Valuation Flashcards
What are some of they key changes in the recent update to the RICS Global Standards Red Book Global (2021)?
- Changes to VPGA 1 (Valuation for financial reporting purposes)
- Sustainability and ESG factors
- Need for compliance with RBG and adequate terms of business reflecting this (PS1 and VPS 1)
What are some of the key changes in the Global Standards (UK National Supplement) 2023?
- New edition reflects out come of review undertaken by Peter Pereira Gray.
- Changes aimed at reducing risks of Conflicts of Interest in the commissioning of valuation reports.
Key Changes:
UK VPS 3 - Regulated Purpose Valuations: Supplementary governance requirements
UK VPGA 8 - Valuation for charity assets - now refers to charities act 2022
UK VPGA 10 - Valuation of commercial secured lending - incorporates new ESG principles.
What are the supplementary governance requirements for regulated purpose valuations which took effect from 1st May 2024?
Covers Mandatory Rotations when asset is regularly valued:
- Max single engagement period of 5 years.
- Max 10 years before rotation of firm.
- Max period of 5 years before the rotation individual responsible valuer.
- Min 3 year break after rotating off an engagement.
Other governance:
1. Mandatory recording by the valuer of preliminary advice / draft reporting and client disucssions.
2. Mandatory requirement for valuers to ask about involvement of individual parties in the client’s valuation.
What is the hierarchy of evidence as found in the RICS Professional Standard: Comparable Evidence in Real Estate Valuation (2019)?
CAT A: Direct Comparables of Contermpary
1. Near identical with full information.
2. Similar with full information.
3. Similar with enough reliable information.
4. Similar where offer made but no binding contract
5. Asking prices
CAT B: General Market Data
1. Information from published sources or commercial databases
2. Other indirect evidence
3. Historic evidence
4. Demand / Supply data
CAT C: Other sources
1. Transactional evidence from other real estate types and locations.
2. Other background data
What are the three valuation approaches and methods?
- Income Approach (Residual / Profits / Investment)
- Costs Approach (DRC method)
- Market Approach (Comparable)
How do you calculate a years purchase?
100 / Yield
What are the current prime yields?
Retail
2.75-3% Bond Street
4.5% Oxford Street
Offices
City Prime - 5.5%
West End - 4 - 4.75%
Industrial
Prime 5-5.5%
What RICS guidance do you refer to when valuing development property?
RICS Global Standards (2021) ‘‘Red Book’’
RICS: Comparable Evidence in Real Estate Valuations (2019)
RICS: Valuation of Development Property (2019)
RICS Global Standards (UK National Supplement) (2023)
What do PS1 & PS2 cover in RICS Global Standards (2021)?
PS1 - When a valuation has to be Red Book Compliant
PS2 - Ethics, competency, objectivity and disclosers
Both are mandatory for all valuations
When can a valuation not be red book compliant?
All Valuations must be red book compliant unless:
- For Agency / Brokerage work (unless purchase report is required)
- For internal purposes - must be w/o liability and not shared with 3rd parties.
- When prepared as evidence as an Expert Witness
- For statutory undertakings (but not statutory returns)
- Negotiation / Litigation
Tell me your understanding of Professional Standard 2?
- Covers professional and ethical standards (must be in accordance with RoC)
- Covers independence, objectivity, conflicts of interest
- Must be objective / independent
- Advice on dealing with COI - Terms of Engagement
- Members must comply with minimum terms of engagement.
What are the 5 VPS’s?
VPS1: Terms of Engagement
VPS2: Inspections / Investigations / Records
VPS3: Valuation Reports
VPS4: Bases of Value
VPS5: Valuation Approaches and Methodology
What are the minimum terms of engagement as set out in VPS 1?
- Identification and Status of valuer
- Identification of client & intended users
- The asset to be valued
- Currency
- Purpose of valuation
- Basis of value
- Valuation date
- Extent of investigation
- Nature and source of information to be relied upon.
- Assumptions / Special assumptions.
- Format of the report.
- Restrictions for use / distribution.
- Confirmation of Red Book compliance
- Fee basis
- CHP to be made available
- Statement that valuation may be subject to RICS compliance
- Limitation on liability agreed.
What does VPS 2 cover?
Inspections / Records / Investigations
Inspections
- Must try to verify information being relied upon.
Desktop valuations
1. Agree nature of restriction in ToE
2. Confirm valuation implications of restriction in writing
3. Consider whether restriction is reasonable
4. Refer to restriction in report.
What are the minimum requirements to be stated with a red book valuation report?
- Identification & Status of the valuer
- Client and other intended users
- Purpose of valuation
- Identification of asset
- Basis of value
- Valuation date
- Extent of investigation
- Nature / source of info
- Assumptions and special assumptions
- Restrictions on use / distribution / publication
- Instruction undertaken in accordance with IVS
- Valuation approach / reasoning
- Valuation figure
- Date
- Comment on market uncertainty
- Statement setting out limitations on liability
