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APC Revision Day 2020 > Valuation > Flashcards

Valuation Flashcards

1
Q

How can an inspection/investigation impact a valuation

A

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

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2
Q

What are the factors which may negatively impact a valuation

A

Flloding
Asbestos
Ground contamination
Mineral and mine works
Radon

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3
Q

What is the name of the current Red Book and when did it become effective

A

RICS valuation - Global Standards 2021
effective 2022
Applies to all valuations

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4
Q

What is the purpose of the Global Red Book

A

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)

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5
Q

What is the purpose of the UK national supplement?

A

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

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6
Q

Does the Red Book instruct/ advise on how to value

A

No

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7
Q

To what valuations does the Red Book apply

A

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

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8
Q

To what valuations does the Red Book not apply (what are the exceptions)

A

Internal purposes
Agency working in anticipation of disposal or acquisition
Performing Statutory functions (something that a local authority must do)

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9
Q

Can you give some examples of valuations for a statutory function?

A

Rating
Compulsory Purchase

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10
Q

Is a drive- by, desk-top of pavement valuation a Red Book valuation

A

Yes, red book applies to all written valuations unless specifically stated as an exception.

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11
Q

Is it acceptable to RICS to carry out rive- by, desk-top of pavement valuation?

A

Yes, provided accurate for purpose and can be produced

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12
Q

What info must you have to carry out a desktop valuation of a let property that you have no prior involvement with?

A

Lease, scaled floor plan
If available any previous val report, building survey, enviro report, absestos, planning permission etc

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13
Q

How is competency defined for a Red Book valuation?

A

Red Book Valuation can only be undertaken by a RICS Registered Valuer who must have the necessary val skills and market knowledge

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14
Q

What are the main contents for Terms of Engagement TOE

A

Clients instructions

Purpose
Val date
Extent and limitations
Assumptions
Special Assumptions
Fee

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15
Q

What are the Global Bases of Value

A

Global Red Book has 4 bases of value
MV
MR
Fair Value
Investment Value (or worth)

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16
Q

The Red Book refers to Synergistic Value as a basis for value

A

=Marriage value
Arises when the value of merged interests is greater that than of an individual asset
ie interests may be in adjoining properties

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17
Q

What is MV

A

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

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18
Q

What is fair value and when would it be used?

A

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)

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19
Q

What is an assumption

A

Situation that is taken to be tru without verification

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20
Q

Can you name some special assumptions that are made in valuations

A

Titile
Condition of building
Services
Planning
Contamination

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21
Q

What is a special assumption

A

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)

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22
Q

What are the main contents of a valuation report

A

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

23
Q

When can uncertainty arise in valuations

A

Unusual or unique property
Limited or restricted info
Disrupted markets

24
Q

Name the conventional methods of valuation

A

Comparative (comparable)
Residual
Investment
Profits/accounts
Depreciated Replacement Cost

25
Q

What are the contemporary valuation methods

A

Discounted Cas Flows DCF

26
Q

What makes a property transaction comparable

A

Physical characteristics
location
use
tenure (and lease terms)
date of transaction

27
Q

How many comps are needed to produce a valuation

A

Enough to clearly establish a tone of values

28
Q

What is the longest time period before a valuation date transaction could be accepted as being comparable

A

Depends on market conditions
static markets a few years old
rapidly rising of falling markets, few weeks to months

29
Q

What do you understand by the expression hierarchy of evidence

A

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

30
Q

Should only completed transactions be used as comparable evidence or can properties on the market also be used

A

Static falling markets a can carry weight
But rising markets, should be treated with caution

31
Q

What is the purpose of zoning?

A

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

32
Q

How should the first floor of retail premises be valued

A

LL installed customer lit wil be more valuable that storage space
area/10
area/20

33
Q

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

A

If there’s a T break after 5 years, then it should be written off over 5

34
Q

When is the investment method used?

A

Used to value shops, offices , industrial that are let as investments
owner occupied
vacant

where majority of comps are
rents
investment transactions

35
Q

Investment method
Why is capitalisation rate also called all risks yield and what does it incorporate

A

called ARY because it takes into account the risks of the investment
-Tenants cov
-rent
-the property

36
Q

How is growth taken into account in conventional investment val?

A

Implicit in capitalisation rate

37
Q

What is gross yield
what is net yield

A

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)

38
Q

What costs must a purchaser incur when buying a commercial property

A

SDLT
Agent fee
Legals
Non recoverable VAt at 20% of the fees

39
Q

What are the current SDLT rates for commercial propertty?

A

0% on first £150,000
2% on next £100,000
5% on all above £250,000

40
Q

Whens residual method used?

A

Used to value land properties when its not possible to do so by comparison

41
Q

Explain the basic approach to residual valuation

A

GDV
Less development costs
Less developers profit
=land value

42
Q

What are the development costs?

A

Demo
Remedidation
Construction Fees
Cost of finance
Contingency
Agent fees
Legal fees

43
Q

Where would you get your construction costs

A

Building Cost Information Service
Quantity Surveyor

44
Q

How would you calculate developers profit

A

Percentage of development costs

45
Q

How do you de-risk a development

A

Pre-let
Forward sale

46
Q

When is the profits method used?

A

To value a property that is specialised for its use
Cinemas
Bingo
Golf
Bowling

47
Q

Explain the basic approach to a profits valuation

A

Turnover
Less costs of generating turnover
=net operating profit
Which is capitalised

48
Q

What is reversionary freehold investment?

A

An investment that is let at a rent other than Market Rent
Traditionally under rented

49
Q

What approaches can be used to value an under rented reversionary investment?

A

Term and reversion
Hardcore/layer

50
Q

What is an initial yield

A

The net income at the date of purchase, expressed as a percentage of the purchase price

51
Q

What is a running yield?

A

The present income from a property expressed as a percentage of the MV

52
Q

What is a reversionary yield

A

MR expressed as a percentage of the Purchase Price

53
Q

Discounted Cash Flows

A

APC Revision Day 2020 (10 decks)

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