Valuation

Question 1

What is the residual method of valuation and how is it applied?

Answer 1

• Establish how much a purchaser should pay for a development site
  -GDV is established.
  -All associated costs (TDC) are then deducted
  -This leaves a surplus amount remaining known as the residual value.
  -This represents how much the developer can afford to pay for the development site or property.

Question 2

Can you expand further upon GDV and TDC when talking about the residual method

Answer 2

GDV = the value of a development once construction has been completed
TDC = costs deducted, these include contingency, financing fees, developers profit

Question 3

Within the residual method you mention contingency
What is this
When have would you apply it

Answer 3

Contingency = a future event or circumstance which is possible but cannot be predicted with certainty.

Ie construction costs rise @ 5%

Finance @7%
Profit @15%

Question 4

What is the profits method

Answer 4

Used for trade related properties and trading potential

Question 5

.

Answer 5

.

Question 6

What type of properties would you value with profits

Answer 6

Value is linked to what the owner can generate from the property
ie hotels
schools
cinemas

Question 7

Profits Hotel

Answer 7

Profits - Hotel
Gross annual income (per room)
less costs
Then multiplied by multiplier based on evidence of transactions

Question 8

DRC
Depreciated Replacement Cost method

Answer 8

The current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration

What a new build would cost inc acquisition
Last resort
The build costs are then depreciated
Unusual properties where there is no active market such as mosques

Question 9

What is the comparable method of valuation and how does this work?

Answer 9

recent sales of similar size, location, condition, spec
Valuer will compile a schedule of evidence for subject site - location, tenure, size, transaction price and date
This will then be compared to similar properties

Question 10

What are the different purposes of valuation

Answer 10

Valuation for financial reporting

Question 11

What is the Red Book

Answer 11

Is a Global Standard which contains mandatory rules and best practice guidance for members who undertake asset valuations

Question 12

What does Red Book include

Answer 12

International Valuation Standards - 2020
Red Book UK - 2015

Question 13

Key sections of Red Book include

Answer 13

Mandatory Valuation Standards
Advisory
Valuation for Financial Reporting
Valuation of Charity assets
Valuation for commercial secured lending purposes
Valuation for compulsory purchase and statutory compensation

Question 14

What steps would you take following a valuation instruction from a client?

Answer 14

Conflict check
Letter of instruction - signed

Question 15

What is the income method of valuation

Answer 15

The current value of a property is estimated on the grounds of projected net income

Question 16

What is the comparable method

Answer 16

Estimates value of property by comparing to similar properties sold, in similar locations, within a recent period of time

Question 17

What is DRC

Answer 17

Current cost of replacing an asset with its modern equivalent is assessed
Takes into consideration deteriation
No active market for asset being valued

Question 18

MR

Answer 18

wiling leasor and lesee

Question 19

Arms length transaction

Answer 19

Both parties act independently and are not influenced by one another

Question 20

Hope value

Answer 20

Value of land once its got planning

Question 21

Special value

Answer 21

Extraordinary value over and above MV due to unique advantages to be realised from asset acquisition

Question 22

Marriage Value

Answer 22

Extra value that arises from merger of to interests