Valuation Flashcards
How did you collect your comps for Minstead New Forest?
Increased my search radius because it was in a remote rural location. I sourced comps with a similar array of outbuildings. I made adjustments in line with the 6 steps
Guidance on comparable evidence?
RICS Professional Standard - Comparable Evidence in Real Estate Valuations 2019
Hierarchy of Evidence?
Category A - direct comparables
- completed transaction of near identical property with full and accurate information
- other similar assets with full and accurate information
Category B - general market data to provide guidance
- information from published sources or databases
- indirect evidence
- historic evidence
Category C - other sources
- transactions of other RE assets and locations
- background data
Six steps to collect comparables?
1- collect
2- verify
3- compile
4- Adjust using HOE
5- Analyse to inform value
6- report value and file note
What is the Red Book?
RICS Valuation - Global Standards 2021
A document produced by the RICS to promote and support consultancy among valuation reports across the world
What is the UK National Supp 2018
A document that augments the Global RB and provides mandatory statements for UK valuations.
Structure of the RB
1 - introduction
2 - glossary
3 - professional standards
4 - VPS Valuation technical and performance standards
5 - VPGA Valuation applications
6 - IVS international valuation standards
Term and Reversion - Empress Road
The current rent is capitalised to the next lease event using the reduced ARY.
The reversion is MR capitalised into perp using an ARY, deferred by the term and void period
Why did you use the investment method and not comparable for Portsdown Hill
There was a lack in sufficient VP sale evidence. However there was sufficient rent and investment sale evidence for this property type
What SWOT did you provide for Portsdown Hill?
S - Strong occupier demand in the area
W - not located near any public transport
O - The building could command a premium rent if it achieves high green credentials
T - rising build costs
What is a sensitivity analysis?
A tool used to stress test a development by changes variables such as construction costs and sales values
Why did you cross check the residual appraisal with the comparable method
In accordance with RICS Professional Standard - valuation of development property 2019. Should not rely on one method
Are RB valuations required for internal purposes?
No they are not but can be used if requested.
Mandatory RB?
- secured lending
- financial accounts
- Charity valuations
- CGT, IHT
How do you determine a tenancy’s covenant strength
Duns and Bradstreet rating
Financial accounts
Typical lease terms?
1 Lease Term
2 Break Clause
3 Alienation
4 repairing obligations
5 user clause
6 rent review
7 security of tenure
Inside or outside of the act?
If there is no mention of this, it is assumed that the tenant is protected inside the Act
Terminating a lease inside the act?
Section 25 notice. 7 ground to regain possession
- re development
- Breaches the covenant
Serving notice inside the act
Section 21 notice
What would you have done if it were to be valued as a whole? Micheldever
Applied a bulk discount of 15% to account for a single purchase taking them all.
Calculated a WAULT
Provided an overall portfolio yield
Special Assumption
Something that us taken to be true by the valuer at the valuation date, even though it is not true or a fact
Assumption
Where is it reasonable for the valuer to accept something is true at the valuation date, without further investigation
Independent review of Investment Valuations
Conducted by Peter Gray in 2021
Made 13 recommendations
- DCF to be the primary model
- newly qualified valuers to be reviewed regularly
- valuation compliance officer
Structure of the Red Book?
- Intro
- Glossary
- Professional Standard
- Valuation technical and performance standards
- Valuation practise guidance applications
- IVS
How did you determine the GDV for Portsdown Hill?
Gathered comparable sales evidence but there was a lack of similar data.
Used the investment method by gathering evidence on Co star and consulting my commercial agency team. I directly capitalised MR by yield and deducting purchases costs.
How did you determine MV for Portsdown Hill?
Using the residual method. Deducting acquisition, build costs, proff fees, disposal fees and developers profit.
I cross checked this with comparable land transactions
What are SWOT and Sensitivity analysis used for?
Managing clients risk.
S - strong occupier demand
W - not located near any public transport or local amenities
O - enhance the value of the building through high quality design and green credentials.
T - rising build costs
What purposes do not require a Redbook valuation?
Internal
Litigation / negation
Agency
Expert witness
Statutory regulated
How do you determine tenant covenant strength?
Dunns and Bradstreet Rating
If not - 3 years of company accounts
What lease terms did you summaries
Lease term
RR
Break Clause
Alienation
Repairing obligations
User clause
Security of tenure
For Micheldever, Did you provide an aggregate value?
I did not as agreed in our ToE. I caveated the report to explain a suitable marketing period to avoid flooding the market of 24 months to be drip fed.
Guidance in VPGA 9
What is a WAULT
Weighted average unexpired lease terms
Unexpired lease terms proportionate to the rent
What bulk discount would you apply?
I would refer to my investment team to determine a suitable discount to apply based upon the location, amount of assets and demand
Structure of the IVS
Intro
Glossary
IVS Framework (101 - 105)
General Standards
Asset Standards
Changes to the UK National Supp?
Will be made effective May 24
UK VPS 3 - Regulated Vals
Mandatory rotation of 10 yrs for a firm and 5 yrs for a valuer. 3 yrs break from rotation.
- financial reporting
- mergers and Takeovers
- authorised and unauthorised investment schemes
Latest review of investment vals?
Peter Piera Gray made 13 recommendations in 2021.
- adopt DCF as the principle method for investment valuation
- review post qualified valuers and re-validation of valuers
- valuation compliance officer
DRC?
- assess land value
- add the cost of replacing the building plus fees
- deduct the depreciation which is typically 2.5% per annum
Profits method
Annual turnover
- costs
- expenses
- operators remunerations
= fair maintainable operating profit also expressed at EBITDA
Then multiplied by a multiplier derived from comps
Hardcore Top-slice
Top slice: CR-MR by an increase yield
Core: MR by a reduced yield
Lease v license
License gives someone the permission to occupy the property
Lease
- exclusive rights
- pay rent
- agreed time period
What affect does the lease have on value?
Term length
Break option
Rent review
Security of tenure
Affect on value inside or outside the act?
Inside:
- more onerous on lease renewal
- timely and costly to increase the rent of under rented
- yield may be less sharp by 1/2%
Outside
- tenant has no right to renewal (s.24 and s.28 missing)
Timeline of a valuation instruction
- Received instructions
- CIT
- Gather Information
- Due Diligence
- Inspect and measure
- Comps
- Valuation
- Report
- Another surveyor consideration
- Finalise and report to client
- Ensure file is in good order to archive
