Valuation Flashcards
What is the RICS Redbook definition of Market Value and where is it found
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
RICS REDBOOK Section 4.1
5 Methods of Valuation
- Comparable
- Residual
- Investment
- Profits and Receipts
- Contractors/ DRC (Depreciated replacement costs)
What is the Red Book
A set of global standards that set out procedures and guidance for written valuations
What does VPS stand for in the Red book
Valuation technical and performance standards (mandatory)
What does PS stand for in the Red Book
Professional standards (mandatory)
What does VPGA stand for in the Red Book
Valuation Practice guidance Applications (advisory)
What are the 3 approaches of valuation
- Cost
- Income
- Market
When is Comparable method applicable
- Most common & reliable
- Used for property types where there is comparable eidnce eg shops, office, industrial, resi for IHT/council tax
Methodology for Comparable method and relevant case law
Lotus and Delta V Culverwell and leicester city council
1. Obtain and select comps
2. Verify comparables
3. Assemble comparables in schedule
4. Adjust comparables using hierarchy of evidence
5. Analyse comparables to form opinion of value
6. Stand back and look
7. Report value and prepare file note
Heirarchy of Evidence
Lotus and Delta V Culverwell
1. Subject rent is starting point
2. Closer comparables are to time, subject and conditions, the more weight attached
3. Other rents of similar properties should be used where available
4. Other assesments of comparable properties
5. Opinion of value formed on actual rent and degree of comparability of other evidence
6. If no comparable evidence available subject rent evidene is givven most weight
What are the 3 types of comparable evidence
What happened in the lotus and delta v culverwell case
When is Profits Method used
- Used for trade related properties that produce income e.g. Pubs, Cinemas, Hotel, Car parks.
Profits methodology
- Annual turnover (review last 3 years of accounts)
- Less costs/purchases=gross profit
- less reasonable working expenses= unadjusted net profit
- Less operators remuneration= adjusted net profit known as Fair Maintainable Operating Profit (FMOP)
- Capitalised at appropriate all risks yield to achieve market value (For rating purposes ignore YP in perp)
- Cross check with comparable sales if possible
Techniques of investment method
Capitalisation, term and reversion, hardcore and layer, hardcore and top slice, discounted cash flow
