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Submission Q's. By CFH > Valuation > Flashcards

Valuation Flashcards

1
Q

What is Market Value

A

The estimated amount for which an asset or liability should exchange:
- On the valuation date
- Between a willing buyer and a willing seller
- In an arm’s length transaction
- After proper marketing
- Where the parties had each acted knowledgeably, prudently and without compulsion.

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2
Q

What is yield

A

Investment return expressed as a percentage of the capital value

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3
Q

What is capital value

A

Capital value is the price that would have been paid for a given asset or group of assets if they had been purchased at the time of their evaluation

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4
Q

What are the different methods of valuation

A

-Comparable
-Residual
-Profits
-Investment
-Depreciated Replacement Cost

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5
Q

Talk me through the valuation you undertook at Walton

A

-Undertook a valuation of a potential freehold site for Lidl. Here I used the comparable method.
-I used Nimbus to search and select comparable of similar simlar size location, tenure and transaction date
-I assembled comparables in a schedule
-And adjusted order of comparables using hierarchy of evidence
-This enabled me to analyse comps to form an opinion on value

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6
Q

What is the hierarchy of evidence

A

The heirachy of evidence is included within Comparable Evidence in Real Estate Valuation, 1st Edition 2019
-It allocated weight to a transaction
Category A - direct comparable (near identical properties)
Category B - general market date (published reports)
Category C - General Market Data (transactional evidence from other wider market and other real estate types

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7
Q

Talk me through a valuation you undertook at Chester

£6m at 7% NIY.
12psf (400k)
Pets
Halfords
Rightway
B&M

A

I assisted with valuing a standing investment for Lidl of Caldy Valley Retail Park
I needed to use the comparable method of valuation to adopt a yield
Here I used the comparable method to adopt a yield profile based on comparable retail park investment sales

Created a schedule of comps and added weight based off hierarchy of evidence

When adding weight to comps, i Had to consider similarities to Caldy Valley RP to enable me to adopt an appropriate yield profit

-Caldy Valley is a..
- strong modern retail park
-Secondly,Tenants have strong covenants, good trading histories and always paid rent
-Thirdly, all rack rented and FRI

Adopted 7% yield based on the above coupled with
recent similar transactions on available retail park type investments. These should offer a fair reflection of the current market and give a good indication of the attractive yield/ value achievable if the proposed price can be achieved.

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8
Q

What is an FRI lease

A

-Fully repairing insuring lease
- tenant has responsibility for all external and internal maintenance, decorations and repairs as well as the liability for insuring the building

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9
Q

How was your Caldy Valley reort prepared in accordance with RICS Red Book

A

-Although this was not a red book valuation as I am not a registered valuer, it offered a useful reference source when undertaking the internal valuation.

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10
Q

Where would you check the covenant strength of a company?

A

Dunn and Bradstreet
-Credit Check

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11
Q

How do you undertake an investment valuation?

A

-The rental income is capitalised to produce a capital value

Passing rent/yield = capital value

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12
Q

What is the investment method valuation

A

Used when there is an income producing property. Rental income is capitalised to produce a capital value. Implied growth rate is derived from market capitalisation rate (yield).

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13
Q

What makes a good comparable

A

-Near identical transactions
-recent, representative of current market
-as a result of an arms length transaction in the open market

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14
Q

How do you find relevant comparables

A

Nimbus
Agents

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15
Q

How are yields found

A

By comparable evidence

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16
Q

What are the major factors when determining a yield

A

-Location
-Covenant
-Lease terms

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17
Q

At Chester Chester Caldy Valley, if you plan to include a Lidl store within the scheme and refuse a new lease under what grounds would you do this

A

s30
7 grounds A-G
F - redevelopment
G - Owner occupation

For redevelopment - can redevelop anytime if has firm intention i.e planning app
For re-occupation - Landlord must have owned for 5 years and prove intention to occupy

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18
Q

What is security of tenure

A

Tenant can ask for new lease under 54 act
If the lease is silent

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19
Q

What is s25 of LTA

A

Landlords notice served
6-12 months before end to terminate a lease with the view to:
-offer new lease or
-obtain possession

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20
Q

What is s26 of LTA

A

T can serve notice requesting a new tenancy
6-12 months before lease end

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21
Q

What is s27 LTA

A

Notice served by Tenant if they want to leave
must serve 3 month notice

OR could vacate on the last day

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22
Q

What are the statutory compensation if the Landlord obtains possession

A

E
F
G

Tenant is entitled to compensation of 2RV of if in occupation for 14 years or more
1 RV if in occupation for less than 14 years

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23
Q

What is a lease and license

A

a lease gives a tenant exclusive right of possession

A license gives someone permission to do something on the owners land

24
Q

What is a lease renewal

A

A statutory procedure laid down by 54 act

25
Q

What is a rent review

A

contractual procedure contained within a lease

26
Q

What does the 54 act do?

A

Gives security of tenure to occupying business’

27
Q

Whens the investment method used?

A

To value properties that are
-let as investments
-owner occupied
-vacant

28
Q

Why is the capitalisation rate also called the ARY

A

-takes into account all the risks of an investment
-property
-cov strength
-lease terms
-location

29
Q

How is growth taken into account in a conventional investment method

A

rent and capital growth are implicit in the capitalisation rate (ARY)

30
Q

How did you work out the capital value at Chester

A

Passing rent/yield = capital value
Capital value/ purchasers costs = final value

31
Q

define all risks yield

A

Yield of a fully let property at MR reflecting all prospects and risks attached to the particular investment

32
Q

define Net Initial Yield

A

the current annual rent expressed as a percentage of capital value, after adding purchaser’s costs.

33
Q

What is net yield

A

Net yield – resulting yield adjusted for purchaser’s costs

34
Q

What is initial yield

A

yield for current income and current price

35
Q

What are costs must a purchaser incur when buying a commercial property

A

SDLT
Agent fees
Legal fees @0.5%
Non Recoverable VAT
total = 1.8%

36
Q

What are the development costs within a residual appraisal

A

-demolition
-Construction
-Cost of finance
-Contingency
-Agent fees
-Legal fees
-Acquisition costs

37
Q

How would you calculate developers profit

A

-percentage of TDC

38
Q

What is a reversionary freehold investment

A

-an investment let at a rent other than MR

39
Q

What techniques can be used to value an under-rented reversionary investment

A

-term and reversion

40
Q

At Caldy Valley, how would you value the park if it was under rented?

A
  • Term and reversion is used where market rent is more than passing rent
41
Q

At Caldy Valley, how would you value the park if it was over rented?

A

Layer/hardcore method

42
Q

In simplistic terms, how is a yield calculated?

A

-income/price x 100

43
Q

What is Years Purchased?

A

The number of years required for an investments income to repay its purchase price
100/yield

44
Q

Whats a return

A

The term used to describe the performance of a property

45
Q

What is true yield

A

Assumes rent paid in advance and not in arrears

46
Q

What is nominal yield?

A

-Initial yield assuming rent is paid in arrears

47
Q

Gross yield

A

-yield is not adjusted for purchasers costs
e.g auction result

48
Q

For the comparable method, if you were evaluating leasehold properties, would you take the comparables at face value

A

No
I’d analyse the Net Effective Rate, taking any incentives into account

49
Q

What is the DCF method in RICS?

A

It is an explicit approach where all future cash flows are estimated and discounted to their present value.

50
Q

What is the NPV

A

Determine if investment gives a positive return

51
Q

What is IRR

A

Measures the profitability of investments

52
Q

How do you establish MV?

A

-comparable method

53
Q

How do you establish appropriate yields

A

Investment return expressed as a percentage of the capital value
-comparable method

54
Q

What does the Red Book do

A

-sets out mandatory rules and best practice guidance for approved valuers undertaking valuations

55
Q

When was the red book published and when did it become effective

A

-2021, effective 22

56
Q

What is the structure of the Red Book

A

-Intro
-Glossary
- Professional Standards (PS)
-Valuation Technical and Performance Standards (VPS)
-Valuations Applications (VPGA)
-IVS

57
Q
A

Submission Q's. By CFH (25 decks)

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