Valuation Flashcards
What types of valuations are excluded from Red Book valuations?
Market appraisal, expert witness report, internal reporting
What are the bases of value?
A basis of value is a statement of the fundamental measurement assumptions of a valuation also known as the ‘standard of value’.
Define Market Value.
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
Define Market Rent.
The estimated amount for which an interest in real property should
be leased on the valuation date between a willing lessor and willing
lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion
Why do we need Red Book?
- Consistency
- Objectivity
- Transparency
- Build public confidence and trust in RICS members’ valuations
- Ensure valuers are working to the latest international standards
- Provide an essential quality control check
Where do you source your comparable evidence?
Our firm’s internal comparable data base and other agents
How do you use comparable evidence?
No comparable evidence is a perfect match. The valuer will, therefore, need to analyse and interpret the available evidence and use it as guidance rather than as direct evidence of value.
What are the methods of valuation?
Comparable, Investment, Profit, Residual, Contractor’s Method (DCF)
What are the recent amendments to the Red Book?
Independently-led valuation regulatory quality assurance panel
When did the current RICS Red Book come in to effect?
31st January 2022
How do you value the tenants fixture improvements?
Value to an incoming tenant
What are PS, VPS and VPGs?
PS = Professional Standards
VPS = Valuation Professional Standards
VPG = Valuation Practice Guidance
What factors do you consider when carrying out a residential valuation?
Location, access, transport links, development, nearest amenities, size of property, condition
Explain marriage value? (Could be asked as synergistic value)
A premium which may be attached when combining two assets eg. a house with the surrounding land.
Explain the valuation process?
Instruction, TOB and TOE, Inspection, Report writing and valuation, verification, issuing the report to the client
What is a yield?
Annual return on investment expressed as a percentage of capital value.
You mention you carried out a investment method valuation why was this method chosen?
The investment method was used as there was an income being received from the asset in the form of rent. The investment method seeks to understand todays value of a future revenue stream.
The investment method does this by adding up the total revenue and then applying a discount (ARY) to bring it back to todays value.
The term and reversion method is one of the investment methods that can be used to calculate this.
What is yield?
Annual return on investment expressed as a percentage of capital value.
Who pays for a bank valuation for secured lending?
Bank sent the instruction and paid they would then issue the client and fee for the valuation
What is the value of bare agricultural land in your area?
£5,000-6,000/ acre for agricultural ground £4,000 for rough grazing
You did a comparable method valuation of bare land for secured lending, can you tell me what the RICS hierarchy of comparables is?
RICS have categorised comparables into three categories, forming a hierarchy of evidence:
Category A – direct transactional evidence
Category B – general market data providing guidance rather than a direct indication of value, such as evidence from published sources, commercial databases, indices, historic evidence and demand/supply data
Category C – other sources, such as transactional evidence from other property types and locations and other relevant background data
You said you followed the correct Red Book procedure with reference to secured lending, what section of the red book is this and how does a secured lending valuation differ from say an IHT valuation?
VPGA 2.
When carrying out a secured lending valuation you are producing a value but you are also looking at the suitability of the property for lending purposes and if the property holds any sort of risk to the lender. There is an element of choice with the valuation date.
Whereas IHT valuations you are valuing the property in terms of the market value in order to calculate the amount of inheritance tax (if any) will need to be payable on the asset. Valuation date is dictated by the date of death.
Can you talk me through the process of your term and reversion valuation?
Investment method was used due to the specific farm receiving income through rent.
The term and reversion method was used as there was a set term from rent review and a point of reversion with the tenancy coming to an end in Martinmas 2026.
Term is your value of the capitalisation of the asset.
Reversion is the defferment of the value asset.
The method was used so that I could distinctly and clearly show to the client that I took into account income from the tenancy and not a case of taking the VP value and then making an adjustment. The adjustment was justified.
How do you select yield?
Using internal yield based evidence within our firm from similar valuations
What age was the tenant for your term and reversion valuation?
The tenant was young however because the tenancy had an end date which was in 3 years time the age of the tenant is not necessarily important when looking at valuing the tenancy unlike a secure 91 Act that allows for assignation
