client is less or more than 5% of the total fee income - if more than 5% it must be disclosed to the nearest 5%
Whether since the end of the last financial year, this has changed or will likely change
There should be a policy in place on the rotation of valuers when the asset is regularly valued. RICS recommends a 7 year maximum rotation policy
90
Under UK VPS 3 what rules are there for properties introduced or purchased by the valuer’s firm?
When a property is purchased or an introductory purchase fee accepted by the firm, it cannot be valued for a regulated purpose valuation for 12 months by the same firm
91
What changes were there to the Profits Method in the new Red Book?
A non exhaustive list of properties including self-storage, flexible workspace and purpose built student houseing
92
Please can you tell me about the recent review undertaken into valuations?
Independent Review of Real Estate Investment Valuations (December 2021)
93
Independent Review of Real Estate Investment Valuations (December 2021)
1. Governance arrangements
2. Separation of valuation from advisory activities within firms in respect of the use of valuation data and instructions
3. Developing a time-specific, mandatory procurement and rotation process for valuers
4. Developing a Valuation Compliance Office role within firms
5. Processes to raise concerns about ethical conduct including improper pressure placed on valuers
6. Establishing a valuation regulatory quality assurance panel
7. DCF as the principal model applied in preparing property investment valuations
8. Improving the knowledge and application of valuers in respect of advanced analytical techniques
9. Independent review of real estate investment valuations
10. Review of post-qualification requirements for valuers and regular re-validation of valuers
11. Continue to build on its important work to ensure a diverse and inclusive valuation profession
12. These findings may have far reaching consequences for valuers and their firms
13. RICS hopes that changes brought following the recommendations will increase trust in the profession and the confidence that clients will have in the quality of the valuation process
94
Who undertook the valuation review?
Peter Pereira Gray
95
What does the RICS Global Guidance Note “Sustainability and ESG in commercial property valuation and strategic advice” outline?
Provides a useful glossary of relevant terms and factors which valuers should incorporate into their valuation approaches including:
- Terms of Engagement
- Valuation purpose
- Inspection
- Reporting
- Relevant sustainability characteristics, considerations and risks
which should be considered when analysing comparable and other
market information
- How these should be considered in the choice of valuation
methodology
96
What have RICS referenced in relation to ESG?
RICS Global Guidance Note “Sustainability and ESG in commercial property valuation and strategic advice” December 2021 (effective 31 Jan 2022)
97
What did Dunfermline Building Society V CBRE (2017) assume?
An acceptable margin of error of +/- 15%
The claim was dismissed as the MV was within the margin of error
98
What is the Margin of error?
The permissible range allowed by courts for example in respect of a valuation
99
What is the leading case for Margin or error?
Singer & Friedlander Ltd V J. D. Wood (1977)
It held that the usual margin of error can be varied and it will be narrower for a relatively straightforward valuation case and wider for a more complex case
100
What did K/S Lincoln and Others V CB Richard Ellis (2010) show?
The principle of a 10% margin of error was reinforced in respect of a valuation of 4 hotels in 2005.
The judge stated that an appropriate margin may be +/-5% for a standard residential property but for a one-off commercial property +/-10% and if there are exceptional features of the property the margin could be +/-15%
101
What is Hope Value?
(submission)
The value arising from any expectation that future circumstances affect the property may change
102
Please can you give me two examples of when hope value would arise?
1. Future prospect of securing planning permission for the development of land where no planning permissions currently exist
2. The realization of marriage value arising from the merger of two interests in land
103
What is Marriage Value?
Created by a merger of interest - can be physical or tenurial
104
How would Marriage value be calculated?
Undertake a before and after valuation and calculate the level of marriage value created
Typical negotiated outcome is to split the marriage value created 50:50 or divide it pro-rata to the value of the individual interest
105
What is Stamp Duty Land Tax?
It is the tax payable by the purchaser in respect of the transfer of land and buildings (a progressive / incremental tax)
106
What are the SDLT bands for residential property?
(submission)
£0 - £250,000 = Nil
£250,001 - £925,000 = 5%
£925,001 - £1,500,000 = 10%
Over £1,500,00 = 12%
107
How does SDLT apply to second homes and buy to let properties?
From 1 April 2016 higher rates of SDLT to be charged on purchases of additional residential properties.
Buy-to-let, second home owners, and limited companies pay a 3% surcharge on top of residential SDLT rates.
108
What relief can first time buyers claim on SDLT?
They can claim relief with a nil rate up to £425,000
5% - on the portion from £425,001 to £625,000.
There is no relief if the price is over £625,000
109
What is the land tax for Wales?
Land Transaction Tax (LTT)
110
What else can SDLT be payable on? (grant of new leases)
New leases and premiums payable
Calculated on the Net Present Value (NPV) of the lease, discounted at the RPI at the following rates as a incremental tax:
NPV of up to £150K (£125K for resi) - 0%
NPV of over £150K (£125K for resi) - 1%
NPV over £5M - 2%
111
What is a surrender and renewal and how would you undertake the valuation?
When the LL/T wants a surrender of the existing lease and agrees to grant a new lease usually longer on different lease terms simultaneously
Calculation of the premium to reflect the change in value of the leasehold interest
Need to value the before and after leasehold interest
Understand the valuation of premiums
112
What must be followed when doing a valuation for a Charity? - CHECK!!!
THE REQUIREMENTS OF THE CHARITIES ACT 2011 (amended in 2022)
Two sets of changes:
- Changes that came into force on 14 June 2023
- Changes that came into force on 31 October 2022
The Charity Commission requires the trustees of a charity to obtain a Section 119 of the Charities Act 2011 valuation when the charity is seeking to buy or sell property
The valuer must follow the Act’s requirements:
- The surveyor must comment as to whether the purchase or sale is in the charity’s best interest
- Reports must state whether terms agreed are the best that can be reasonably obtained for the charity
- UK VPGA 8 sets out advice in respect of the provision of valuation advice to charities
Basis of valuation to be MV or MR
113
What is a Particular Buyer/Special Buyer?
1. A particular buyer for whom a particular asset has a special value because of advantages arising from its ownership which would not be available to other buyers in a market.
2. Special value is an amount that reflects particular attributes of an assets that are only of value to a special purchaser
3. This could arise from physical, functional or economic association of the property with some other property such as an adjoining property
Example - A tenant purchasing their freehold interest
114
What is the land tax for Scotland?
Land and Building Transaction Tax (LBTT)
115
What are Building cost reinstatement valuations /estimations?
For building insurance purposes
The cost of the reinstatement of the building without a profit
116
What does Building cost reinstatement valuations /estimations?
1. Use of RICS Building Cost Information Service (BCIS) adopting GIA for commercial properties and gross external area for residential properties
2. Have to add VAT / Demolition costs / professional fees / planning and building regulation fees and inflation allowance if applicable
3. A replacement cost figure which is provided for insurance purposes, whether separately or within a valuation report is not a 'written opinion of value' so Red Book Global compliance is not required
117
How do you value long leasehold interests?
1. Rent received less ground rent (=net rental income)
2. Capitalized at an appropriate yield for the remaining length of the lease
3. Result in the MV of the leasehold interest
118
What are purchasers' cost?
- It is usual valuation practice to deduct the likely costs of purchase from the GMV to provide NMV of a property as a purchaser will have to pay these costs
119
What costs do purchasers have to pay?
(submission)
1. Stamp Duty Land Tax
2. Agent's fee - say 1% of the purchase price + VAT
3. Solicitor's fees - say 0.5% of the purchase price + VAT
120
How is a ransom strip valued?
The Upper Tribunal (Lands Chamber) evidence suggests that the value could be in the order of 15%-50% of the development value unlocked by the inclusion of the ransom strip within the proposed development scheme
In some cases a fixed sum has been awarded
The Upper Tribunal (Lands Chamber) assesses each case on its own facts
Key case law - Stokes V Cambridge (1961) - when a value of one third of the uplift in the development site value was awarded to the owner of the ransom strip
121
What is the key case law for ransom strip valuation?
Stokes V Cambridge (1961) - when a value of one third of the uplift in the development site value was awarded to the owner of the ransom strip
122
What is Party Wall?
A wall is a 'party wall' if it stands astride the boundary of land belonging to two or more different land owners
123
What legislation applies to Party Walls?
Party Wall etc Act 1996
Provides a framework for resolving disputes in relation to party walls, boundary walls and excavations near neighboring buildings
The Act provides a building owner who wishes to carry out various sorts of work to an existing party wall, with additional rights going beyond ordinary common law rights.
If you are a party wall owner you must inform all adjoining owners of your intention to undertake any works to the party wall
124
What is the RICS guidance on rights of light?
RICS Guidance Note on Rights of Light 2016
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What is the right to light?
The right to light of a building arises after 20 years uninterrupted enjoyment of light without the consent of a third party by way of an easement with a prescriptive right.
If a light to right is infringed an injunction may be granted or damages awarded
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What is the key case law in Right to Light?
HKRUK II (CHC) Ltd (a subsidiary of Highcross) V Heaney 2011
The outcome of this case has left Highcross with a remedial works bill and a mandatory injunction to reduce the scale of its extended Toronto Square scheme in Leeds where two new floor levels were added to tan existing office building
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What is the RICS advice for home-owners on Right to Light?
RICS Consumer Guide to Right to Light published in April 2022 for homeowners
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How does the RICS monitor the VRS?
The RICS monitor the VRS through the submission of the firms annual returns
Additional monitoring ranges with Risk Based Reviews from desktop investigations to site based Regulatory Review Visits (RRVs) dependent on the risks identified
The Head of Regulation has the power to remove a valuer from the Scheme
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What is needed to register for VRS?
Type of valuations
Purpose of valuations
Number of valuations
Firms total fee income from Red Book Global valuations in the last year
What data sources are used
Quality assurance audit procedures in place
History of any negligence claims and notifications
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What are the aims of VRS?
1. Improve the quality of valuation and ensure the highest possible professional standards
2. To meet the RICS requirement to self-regulate effectively
3. To protect and raise the status of the valuation profession as the leading expertise in valuation
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Other key information of VRS?
Registration is not mandatory for valuation work excluded from the Red Book Global
Any valuer registered can use 'RICS Registered Valuer' on their business stationery and marketing material
RICS publish a register of the Registered Valuers
Members are only eligible if they have completed APC vals to Level 3 or subsequently qualify for registration
There is a alternative post qualification route for those who did APC o Level 2
Annual fee payable to the RICS upon registration
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What is the RICS Valuer Registration Scheme (VRS)?
A RICS introduced a regulatory monitoring scheme for all valuers carrying out Red Book Global Valuations from October 2011
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What is definition of market value if valuing for Inheritance Tax purposes?
The price it might reasonably be expected to fetch if sold in the open market at the date of the death of the owner.
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What is included in an inspection proforma?
- Address/Weather/Inspection Date
- Inspection circumstances
- Construction of property
- Outside space/parking
- External/internal condition & specification
CHECK WITH GINA
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Please can you give me an example of an assumption?
- Assuming that the property is connected to mains supply
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What is the purpose of DRC (contractors method)?
Only to be used when direct market evidence is limited or unavailable for specialised properties e.g. lighthouses, schools, oil refineries
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What is the methodology of the DRC (contractors method)?
- Valued of the land in its existing use - assume planning permission exists
- Add current cost of replacing the building plus fees less a discount for depreciation and deterioration (using BCIS)
- Must estimate the amount of depreciation appropriate for physical functional and economic obsolescence
- Physical - the result of wear and tear over the years
- Functional - where the design or specification of the asset no longer fulfils the function for what it was intended for
- Economic - changing market conditions for the use of the asset
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What does BCIS stand for?
Building Cost Information Service
