Valuation Flashcards
What is the full name of the Red Book?
RICS Valuation Global Standards November 2021, effective from January 2022
Is there anything additional to add in terms of the Red Book?
Red Book UK National Supplement, October 2023 effective May 2024. Outlines an additional 17 VPGAs.
Is there any guidance in relation to comparable evidence?
RICS Professional Standard
Comparable Evidence in Real Estate Valuation 1st Edition October 2019.
Is there any guidance in relation to the DRC/contractors method?
Depreciated replacement cost method of valuation for financial reporting 1st Edition November 2018, effective Jan 2019
Is there any guidance in relation to residual valuations?
Valuation of development property 1st edition October 2019
Is there any guidance in relation to stocktake valuations?
Professional Standard
Farm Stocktaking Valuations 2nd Edition December 2016
What are the parts of the Red Book?
- Introduction
- Glossary
- Professional Standards
- Valuation Technical and Performance Standards
- Valuation Applications
- International Valuation Standards
Can you name three of the VPGAs?
VPGA 1 - Valuation for inclusion in financial statements
VPGA 2 - Valuation of interests for secured lending
VPGA 8 - Valuation of real property interests
What are the five methods of valuation?
Comparable
Profits
Residual
Contractors/DRC
Investment
What are the three valuation approaches?
Market
Cost
Income
When would you use the comparable method?
When there is strong transactional evidence in the local area, i.e. houses and shops
When would you use the profits method?
If little or no comparable evidence in the area but there is the ability to value based on trading potential, i.e. pubs and hotels
When would you use the residual method?
For development land, calculated by deducting costs from the gross development value
When would you use the contractors/DRC method?
For properties of a very specialist nature, where there is little/no comparable evidence and no trading potential, also known as a last resort valuation. Such as hospital or school, calculated by applying depreciation to the build cost.
When would you use the investment method?
Where there is the potential to generate income. i.e. for a tenanted property where obtaining vacant possession would be lengthy and costly.
What does VPS stand for?
Valuation Technical and Performance Standards. There are 5.
What is a red book valuation?
A formal opinion of value
What does VPGA stand for?
Valuation practice guidance applications. There are 10
What is included in a letter of engagement?
Standard:
scope/nature of work
framework
data protection
fees
what services are included
What additional elements are required in a letter of engagement if it is for a red book valuation?
Identification and status of valuer
valuation currency
purpose of valuation
basis/bases of value
valuation date
assumptions/special assumptions
confirmation that the valuation will be undertaken in accordance with the IVS
What is a special assumption and how does it differ from an assumption?
Special assumption is an assumption which assumes facts which are not true. I.E planning permission, VP
Whereas an assumption is assuming a matter which is reasonable for the valuer to accept as true without further investigation.
What are the bases of value?
Market Value
Market Rent
Fair Value
Investment Value
How do you become a registered valuer if you HAVE done L3 Valuation?
Need to be sponsored by your firm. Some firms do this immediately upon qualification, however my firm waits 12 months prior to sponsoring.
How do you become a registered valuer if you have NOT done L3 Valuation?
Valuer registration assessment
-application form
-valuation based record of experience
-case study
-CPD record
- must be signed off by a registered valuer
When does a valuation NOT have to be Red Book compliant?
- agency or brokerage advice
- expert witness
- performing statutory functions
- purely internal purposes
- negotiations/litigations
What do you have to consider when doing a valuation prior to accepting an instruction?
PS 2 - Am I capable, is this within my professional scope, any COIs and do I have the capacity to deliver?
What info would you need to obtain in an initial meeting with the client?
Valuation date, timescales, property, purpose, owner of the property
Lempton Bungalow (L2)
Was this a red book valuation? If not, how was this made clear?
No, for internal discussion purposes only.
Outlined in the letter of engagement that it was diverted from the red book
What is the definition of market value?
the price which a property might reasonably fetch at that time between a willing buyer and a willing seller
Lempton Bungalow (L2)
What did your marketing appraisal include?
Introduction
Property Overview
Overview of the residential market
Value
What is the hierarchy of comparable?
A - Direct comparables
B - General market data
C - Other sources
What is marriage value?
The value which arises from the combination of 2 or more assets to create a new asset which has a higher value than the sum of the assets as separate entities. Also known as synergistic value.
What VPGA applies to secured lending valuations?
VPGA 2 - Valuation of interests for secured lending
Does a stocktake valuation have to be red book?
Yes, according to RICS prof standard, Farm Stocktaking Valuations effective 2016.
What is deemed cost?
Ascertaining the cost of production for home-bred stock, which can otherwise be difficult.
What are the percentages for deemed cost?
Cattle - 60%
All others (inc. sheep, pigs, grain) - 75%
How do you value livestock bought in for fattening?
Cost plus feed and direct expenses
What basis of value is used for stocktake valuations?
Fair value less costs to sell
What do you understand by net realisable value?
Sale proceeds of stock in the condition in which it is intended to be marketed, less the costs of getting it to that condition.
Do you include VAT in stocktake?
Yes, if the client is VAT registered
Why do you include depreciation in a stocktake valuation?
to reflect the use and age of the machinery, to show that its value is not as it was when brand new
Brecks Farm (L3)
How would valuation date have differed if it were for IHT purposes?
Date of death
Slittingmill Farm (L3)
How did you undertake this valuation?
Received instruction
Undertook COI, AML, issued LOE and TOB
Inspected
Undertook comparable valuation to ascertain VP value
Valued the term
Valued the reversion
Added together to ascertain investment value
Slittingmill Farm (L3)
What yield did you use?
1.5% for the term (low return, low risk)
6% for reversion (higher return, higher risk as procedures must be followed to prevent further security of tenure)
Slittingmill Farm (L3)
What was VP value versus T&R value?
VP - £600,000
T&R - £460,000
Difference = £140,000
Slittingmill Farm (L3)
What was the surrender offer?
£70,000
Slittingmill Farm (L3)
What return would you expect to achieve on a AHA farm as a purchaser?
1-1.5%
Slittingmill Farm (L3)
Why did you not account for any rent reviews in your term and reversion calculation?
Given the rent review history of the holding and the low productive capacity, any future rent reviews were not predicted so be substantial enough to affect the valuation outcome significantly.
What is a special purchaser?
A particular buyer for whom an asset has a special value because of advantages rising from its ownership that would not be available to other buyers in the market.
Slittingmill Farm (L3)
How would the value differ if sold to the sitting tenant or on the open market?
Sitting tenant - market value with VP less the equivalent of their surrender offer
Open market STT - value of term + reversion
Open market VP - OMV with VP, however need to pay surrender offer
Millington Grange Estate (L3)
How do values differ for arable and pasture land?
Pasture around 20% lower in my area of practice
Does amenity land achieve a premium
Generally yes, garden land etc. would achieve a higher £/ac
What is the value of arable and pasture land in your area of practice?
Around £9,250/ac for arable
Around £7k/ac for pasture
Misson Springs Residual Valuation (L2)
What was your involvement in this valuation?
I assisted with the inspection and undertook the valuation calculations.
Misson Springs Residual Valuation (L2)
How did you undertake the calculations?
GDV less
cost of conversion
contingency
professional fees
finance
landscaping/parking areas
agency/legal fees
developers profit
Misson Springs Residual Valuation (L2)
What was the residual site value?
£60,000
Misson Springs Residual Valuation (L2)
What was the purpose of this valuation?
Private landowner for internal estate planning purposes. Non-red book
What are the percentages for a residual valuation?
Contingency 7% (from conversion cost)
Prof fees 5% (from conversion cost)
Finance 8% (from conversion cost)
agency/legal 1.5% (from GDV)
developers profit 20% (from GDV)
What are the downfalls of a residual valuation?
Lots of assumptions (build cost, all assumed %s)
special assumption of planning permission.
Misson Springs Residual Valuation (L2)
Where did you get build cost from and what was it?
BCIS (building Cost Information Service)
£160/sq.ft.
£132,000 total
Backed up with comparable evidence
How is a residual valuation calcualted?
GDV - input costs - profit = residual site value
Why is the Red Book global?
To ensure consistency and continuity worldwide.
