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GF APC > Valuation > Flashcards

Valuation Flashcards

1
Q

What is the purpose of the RICS Valuation – Global Standards (‘Red Book Global Standards’) (2021)?

A

Details mandatory practices for RICS members.
Helps improve consistency, transparency, and objectiveness to red book valuations

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2
Q

Name VPS 1-5of the Red Book

A

VPS 1 – terms of engagement
VPS 2 – inspections, investigations and records
VPS 3 – valuation reports
VPS 4- basis of values, assumptions, and special assumptions
VPS 5 – valuation approaches and methods

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3
Q

Can you name VPGA 1 – 10 of the Redbook?

A

VPGA 1 – inclusion in financial statements
VPGA 2 – interests for secured lending
VPGA 3 – business and business interests
VPGA 4 – individual trade related products
VPGA 5 – plant and equipment
VPGA 6 – intangible assets
VPGA 7 – personal property (antiques)
VPGA 8 – real property interests
VPGA 9 – identification of portfolios, collections, and groups of properties
VPGA 10 – matters that give rise to material uncertainty

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4
Q

What are the 5 valuation methods?

A

Comparable
Residual
Investment
DRC
Profit

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5
Q

What is the UK National Supplement (effective from 14th January 2019) and how does it assist valuers?

A

The UK national supplement augments the Global Red Book for valuations that are subject to UK jurisdiction.

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6
Q

Can you name VPS 101-105 in the IVS?

A

VPS 101 - Scope of work/ToE
VPS 102 - Investigations
VPS 103 - Reporting
VPS 104 - Basis of value
VPS 105 - Methods/approaches

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7
Q

Can you name some of the IVS sections (asset standards)?

A

IVS 200 - Business Interests
IVS 400 - Real property
IVS 410 - Development property

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8
Q

What are the 6 steps for collecting comparable evidence?

A
  • Source
  • Collect
  • Verify
  • Spreadsheet
  • Analyse
  • Adjust report
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9
Q

What is the definition of 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 and where the parties had each acted knowledgeably, prudently and without compulsion

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10
Q

What is the definition of market rent

A

The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion.

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11
Q

What is the definition of GDV?

A

The aggregate market value of the proposed development, assessed on the special assumption that the development is complete on the date of valuation in the market conditions prevailing on that date.

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12
Q

What is a red book valuation?

A

Red Book valuation is a formal opinion of value and can be relied upon by the instructing party.

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13
Q

What are some exemptions of the red book?

A

Negotiation
Expert Witness
Agency purposes

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14
Q

What is the International Valuation Standards?

A

mandatory standards for carrying out Redbook valuations
Part 6 of the Redbook but also a seperate document
Prepared by the International Valuation Standards Council

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15
Q

Can you name some of the practice guidance in the UK RB?

A

UK VPGA 1 - financial reporting
UK VPGA 10 - commercial secured lending
UK VPGA 11- UK Residential property
UK VPGA 15 - Tax purposes

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16
Q

Can you name some of the Valuation technical and performance standards in the UK RB?

A

VPS 1 - Terms of Engagement and Reporting

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17
Q

What is UK PS1 in the UK redbook referring to?

A

PS 1 - compliance with valuation standards in the UK

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18
Q

can you talk me through how you would use the profits method?

A

-Annual turnover (based on 3 years worth of accounts)
-Minus costs, working expenses, and remuneration, to get the Fair Maintainable Operating Profit (FMOP)
-You then capitalise at an appropriate yield

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19
Q

When would you use the profits method?

A

when the value of the property is dependent on its profitability. e.g. a hotel

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20
Q

Can you talk me through the DRC method?

A

Depreciated replacement cost

value of the land in its existing use plus the cost of fulling replacing the building
you would then depreciate it back down to its current state

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21
Q

when would you use the DRC method?

A

when there is no direct market evidence or comparables
a scheduled monument for example

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22
Q

What is profit erosion?

A

its the erosion of profit (mainly due to interest charges) in the period between practical completion and when the profit is fully drawn down.

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23
Q

What are the three forms of sensitivity analysis

A

variable sensitivity analysis (what i use)
scenario analysis
monte carlo simulation

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24
Q

what is monte carlo simulation

A

probability analysis
(i have no experience of this)

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25
Q

What is an all risks yield?

A

reflects all of the risks and rewards of the subject property

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26
Q

What is a true yield?

A

assumes rent is paid in advance (not arrears)

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27
Q

what is a nominal yield?

A

initial yield assuming rent is paid in arrears

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28
Q

What is a net initial yield?

A

yield adjusted for purchase costs
annual rent divided by purchase price (which includes acquisition costs)

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29
Q

what is a gross yield?

A

yield not adjusted for purchasers costs
annual rent divided by purchase price

30
Q

what is a revisionary yield?

A

revisionary yield is the market rent divided by the purchase price (used in term and reversion)

31
Q

what is a running yield?

A

a yield at one moment in time

32
Q

what is the difference between mezzanine and senior debt

A
33
Q

What are the two main methods of development funding/finance?

A

Debt finance - lending money
equity finance - own funds

34
Q

what is an external valuer?

A

an external valuer is one that is independent and outside the firm

35
Q

what is the hierarchy of evidence?

A

Category A – direct transactional evidence

Category B – general market data providing guidance rather than a direct indication of value, such as evidence from published sources, commercial databases, indices, historic evidence and demand/supply data

Category C – other sources, such as transactional evidence from other property types and locations and other relevant background data

36
Q

Can you tell me about your valuation in chigwell?

A

Prime detached property - comparable method
Further explanation

37
Q

what is the definition of fair value?

A

IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).

38
Q

Tell us about your office valuation in Chelmsford ?

A

Owner occupied office in Chelmsford.
Valued on fair value basis for account purposes.

Due to the location in the centre of Chelmsford, i concluded that the office was more likely to be used as an investment.
i used the comparable method to understand yields within the location and a market rent.
i then capitalised the market rent with an appropriate net initial yield.
I also compared to investment comps

39
Q

Valuation, Chelmsford – what was the specification of the office you valued?

A

concrete frame, (NEED MORE INFO)

40
Q

what approach would you take if the office was not owner occupied?

A

as above, established market rent
if it was owner occupied, i would look for vacant possession comps (Check answer)

41
Q

What is the office market like in Chelmsford?

A
42
Q

Talk me through the investment method of valuation?

A

for conventional investment, The investment method is used where there is an income stream to value, i.e. the property is tenanted.

43
Q

what risks are associated with investment?

A

covenant strength
interest rates
market strength
property
lease terms

44
Q

Tell me about your valuation in manningtree?

A

was a negotiation (non reliance purposes) over disagreement over an option agreement. My client was a school.
used the comparable approach to establish the GDV
and then the residual to ascertain the residual land value

45
Q

What advice did you give about the ransom strip?

A

i advised my client first and foremost that there was a ransom position on their land regarding the access to the development.
I advised them on the principles of stokes vs Cambridge, which is case law which states between 1/3 - 1/2 of the uplift in the development value should be attributed to the land owner. We held discussions with the developer and came to a conclusion that suited all parties

46
Q

What is an option agreement?

A

A contract between a developer and landowner which gives the developer the right to by the land within a specified time frame
Price can either be negotiated or agreed at a minimum price

47
Q

Tell us about your valuation of a converted office to resi in Chelmsford?

A

asked to value for internal purposes after it had been converted.
used residual approach.
For this valuation i had a lot of discussions with agents to fully analyse my comparables.
As the net internal area for the subject was limited, i needed to find comparables of similar description.
TALK ABOUT GROSS TO NET FOR FLATS

48
Q

What are the issues with permitted development flats?

A

there are issues with individuals obtaining mortgages with PD flats which could slow sales rates (rights to light, windows unable to open) - that wasn’t the case for this example.

49
Q

You mention that you report offers within 24 hours of receipt, is there anything that you ensure you include when reporting an offer

A

all details of offer, including monetary value, planning details if subject to planning, and proof of funds

50
Q

Why are there national supplements in addition to the global RB?

A

The UK national supplement supports the Global Red Book for valuations that are subject to UK jurisdiction but does not replace them

51
Q

With your valuation in Chigwell, tell me about the property and the best comparable you had for it and why?

A
52
Q

Which version of Fair Value did you use for the office valuation in Chelmsford? How does this align with Market Value?

A

IFRS 13
Similar to Market Value but is measured at the measurement date

53
Q

Tell me about your owner occupied office valuation in Chelmsford?

A

comparable and investment valuation

54
Q

Tell me about your Permitted development office to resi valuation in Chelmsford?

A
55
Q

Tell me about your valuation in Manningtree?

A

negotiation - advised about a ransom strip

56
Q

You mention that you used both the investment and comparable methods of valuation for your office valuation in Chelmsford, briefly set out a couple of differences in these approaches?

A
57
Q

As your valuation in Manningtree was for negotiation purposes, was it covered by the RB? What was the base value of the land? What percentage did you advise on and why? Is there any deviation from the Stokes and Cambridge approach?

A

Valuations for negotiation were exempt from VPS 1-5, but all written valuation advice is subject to ps1 and 2.

yes there is deviation as it is used as a guide only to aid negotiation on ransom strips.

58
Q

Can you give me a couple of issues commonly found with PDR? How might you factor these into the valuation

A

small units
rights to lights
windows will not open

slower sales rate due to difficulty in mortgages or less interest

59
Q

Former office block in Chelmsford converted to resi. Talk me through the basis of value you were asked to report on and how you arrived at market value.

A
60
Q

How did you arrive at your build costs for market value?

A
61
Q

Assessing market value, you mentioned the abundance of office pd scheme in Chelmsford. What has the market reception been for office to resi developments has been like in Chelmsford?

A
62
Q

Does a ransom strip always have to prevent access?

A

No

63
Q

Does the % of uplift change if it is for drainage as opposed to just access?

A

Depends on whether the are alternative solutions

64
Q

Explain why increased timescales would impact on market value?

A

increase the finance costs/interest payments if there was a longer timescale

65
Q

What are the new maximum limits on existing right to convert office to residential

A

1,500m2 for class MA (which was introduced in 2021).
has to have been vacant for three months
needs to have been in office use for a continuous period of 2 years
if it has an extension, you need to get full planning for this

66
Q

Which statutory instrument controls permitted development rights?

A

General Permitted Development Order (Town and Country Planning)

67
Q
A
68
Q

what do you do when an offer is made verbally

A

request a written offer to send to client

69
Q

You mention marketing a site in Maldon as part of a larger scheme, how did you ensure that the party adheres to the wider infrastructure plan

A

include details of s106 requirements across whole scheme - this particularly one was access in which the strategic land owner was delivering the access infrastructure

70
Q

Why did your client elect to market the site subject to planning?

A
71
Q
A
72
Q

What is a registered valuer

A

One which has passed quality assurance tests. Mandatory for those undertaking RB valuation work.
Ensures the highest possible standards

GF APC (7 decks)

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