Valuation Flashcards
How can an inspection/investigation impact a valuation
When referring to Valuation - Global Standards 2021, effective 2022
VPGA 8: Valuation of Real Property Assests
Matter which can impact markets perception of value
Characteristisc of property ie age
Site - ground conditions, flooding
potential development, redevelopment
What are the factors which may negatively impact a valuation
Flloding
Asbestos
Ground contamination
Mineral and mine works
Radon
What is the name of the current Red Book and when did it become effective
RICS valuation - Global Standards 2021
effective 2022
Applies to all valuations
What is the purpose of the Global Red Book
Establishes framework for uniformity and best practice
To undertake a Red Book a valuer must:
Be competent
No conflicts of interest
agree Terms of engagement
Undertake inspection and investigation
Apply mandatory Bases of Value (the fundamentals)
What is the purpose of the UK national supplement?
UK National Supplement 2018
Sets out specific requirements and guidance for valuations in UK
Content is supplemental to Red Book Global Edition, and not substitution
Does the Red Book instruct/ advise on how to value
No
To what valuations does the Red Book apply
All written valuations carried out by RICS Registered Valuers all over the world
Red Book also states that valuer must meet same standards if giving oral valuations
To what valuations does the Red Book not apply (what are the exceptions)
Internal purposes
Agency working in anticipation of disposal or acquisition
Performing Statutory functions (something that a local authority must do)
Can you give some examples of valuations for a statutory function?
Rating
Compulsory Purchase
Is a drive- by, desk-top of pavement valuation a Red Book valuation
Yes, red book applies to all written valuations unless specifically stated as an exception.
Is it acceptable to RICS to carry out rive- by, desk-top of pavement valuation?
Yes, provided accurate for purpose and can be produced
What info must you have to carry out a desktop valuation of a let property that you have no prior involvement with?
Lease, scaled floor plan
If available any previous val report, building survey, enviro report, absestos, planning permission etc
How is competency defined for a Red Book valuation?
Red Book Valuation can only be undertaken by a RICS Registered Valuer who must have the necessary val skills and market knowledge
What are the main contents for Terms of Engagement TOE
Clients instructions
Purpose
Val date
Extent and limitations
Assumptions
Special Assumptions
Fee
What are the Global Bases of Value
Global Red Book has 4 bases of value
MV
MR
Fair Value
Investment Value (or worth)
The Red Book refers to Synergistic Value as a basis for value
=Marriage value
Arises when the value of merged interests is greater that than of an individual asset
ie interests may be in adjoining properties
What is MV
the estimated amount for which an asset or liability should exchange
-On the valuation date
o Between a willing buyer and willing seller
o At an arm’s length transaction
o After proper marketing
o Where the parties had acted knowledgeably, prudently and without compulsion
What is fair value and when would it be used?
Definition - the price that would be received when both the buyer and seller freely agree on price in an orderly transaction at the measurement date
When would fair value be used
For valuations for company accounts and other financial statements (asset valuations)
What is an assumption
Situation that is taken to be tru without verification
Can you name some special assumptions that are made in valuations
Titile
Condition of building
Services
Planning
Contamination
What is a special assumption
those things which are not yet true but have been assumed to be true
ie
planning consent has or will be granted
proposed development has been completed in accordance with defined plan
property is vacant (when occupied on valuation date)
What are the main contents of a valuation report
Same as ToE except for fee but including valuation figure
Clients instructions
Property
Valuer
Purpose
Basis of Value
Val date
Extent and limitations
Assumptions
Special Assumptions
VALUATION FIGURE
When can uncertainty arise in valuations
Unusual or unique property
Limited or restricted info
Disrupted markets
Name the conventional methods of valuation
Comparative (comparable)
Residual
Investment
Profits/accounts
Depreciated Replacement Cost
What are the contemporary valuation methods
Discounted Cas Flows DCF
What makes a property transaction comparable
Physical characteristics
location
use
tenure (and lease terms)
date of transaction
How many comps are needed to produce a valuation
Enough to clearly establish a tone of values
What is the longest time period before a valuation date transaction could be accepted as being comparable
Depends on market conditions
static markets a few years old
rapidly rising of falling markets, few weeks to months
What do you understand by the expression hierarchy of evidence
heirachy of evidence is reference in the guidance note
Comparable eidence in real estate valuations 1st edition 2019
heirachy of evidence relates to the weight that should be attached to comps
Category A - Direct Comp
Category B - General Market data
Category C - other sources
Should only completed transactions be used as comparable evidence or can properties on the market also be used
Static falling markets a can carry weight
But rising markets, should be treated with caution
What is the purpose of zoning?
valuation method for retail property, specifically high street. this method reflects that the most valuable space is at the front of the shop near to passing pedestrians
This can then be used in comparable analysis when assessing rental values
How should the first floor of retail premises be valued
LL installed customer lit wil be more valuable that storage space
area/10
area/20
A 12 month rent-free has been granted in 10 year lease with rent review after 5. Should this be written off over 5 or 10 years
If there’s a T break after 5 years, then it should be written off over 5
When is the investment method used?
Used to value shops, offices , industrial that are let as investments
owner occupied
vacant
where majority of comps are
rents
investment transactions
Investment method
Why is capitalisation rate also called all risks yield and what does it incorporate
called ARY because it takes into account the risks of the investment
-Tenants cov
-rent
-the property
How is growth taken into account in conventional investment val?
Implicit in capitalisation rate
What is gross yield
what is net yield
Gross yield= rent expressed as a percentage of purchase price
Net yield = rent expressed a preceted of cost of acquisition (purchase price plus purchaser costs)
What costs must a purchaser incur when buying a commercial property
SDLT
Agent fee
Legals
Non recoverable VAt at 20% of the fees
What are the current SDLT rates for commercial propertty?
0% on first £150,000
2% on next £100,000
5% on all above £250,000
Whens residual method used?
Used to value land properties when its not possible to do so by comparison
Explain the basic approach to residual valuation
GDV
Less development costs
Less developers profit
=land value
What are the development costs?
Demo
Remedidation
Construction Fees
Cost of finance
Contingency
Agent fees
Legal fees
Where would you get your construction costs
Building Cost Information Service
Quantity Surveyor
How would you calculate developers profit
Percentage of development costs
How do you de-risk a development
Pre-let
Forward sale
When is the profits method used?
To value a property that is specialised for its use
Cinemas
Bingo
Golf
Bowling
Explain the basic approach to a profits valuation
Turnover
Less costs of generating turnover
=net operating profit
Which is capitalised
What is reversionary freehold investment?
An investment that is let at a rent other than Market Rent
Traditionally under rented
What approaches can be used to value an under rented reversionary investment?
Term and reversion
Hardcore/layer
What is an initial yield
The net income at the date of purchase, expressed as a percentage of the purchase price
What is a running yield?
The present income from a property expressed as a percentage of the MV
What is a reversionary yield
MR expressed as a percentage of the Purchase Price
Discounted Cash Flows
