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HJB APC > Valuation > Flashcards

Valuation Flashcards

1
Q

When did the latest Red Book become effective?

A

2022

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2
Q

How has it been updated from the previous version?

A

o Adequate ToE to reflect RBG compliance or not. No ambiguity.
o Valuation for financial reporting purposes – inclusion of IFRS 13 and IFRS 16 relating to fair value.
o Reference to use of profit based method for certain trade related properties.
 List includes self-storage, flexible workspace and student housing.
o Sustainability and ESG factors:
 Interpretations of ESG and sustainability.
 VPS 2 and 3 (inspection and reporting), valuers should hae regard to relevance and significance of ESG & S.
 VPGA 2 (valuation for secured lending purposes) ESG & S factors should have an integral part of valuation approach and reasoning.

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3
Q

What is the purpose of the Red Book?

A

To ensure consistency of high standards in the profession when carrying out valuations

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4
Q

What is the structure of the Red Book?

A

Introduction
Glossary
Professional Standards (PS)
Valuation technical and performance standards (VPS)
Valuation Application (VPGA)
International Valuation Standards (IVS)

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5
Q

Name some best practice guidelines relevant to valuation

A

VPS 1 – terms of engagement
VPS 3 – valuation report.

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6
Q

What is Comparable Evidence in Real Estate Valuation 2019?

A

Outlines principles in the use of comparable evidence.
Sets out non-prescriptive hierarchy of evidence.

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7
Q

What are the four bases of value? When would you use each?

A

o Market Rent
o Market Value
o Investment Value
o Fair Value

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8
Q

What are the five methods of valuation?

A

o Residual
o Profit
o DRC
o Investment
o Comparable

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9
Q

When is it appropriate to apply each method?

A

Investment – income stream to value
Comparable – sufficient transactional market evidence
Profit – Valuing trade related property.
Residual – valuing development land
DRC – Valuing unusual building e.g. dilapidated castle.

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10
Q

What each valuation method methodologies?

A

Investment – term and reversion / layer and hardvore methods.
Comparable – hierarchy of evidence.
Residual – GDV – costs – developer’s profit = land value.
Profit = EBITDA with appropriate multiplier.
DRC = value land, BCIS build cost for asset less depreciation.

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11
Q

What CPD have you undertaken?

A

I undertook a webinar going into the 5 types of valuation and the 4 bases of value.

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12
Q

What is a Special Assumption?

A

Supposition that is taken to be true and accepted as fact even though it is not.
E.g. building not let, valued on SA it was.

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13
Q

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

A

Assumption is information reasonable for valuer to deem to be true, with no further investigation necessary.
Special assumption, known not to be true, agreed prior with the client.

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14
Q

What is a typical special assumption you have used?

A

I valued a vacant warehouse in Fradley on the SA that it was 100% let.

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15
Q

How did you establish your Market Value?

A

Found a suitable comparable evidence for a market rent, found suitable evidence for a market yield as well as suitable lease terms, valued on an equivalent basis.

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16
Q

What are the benefits and limitations of the databases you used?

A

Benefits = able to scan an array of transactions quickly.
Limits = usually have inconsistencies. Always need to confirm with the agent involved the terms were correct.

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17
Q

How did you ascertain your build costs?

A

Cost consultant, BCIS, previous examples.

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18
Q

What are the advantages and disadvantages of BCIS?

A

Broad brush, gives an overview.
Can ascertain a build cost quickly, but not tailored to your specific scheme.

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19
Q

What health and safety precautions did you adopt for your inspection?

A

I liaised with the site manager to understand the PPE requirements.
On inspection stayed with the site manager

20
Q

What were the site and local area characteristics?

A
21
Q

Why is undertaking due diligence important?

A

To understand if there are any factors that would impact value.

22
Q

What is the RICS Hierarchy of Evidence?

A

3 different categories:
Directly comparable evidence.
Market data
Other sources.

23
Q

How did you use the hierarchy to ascertain the market value of the site?

A

I gained directly comparable evidence.
Put in a table, adjusted regarding hierarchy of evidence (certain aspects of these transactions make some transactions more similar than others).
Analysed this table and reported back to the client.

24
Q

In your experience how have you applied the relevant valuation standards and guidance to your valuations?

A

VPS 1 ToE.
VPS 2 inspection
VPS 3 valuation report format.
Valuation of Development Property
Comparable evidence in RE Valuation.

25
Q

If the client asks for a special assumption do you have to provide it?

A

Yes, but you should clearly state that it is a special assumption, and also provide the difference in value if it is for a loan security valuation.

26
Q

What must be included in the Terms of Engagement for a valuation?

A

Valuer name and credentials
Client
Property
Purpose of value
Basis of value
Assumption and Special assumption
Nature of information.
Type of sources.
Complaints handling procedure.
Fee basis.
Report format.
Currency.
Limitations on liability.
Valuation date
Date of report.

27
Q

How would you approach a fee quote for a valuation?

A

I am aware it would vary depending on the size and timframe for the job subsequently resource required.
I would speak with my director to understand an appropriate fee quote based on other valuations they have undertaken.

28
Q

What must you do before accepting a valuation instruction?

A

Check independent and competent.

29
Q

When is a red book valuation required as per VPS 3?

A

UK VPS 3 - for regulated purposes, relied upon by third parties (not secured lending)
Takeovers and mergers
Financial reporting
Stock exchange listing.
Collective investment schemes.
Unregulated property unit trusts.

30
Q

What should be included in a red book valuation report?

A

Valuer name.
Client name.
Property.
Basis of value.
Purpose of value.
Extent of sources.
Nature of information.
Assumption / special assumptions.
Valuation date.
Market commentary.
Comparable evidence and analysis.
Valuation figures.
Report date.

31
Q

What is the difference between an internal and external valuer?

A

Internal valuer can only value for internal (accounts purposes).
External valuer can provide valuations for others to rely on.

32
Q

How do you find relevant comparables? What makes a good one?

A
33
Q

What is the hardcore and layer method? When would you typically use it?

A

Used for overrented property.
Value the overrented aspect of the income at a different yield to the market rent.

34
Q

What is a yield? How is it calculated?

A

A measure of return against the capital deployed, expressed as a percentage.
RENT/PRICE X 100

35
Q

What is the DCF methodology?

A

Discounted cash flow.
Work out the cashflow for a property.
Input a disposal figure as you hold the property for a set period.
Choose a target rate of return.
Discount using this target rate of return.
If the discount is positive, you outperform the target rate of return. If negative, failed to achieve.

36
Q

Why is statutory due diligence is required for valuations? Can you name some?

A

To ensure that the property is being used for its legal purpose.
To ensure it is built to its specification.
Ensure there is nothing illegal about the property.
To ensure there are no key factors that may affect value

37
Q

What is the discounted cash flow technique?

A

Growth explicit method of valuation.
Form of income approach valuation.
determines value by examining future net income and discounting to arrive at an estimated current value

38
Q

What additional information is required for a loan security valuation?

A

Enhanced DD and SWOT analysis to give a recommendation for whether it is suitable for a loan security. purchase price.

39
Q

What is the suggested timeline of a valuation instruction?

A

Completely depends on the number of units being valued as well as the timeframe set out in the terms of engagement.

40
Q

What is the difference between freehold, leasehold and commonhold?

A

Owner of the asset.
Tenant of the asset. Pay rent.
Effective freeholder of your unit in a multiple occupancy building, have shared ownership of common areas

41
Q

How can you become a registered valuer?

A

Become part of the RICS Valuer Registration Scheme.

42
Q

SDLT tax bands in England:

A

o Commercial:
0 - £150k = Nil
£150 - £250k = 2%
£250k + = 5%
o Residential:
0 - £250k = Nil
£250k - £925k = 5%
£925k - £1.5m = 10%
£1.5m + = 12%

43
Q

minimum reporting requirements for loan security vals

A

suitability for lending
previous involvement CoI
vals methodology
transaction history
Stat DD
acknowledgement of sustainability factors

44
Q

WAULT

A

weighted average unexpired lease term

gross rent (to all lease expiry) / annual contracted rent (p.a.). figure comes out as a years left.

45
Q

Real name for RBG?

A

RICS Valuation - Global Standards 2021

46
Q

investment value

A

worth of an asset to a particular individual

47
Q

current business rates, how would you calculate it?

A

49.9p per rateable foot.
55.6p for large businesses.

MV x 0.556

HJB APC (10 decks)

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