Valuation Flashcards
5 methods of valuation
- Comparative
- Investment method
- Profits method
- Residual method
- Depreciated replacement cost
Market value definition
The estimated amount for which an asset should exchange
- at an arms length transaction
- between a willing buyer and seller
- after proper marketing
Market rent
The estimated amount for which a property should be leased:
-between a willing lessor and willing lessee
- in an arms length transaction
- after proper marketing
Fair value
The price that would be received to sell a property in an orderly transaction between market participants at the measurement date
Investment value
The value of an asset to particular owner
All risks yield
Rate of interest used in the valuation of a fully let property at market rent reflecting the prospects and risks attached
True yield
Assumes rent is paid in advance not in arrears
Nominal yield
Initial yield assuming rent is paid in arrears
Initial yield
Simple income yield for current income and current price
When does a valuation have to be Red Book Global compliant
All valuations except:
- Advice is expressly provided in preparation for negotiations or litigation
- The valued is performing a statutory function
- The valuation is provided for a client purely for internal purposes
- The valuation is provided as part of agency and brokerage work in anticipation of instruction
- The valuation advice is provided in anticipation of giving evidence as an expert witness
What should be included in a Terms of Engagement
- Identification of the values
- Identification of the client
- Identification of intended users
- The asset to be valued
- Currency
- Purpose of valuation
- Basis of value
- Valuation date
- Extent of investigation
- Nature and source of information relied upon
- Format of the report
- Restrictions for use
- Confirmation of red book compliance
- Fee basis
- Complaints handling procedure
- Statement that the valuation may be subject to compliance
- Limitation on liability
Four stages to undertaking a valuation
Preliminary questions
Terms of engagement
Valuation preparation
Reporting
Preliminary questions to ask before a valuation
- Purpose of valuation
- Is this for a written valuation
- Is the valuer suitably qualified/experienced
- Conflicts of interest
- Any specific national or other overriding requirements eg taxation legislation
- Any 3rd parties have an interest in the valuation
- Does the valuation have to comply with the Red book
- Does the firm have sufficient PI insurance to undertake the work
What law relates to valuing a property for probate?
S.160 inheritance tax act 1984
What date do you value the property for probate ?
The date of death
