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APC > Valuation > Flashcards

Valuation Flashcards

1
Q

Tell me what the 5 methods of valuation are

A
  • Market (comparative) method
  • Investment method
  • Residual Method
  • Depreciated Replacement cost
  • Profits method
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2
Q

Tell me about how you would value a building using each of the 5 methods

A

DRC:

1) ESTIMATE Replacement Cost
2) SUBTRACT obsolescence (physical, functional and economic) as a % of costs
3) ADD value of Site
4) Decapitalise (only if rating)
5) Stand back and look (adjust as required - valuer judgement)

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3
Q

How do you decide which valuation method to apply?

A

It depends on the information available, type of property, and what the evidence shows

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4
Q

What is a year’s purchase multiplier

A

It is the factor at which the rent is capitalised top determine (gross) MV

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5
Q

What is PI Insurance (PII)?

A

It provides cover in the event of a breach of contract or a mistake arising from professional services provided, such as the mistake made in the provision of professional services or advice, or recommendations to a client

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6
Q

Why do surveyors need PII?

A

Because they enter into contracts with, and provide services and advice to clients, so their clients need to be protected from potential breaches of contract or mistakes made in provision of the advice

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7
Q

Tell me about the RICS requirements in relation to PII

A

Turnover for preceding year:

-Less than £100k = £250k cover
- £100,001 to £200k = £500k cover
- £200k+ = £1m cover

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8
Q

How did the decision in Hart v. Large affect PII?

A

Damages were awarded in respect of the diminution of value, which would have increased PII premiums at the time as it set a precedent for negligence damages payments

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9
Q

What level of PII cover does your firm have?

A

LSH has £10m PII cover

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10
Q

How would you distinguish limitations of liability in your valuations?

A

I would list them in my Terms of Engagement

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11
Q

What relevance does Hart v Large have on your valuation practice?

A
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12
Q

What aspect of Hart v Large allowed the judge to award damages without applying the SAAMCO cap?

A
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13
Q

What is the SAAMCO cap?

A
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14
Q

Under the SAAMCO cap, is a valuer liable for losses due to a downturn in the market?

A

No

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15
Q

Under the SAAMCO cap, is a valuer’s liability usually limited to the overvaluation on the valuation date?

A
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16
Q

What would you do if you received a notice of a PII claim from a client or their solicitor?

A

Inform LSH compliance so they could inform the insurer. I would collate all information from the file to be issued to the insurer to examine the claim as well as provide a statement.

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17
Q

What is run off cover?

A

PII for claims made retrospectively after a firm has ceased trading

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18
Q

What is the Red Book?

A

The RICS Global Valuation Standards 2022

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19
Q

Why does the Red Book exist?

A

To apply the latest international standards and best practice guidance to ensure that valuations are delivered consistently and to the highest standards possible to promote public trust in the valuation profession

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20
Q

Tell me about a factor which may impact value.

A

Covenant strength

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21
Q

What is your duty of care as a surveyor when undertaking a valuation?

A

To provide an accurate valuation of the asset to your client within the requirements of your instruction

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22
Q

To whom do you owe a duty of care when undertaking a valuation?

A

To your client

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23
Q

Why is independence and objectivity important when valuing?

A

To deliver an accurate valuation

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24
Q

Why does the UK valuation guidance exist?

A

To provide guidance on valuation requirements which are specific to the UK

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25
Q

How should the UK valuation guidance be applied in relation to the Global Red Book?

A

As supplementary guidance with the Red Book applying throughout

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26
Q

Explain one UK VPS or UK VPGA that relates to your work as a valuer.

A

UKVPGA 10 - Secured Lending:

  • The Red Book applies throughout (VPGA 2 - Secured Lending)
  • Independence, Objectivity, Conflicts of Interest
  • Disclosures and Instructions
  • Reporting
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27
Q

When was the Red Book last updated?

A

2021, changes effective 2022

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28
Q

Does this differ from when the IVS were last updated?

A

IVS last updated January 2024

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29
Q

Which do you follow, the latest IVS or the Red Book Global?

A

The Red Book incorporates the IVS plus additional RICS requirements so I follow that.

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30
Q

Which sections of the Red Book are mandatory and which are advisory?

A

PS 1 & 2, VPS 1-5 are mandatory

VPGA 1-10 are advisory

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31
Q

What does PS 1-1/VPS1-5/VPGA1-10 relate to?

A

Professional Standards 1-2, Valuation Technical and Professional Standards 1-5, RICS Global Valuation Practice Guidance 1-10

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32
Q

What type of advice does the Red Book cover?

A

Valuation advice

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33
Q

If you provide preliminary advice/draft valuation report, what should you state in writing to your client?

A

Confirm that it is preliminary/draft and that it is subject to change/reserve the right to change

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34
Q

What type of valuations might be relied upon by a third party?

A

Valuations for secured lending purposes

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35
Q

Tell me the definition of MR/MV/investment value/fair value

A

MV - 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 arms’ length transaction after property marketing wherein the parties had each acted knowledgeably, prudently and without compulsion (N.B. always excludes Special Value or Marriage Value BUT can include Hope Value)

MR - 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 arms’ length transaction, after proper marketing and wherein the parties had each acted knowledgeably, prudently and without compulsion

Investment value - the value of an asset to the owner or a prospective owner for an individual investment or operational objectives

Fair Value (now called Equitable Value) - The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties (N.B. what is ‘reasonably agreeable’)

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36
Q

Please explain your understanding of the rotation rules for valuation contained within the RICS Red Book UK Supplement?

A

UKVPS 3 covers regulated purpose valuations and the rules are that the ToE must include that a rotation policy is in place at the firm. Firms must rotate after 10 years (unless there’s been at least a 3 year break within this period). Individual valuers must rotate after 5 years (excepting when there is a 3-year break in the period). Firms cannot agree to single engagements of more than 5 years to value the same asset for the same regulated purpose. They can agree to a further period (subject to compliance with the 3-year break in 10 years) on expiration of that engagement.

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37
Q

What is the difference between an assumption and a special assumption?

A

VPS 4 - Bases of value, assumptions, and special assumptions

Assumptions are made where it is reasonable for the valuer to accept that something is true without the need for specific investigation or verification

Special Assumptions are made by the valuer where an assumption either assumes facts that DIFFER from those existing at the valuation date or that would NOT be made by a typical market participant in a transaction on that valuation date

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38
Q

If you have previously valued an asset, do you need to many any additional disclosures and what might they be?

A

You need to disclose the date on which you valued the asset and the purpose of the valuation.

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39
Q

If your firm is too small to have a rotation policy or valuation panel, what else can you do to ensure objectivity

A

Have a third party audit the valuations team

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40
Q

When might a conflict of interest exist in relation to a valuation instruction?

A

Being asked to value a property or portfolio for loan security purposes by a lender but the borrower is an existing client

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41
Q

What sources of information would you consider when preparing a valuation report?

A

I would consider CoStar comparable transactions reports, Land Registry title documents, Energy Performance Certificate Register, to name a few.

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42
Q

What is a restricted valuation service, and can you provide one?

A

A restricted service is one provided under circumstances which render it impossible to establish facts usually verified by inspection or by making normal enquiries. Or the request may be made for an Automated Valuation Model (AVM). RICS Registered Valuers can provide these if they are in accordance with the Red Book.

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43
Q

How do you deal with limitations on inspections or analysis?

A

I try to avoid them but where necessary I state in my assumptions/special assumptions exactly what I have made allowances for and explain in my report why I have done so in order to provide my valuation

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44
Q

Can you revalue a property without inspecting?

A

Only if the valuer is satisfied that there have been no changes to the physical attributes of the property, or the nature of its location, since the last assignment or if the client confirms this (must be in ToE as assumption)

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45
Q

What RICS guidance relates to the use of comparable evidence?

A

Comparable Evidence in Real Estate Valuation 2019 Professional Standard

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46
Q

What is an internal valuer?

A

A valuer who is in the employ of the enterprise that owns the assets or the accounting firm responsible for preparing the enterprise’s financial records and/or reports

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47
Q

Can an external valuer provide an internal purposes valuation?

A

Yes

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48
Q

What happens if market conditions change between the valuation date and report date?

A

The valuer should reflect the changes and update the report, citing a new valuation date, providing the market conditions changed before the report was issued

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49
Q

Is special value from a special purchaser reflected in MV?

A

No

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50
Q

Where does the definition of Fair Value (Equitable Value) come from?

A

It is what is “reasonably agreeable” and reflects the respective interests of both parties

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51
Q

When if Fair/Equitable Value used?

A

When valuing a property with a Special Purchaser

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52
Q

Does FV equal MV?

A

Not necessarily because it considers the respective advantages and disadvantages that each party will gain from the transaction (subjective), whereas MV requires that they be disregarded (objective). E.g. FV takes into account possible existence of Special Purchasers.

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53
Q

What are the three approaches under VPS5?

A

The Market Approach

The Income Approach

The Cost Approach

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54
Q

What is the Valuer Registration Scheme?

A

It allows those registered to effect Red Book Valuations

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55
Q

Are there any instances where certain sections of the Red Book may not apply?

A

There are 5 specific circumstances where VPS 1-5 do not apply:

  • Agency or brokerage advice for acquisition or disposal
  • Acting as expert witness
  • Performing statutory functions
  • Providing a valuation purely for internal purposes, without liability and without communication to a third party
  • Providing valuation advice in the course of negotiations or litigation where the valuer is acting as an advocate
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56
Q

What is the basis of value under UK GAAP FRS 102?

A

Fair Value (UKVPGA 1) - defined as: “The amount for which an asset could be exchanged, a liability settled, or an equity instrument granted to be exchanged, between two willing and knowledgeable parties, in an arm’s length transaction.”

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57
Q

What is a SORP?

A

Statement of Recommended Practice

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58
Q

When would you use EUV?

A

Public sector valuations of operational property, plant and equipment

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59
Q

What is the definition of EUV?

A

The estimated amount for which a property should exchange on the valuation date between a willing buyer and a willing seller in an arms’ length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion, assuming that the buyer is granted vacant possession of all parts of the asset required by the business, and disregarding potential alternative uses and any other characteristics of the asset that would cause its market value to differ from that needed to replace the remaining service potential at least cost

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60
Q

What additional criteria apply to secured lending valuations?

A

VPGA2 and UKVPGA10?

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61
Q

What information should you specifically request for a secured lending valuation?

A
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62
Q

What is the basis of value for a statutory valuation?

A

Market Value (in the UK)

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63
Q

What might a statutory valuation relate to?

A

Capital Gains Tax

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64
Q

What is the definition of the statutory basis of valuation?

A
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65
Q

Is this the same for all statutory valuations?

A

No

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66
Q

What is a yield?

A

The annual rate of return on an investment expressed as a percentage, it is prospective.

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67
Q

What is a Net Initial Yield?

A

Rent passing divided by (price + costs) multiplied by 100%

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68
Q

What is a reversionary yield?

A

Where the Full Rental Value is known along with purchase price, reversionary yield is the quotient of rent to price paid expressed as a percentage (for Net RY add in Purchaser’s Costs)

Full rental value divided by price paid multiplied by 100%

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69
Q

What is an equated yield?

A

It is an explicit yield (Internal Rate of Return)

70
Q

What is an equivalent yield?

A

Average Weighted Yield, used for short term income variables, found by interpolation, tables or formula, do not need to imply valuer interpretation over split yield differentials

71
Q

How would yield reported from an auction differ from Net Initial Yield?

A

It would be Gross Initial Yield which is rent passing divided by price paid (excl. purchaser’s costs) multiplied by 100%

72
Q

What purchaser’s costs do you deduct from a valuation?

A

(Agent’s fees (1% of MV) and Legal fees (0.5% of MV)) + VAT (20%)

73
Q

When do you deduct purchaser’s costs from a valuation?

A

after you have calculated gross MV

74
Q

How would you value a property in uncertain market conditions - does the Red Book give any guidance?

A

VPGA 10 - Matters that may give rise to material valuation uncertainty Example 2.4 refers to market uncertainty and advises that valuers should be able to make a judgement but it is important to clearly express the context of that judgement.

I would increase the yield to reflect additional risk.

75
Q

How could you value a long leasehold interest?

A

On an investment basis;

Subtract the passing rent from the Full Rental Value and then capitalise the profit rent at a Years Purchase multiplier for the duration of the term certain at an appropriate yield.

N.B. If there is no profit rent then the leasehold interest has no value.

76
Q

How does a Term & Reversion differ to a DCF?

A

The DCF is growth-explicit, whereas the term and reversion is growth implicit. DCF may or may not equate to Market Value, OFTEN Investment Value.

77
Q

What is the difference between a growth-implicit and a growth-explicit yield?

A

A growth-implicit yield reflects any expectation in the growth of market rents or capital value. A growth-explicit yield is one used in a calculation where the growth has been explicitly allowed for already in the cash flow.

78
Q

Give an example of a growth implicit and growth explicit yield

A

implicit - initial

explicit - equated (IRR)

79
Q

How would you value an over/underrented investment property?

A

underrented - Term & Reversion

Overrented - Layer method (hardcore & topslice)

80
Q

When would you use a dual rate investment calculation?

A
81
Q

Where can you find yield evidence from?

A

From investment sales of comparable properties

82
Q

What is the hierarchy of evidence?

A

It refers to the weighting of transactional evidence to be applied when undertaking valuations

83
Q

What would you do if comparable evidence was limited?

A

Depending on how limited, I would:

  • Adjust what I was able to collect to reflect differences between it and subject
  • Look at comparable properties on the market
  • Look at databases/indices
  • Discuss with local agents for their opinion
84
Q

What is NPV?

A

Net Present Value is the sum of all future cash flows over the lifetime of an investment, discounted to the present value

84
Q

What is IRR?

A

Internal Rate of Return is the discount rate which, when applied to cash flows, produces a NPV of zero. The higher the IRR, the better the return of an investment.

85
Q

What is a term & reversion?

A

An investment valuation technique used for underrented property which capitalises the income due under a lease for the remaining term certain (term) and then capitalises the Estimated Rental Value into perpetuity after the existing lease has ended (reversion)

86
Q

What is a hardcore and topslice?

A

An investment valuation technique for overrented property wherein the income due under the lease is capitalised for the remaining term certain at a higher yield to reflect risk (top slice), and the Market Rent is capitalised into perpetuity at a lower yield from lease start date.

87
Q

What is a Discounted Cash Flow?

A

A DCF is a valuation model which examines future net income/projected cash flow, then discounts that cash flow to arrive at an estimated current value for the investment using a discount rate to derive the NPV of future cash flows.

88
Q

What is a shortcut DCF?

A
89
Q

When would you use a DCF?

A

For development appraisals and complex/non-standard situations (explicit)

90
Q

What are the advantages of a DCF?

A
  • Does not necessarily require comparable evidence
  • Can account for different scenarios (adjust occupancy, rent, inflation, capex) etc.
  • Allows for sensitivity analysis
  • Can be used to calculate IRR
91
Q

What are the disadvantages of a DC?

A
  • Requires a lot of assumptions
  • Very sensitive to changes in assumptions
  • Can result in overconfidence due to high level of detail
  • Doesn’t look at relative valuations of comparable assets
92
Q

What is a YP in perpetuity?

A

It is the multiplier by which we capitalise the rental income (MR) of a property into perpetuity, calculated by dividing 100 by the yield rate (1/i) e.g. 100/8 or 1/0.08f or 8%

93
Q

What is marriage value?

A

The Red Book notes that marriage value is the difference between the Synergistic Value and value of the component parts

94
Q

What is Synergistic Value?

A

The result of a combination of two or more assets or interests where the combined value is more than the sum of the separate values

95
Q

When would you include an element of hope value in a valuation?

A

When providing a valuation for unconsented development land with development potential

96
Q

Can you include an element of hope value in a secured lending/mortgage valuation?

A

No

97
Q

How would you value a ransom strip?

A

Stokes v. Cambridge set precedent on this, 30% of the uplift in value created, however valuer should make considered judgement as to what is deemed commercially fair proportion of uplift in value created

98
Q

How does MV differ from investment/fair value?

A

MV is objective, whereas investment/fair value is subjective and considers the respective interests of buyer and seller, e.g. good will attached to a trading business

99
Q

What is a dual capitalisation rate and when would you use one?

A
100
Q

Are the profits or DRC used for specialised or specialist property?

A

Yes, the DRC is perceived as the method of last resort and is used for property where there is no ‘active’ market or demand, such as public or charity sector specialised assets.

101
Q

What is intangible goodwill?

A

Any future economic benefit arising from a business, or interest in a business, or from the use of a group of assets that is not separable.

102
Q

What is turnover/gross profit/net profit?

A

Turnover (revenue) is the amount of money generated by a business’ sales before deducting costs- for a given accounting period

Gross profit is revenue minus cost of sales for a given accounting period

Net profit is total revenue minus total business expenses for a given accounting period

103
Q

What are the steps to providing a profits valuation?

A
  • Determine Fair Maintainable Turnover (FMT)
  • Derive Fair Maintainable Operating Profit (FMOP) from FMT
  • Apply appropriate multiplier to FMOP
104
Q

What is Fair Maintainable Turnover?

A

Represents the level of trade that a “reasonably efficient operator” would expect to achieve under specific conditions of property being in good repair and suitably equipped. FMT disregards any impact on turnover and profit attributed solely to personal skill, reputation and expertise of existing owner.

105
Q

What is a reasonably efficient operator?

A

A market participant assumed to be a competent operator, acting in an efficient manner, of a business conduced on the premises. Involves estimating trading potential rather than adopting actual level of trade under existing ownership, excludes personal goodwill.

106
Q

Does the assessment of the REO include trading potential and personal goodwill?

A

It includes trading potential but excludes personal goodwill.

107
Q

What is personal goodwill?

A

The value of profit generated over and above market expectations that would be extinguished upon sale of the trade related property, together with financial factors related specifically to the current operator of the business, such as taxation, depreciation policy, borrowing costs and the capital invested in the business.

108
Q

What is trading potential?

A

The future profit, in the context of a valuation of the property that an REO would expect to be able to realise from occupation of the property. This could be above or below the recent trading history of the property. It reflects a range of factors (such as the location, design and character, level of adaptation and trading history of the property within the market conditions prevailing) that are inherent to the property asset.

109
Q

How do you calculate the tenant’s proportion of rent in a profits valuation?

A

An allowance should be made from the FMOP to reflect a return on the tenant’s capital invested in the operational entity - e.g. cost of trade inventory, stock and working capital, resultant sum is referred to as the divisible balance.

110
Q

What is EBITDA?

A

It stands for Earnings Before Interest, Taxes, Depreciation (reduction of asset value over time) and Amortization (devaluing intangible asset)

It is a measure of profitability and doesn’t account for a company’s financial structure

111
Q

What is Fair Maintainable Operating Profit?

A

The level of profit, stated prior to depreciation and finance costs relating to the asset itself (and rent if leasehold), that the reasonably efficient operator (REO) would expect to derive from the fair maintainable turnover (FMT) based on an assessment of the market’s perception of the potential earnings of the property. Should reflect all costs and outgoings of the REO, as well as an appropriate annual allowance for periodic expenditure, such as decoration, refurbishment and renewal of the trade inventory.

112
Q

How do you calculate the divisible balance?

A

Subtract the capital sum equivalent to the tenant’s investment into the operational entity, (e.g. cost of trade inventory, stock, working capital) from the FMOP.

113
Q

What accounts information would you want to review for a profits valuation?

A

Income Statement and Balance Sheet.

114
Q

Do RICS provide any guidance on RLVs or Valuation of Development Property?

A

Valuation of Development Property Professional Standard 2019

115
Q

What is an RLV?

A

An RLV is a value derived from a development appraisal by calculating:

GDV - Total costs of development (including profit) = RLV

The resultant value prescribes the underlying value of the site

116
Q

What is a development appraisal?

A

A development appraisal is a discounted cash flow which derives the level of profit to be gained by undertaking the development

117
Q

How do RLVs and development appraisals differ?

A

Both require a development appraisal to drive out either RLV or profit levels, but the metric being sought is either site value or developer’s profit

118
Q

How else can you value development land?

A

The comparable (market) method.

118
Q

What is the basic process of undertaking an RLV/development appraisal?

A

Establish costs and assess potential value, then subtract costs from value.

118
Q

Tell me about your due diligence when undertaking a development appraisal

A
118
Q

What does a development appraisal show?

A

Whether a development project is profitable or not and therefore, whether it is financially viable.

118
Q

What are the key considerations when appraising/inspecting a development site?

A

There are many but some of the key ones are:
- Size and shape
- Topography and orientation
- Servicing - new and existing on site
- Access & Infrastructure
- Ground (soil) conditions
- Flooding
- Archaeological considerations

119
Q

Tell me about your due diligence when undertaking a development appraisal.

A
120
Q

What sources of information do you use when undertaking a development appraisal?

A
121
Q

How can you assess development potential?

A
  • Look at similar consented schemes in the area to get an understanding of density then look at building costs (inc. assumptions) and comparables for that property type
122
Q

What is GDV?

A

Gross Development Value is the aggregate market value of the proposed development , assessed on the special assumption that the development is complete on the date of the valuation in the market conditions prevailing on that date. Where an income capitalisation approach is used to estimate the GDV, normal assumptions should be made within the market sector concerning the treatment of purchaser’s costs. The GDV should represent expected contract price.

123
Q

What is NDV?

A

GDV minus assumed sales costs.

124
Q

How do you calculate GDV?

A

By valuing the proposed asset to be built - e.g. for a housing development I would collect comps for the proposed housing types (reflecting quantity of each) and then the total figure represents GDV.

125
Q

What do development costs include?

A
125
Q

When do you apply VAT when assessing development costs?

A

Apply to agents & legal fees

126
Q

Where can you source build costs from?

A

There are indices such as the Building Cost Information Service or Spon’s Pricing Book

127
Q

What are typical finance costs?

A

A first time developer might expect to pay between 10 and 12% currently with a developer who has an existing relationship with a lender likely to pay in the region of 7-8%.

128
Q

What is an S-Curve?

A

The weighting of the construction costs may be incurred irregularly within a project and different property types may require a different pattern of delivery of construction costs. Rather than being distributed equally over the development period, generally the costs are quite small at the beginning of a construction project, relatively accelerate in the middle and reduce towards the end of the construction period. The purpose of an s-curve is to reflect more accurately the incidence of the costs in a particular project and may require expert advice from other professionals involved with the development.

129
Q

What would you apply finance costs to and on what basis?

A

I would apply finance costs to any portion of the development to be financed, typically the construction, and possibly to the acquisition of the land. I would assume sensible LTVs of 65% and 70% respectively.

130
Q

What factors influence the decision to use an s-curve when applying finance costs?

A
  • Construction programme
  • Timing of sales
  • Development finance drawdown

N.B. Development appraisals assume 100% financing so notional interest rate is applied.

131
Q

Is there a quick rule of thumb which can be used when applying finance costs?

A

Lenders will typically grant up to 65% of the development costs although this is largely dependent on the type of site, risk profile and track record of the developer. Commercial lenders will usually grant up to 70% of the site’s value for purchase.

132
Q

What do holding costs typically include?

A

Finance costs

133
Q

How do you typically calculate developer’s profit?

A

I usually make an assumption of 17.5% of costs or 20% of GDV (these two figures usually work out to approximately the same value)

134
Q

What are some typical inputs (and %/£) in an RLV?

A
  • Developer’s contingency figure - (usually 7.5% if minimal due diligence/reporting has been done, e.g. unknown ground conditions)
  • Off plot costs - 10-15% of base build cost (car parking spaces, gardens, estate roads etc.)
  • Agents fees (1%)
  • Legal fees (0.5%)
  • Marketing (spot figure allowance usually)
135
Q

What other criteria might be assessed in terms of performance measurement for an RLV?

A

Once the RLV has been established, one can use this figure into a development appraisal as a fixed input to assess the impact on profit

136
Q

What are the advantages/disadvantages of an RLV?

A

An RLV can help with sensitivity analysis and allows you to assess a project’s viability in the absence of comparables

A disadvantage is it relies on a detailed estimate of expenses to provide an accurate valuation

137
Q

What is included in the development programme?

A
  • Pre construction
  • Construction
  • Marketing & sales
138
Q

What is CIL?

A

Community Infrastructure Levy is a charge levied on development, to help fund new infrastructure, facilities and services. It’s operated by some (not all) planning authorities and is a condition for some types of development. It’s usually charged per square metre of development and the monies charged do not need a specific allocation to be charged.

139
Q

What is a S106?

A

Section 106 obligations are legally binding agreements or “planning obligations” between planning authorities and property owners as part of the granting of a planning permission. They are focused on site specific mitigation of development impacts, such as developer providing a new school as part of a large residential development.

140
Q

What are the differences between a CIL and a S106?

A

A CIL is a general charge levied on all qualifying development in a planning locality whereas S106 agreements address site-specific mitigation required.

141
Q

What is a Monte Carlo simulation?

A

One changes all the inputs to assess the impact on profit. The idea is to de-risk the scheme to a point where the probability of profitability is much higher than the loss situation.

142
Q

What is a sensitivity analysis?

A

It is a manipulation of variables to determine viability of the scheme in different situations. The theory is to reflect “best and worst” (or at least, better and worse) case scenarios for the development and hopefully the development is still viable in the worse case

143
Q

What variables might you change in sensitivity analysis and why?

A

You may change construction costs and sales values because these will usually be the two largest impacts on the profitability

144
Q

What factors affect sensitivity of a development appraisal?

A

Examples include inflation in material prices and labour rates or Biodiversity Net Gain (now 10% required to be demonstrated)

145
Q

Tell me about your understanding of incorporating affordable housing into development appraisals

A

For developments over a certain size, a percentage of the proposed development is usually required to be allocated for affordable housing. However, there are factors such as vacant building credit to be applied which can reduce the required affordable housing provision

146
Q

Tell me about software you have used to provide an RLV

A

I have used Argus Developer to provide RLVs

147
Q

What RICS Guidance relates to the valuation of development property?

A

Valuation of Development Property 2019 Professional Standard.

148
Q

Give a limitation of the Argus software.

A
149
Q

What is viability?

A

Viability is an assessment of the financial feasibility of a development project

150
Q

When would a cost approach be used in valuation?

A

As a method of last resort for DRC if there is no evidence available.

151
Q

What type of buildings would a cost approach be used for?

A

Buildings of a specialised type of which there are no comparables such as public or charity sector assets.

152
Q

What is the supposition that a DRC is based upon?

A

It is based on the economic theory of substitution and supposes that the asset will be replaced with its modern equivalent

153
Q

What are the 3 components of the cost approach?

A
  • The value of the land
  • Building replacement cost
  • Depreciation
154
Q

What are the updates to UK Red Book Supplement 1st May 2024?

A

UKVPGA3 - Regulated Purpose Valuations is introducing a mandatory rotation for individual valuers and 10 years for a firm.

UKVPGA8 - Charity valuations must be done in accordance with Charities Act valuations

UKVPGA10 - Secured Lending: updates to ESG & Sustainability

155
Q

How do you assess the value of the land in a DRC valuation?

A

On its prevailing use

156
Q

Why didn’t you include void costs for the vacant properties in your valuation of 129-141 High Street, Epping?

A

As the properties were under offer, I adopted an All-Risks Yield and no explicit void allowance as it was unlikely a successful letting would not be reached and therefore void costs were very unlikely to be incurred.

157
Q

Under VPGA2/in addition to matters set out in VPS3 Paragraph 2.2, what matters frequently require consideration and comment in a report?

A
  • Suitability of the property for lending purposes
  • Whether there was a recent transaction of the property, if so, details to be provided
  • Details of any involvements or arrangements agreed for managing a conflict of interest
  • Valuation method
  • Any circumstances of which the valuer is aware that could affect the price
158
Q

What are the key principles of VPS1?

A

VPS1 contains requirements for Terms of Engagement (Scope of Work) and there are 18 points which must be stated for ToE for a Red Book Valuation, “a - n” are IVS requirements, “o - r” are RICS requirements

a) identification and status of the valuer
b) identification of the client
c) identification of any other intended users
d) identification of the asset(s) or liability(ies) being valued
e) valuation (financial) currency
f) purpose of the valuation
g) basis(es) of value adopted
h) valuation date
i) nature and extent of valuer’s work - including investigations - and any limitations thereon
j) nature and sources of information upon which the valuer will rely
k) all assumptions and special assumptions to be made
l) format of the report
m) restrictions upon use, distribution and publication of the report
n) confirmation that the report will be undertaken in accordance with the IVS
o) the basis on which the fee will be calculated
p) where the firm is registered for regulation by the RICS, reference to the firm’s complaints handling procedure with a copy available on request
q) a statement that compliance with these regulations may be subject to monitoring under RICS conduct and disciplinary regulations
r) a statement setting out any limitations on liability that have been agreed

159
Q

What is the UK GAAP FRS 102 definition of Fair Value?

A

The amount for which an asset could be exchanged, a liability settled, or an equity instrument granted to be exchanged, between two willing and knowledgeable parties, in an arm’s length transaction.

160
Q

Spray Street - What is a CPO?

A

Compulsory Purchase is a legal mechanism by which certain bodies, known as ‘acquiring authorities’, can acquire land without the consent of the owner to facilitate the delivery of projects in the public interest. It is used as a method of last resort and authorities will attempt to acquire the interests voluntarily first. However, they will run the draft CPO alongside this in case negotiations fall down as it is a lengthy process.

161
Q

Spray Street - What is Rule 2, Section 5, Land Compensation Act 1961?

A

Rule 2, Section 5, Land Compensation Act 1961 is Market Value to be assessed in the no-scheme world.

162
Q

Spray Street - How did you adjust for location and higher specification?

A

To reflect inferior location and specification, I increased the yield, and I compressed it for superior location and specification.

163
Q

How can a NIY of zero be achieved?

A

With a passing rent of zero.

164
Q
A

APC (12 decks)

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