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RICS APC 2024 (Rural Pathway) > Valuation > Flashcards

Valuation Flashcards

1
Q

What were the key changes to the UK National Supplement in 2023 and when did they take effect?

A

They took effect on 1st May 2024 and apply to all valuations where the valuation date is on or after this date.

The main changes were;
-UK VPGA 15 Valuations for capital gains tax, inheritance tax, stamp duty land tax and the annual tax on enveloped dwellings and residential property developer tax.
-Residential valuation guidance refined
-New financial and governance reporting standards introduced
-Valuation for public-sector accounting guidance amended

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2
Q

What is the UK National Supplement?

A

It is supplementary to, but does not replace, the RICS Valuation - Global Standards (Red Book)

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3
Q

What is the purpose of having valuation standards?

A

To promote and maintain a high level of public trust in valuation practice by establishing appropriate requirements for valuers

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4
Q

What are the requirements of being a RICS Registered Valuer?

A

You must register on the VRS, pay the annual fee of (£120), have taken valuation to Level 3 in your APC, and complete an annual return describing the types of properties and value of the properties valued in that year.

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5
Q

Can you give me 1 driver that impacts value and why?

A

Location can have a significant impact on value. For example, in my area of practice, properties within the grammar school catchment area have a significantly higher value than if they were located outside the catchment.

Other reasons for location impacting value could be crime rates, proximity to train stations and other transport routes, etc.

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6
Q

Definition of Market Value

A

Market Value – the amount for which an asset or liability should exchange on the valuation date between a willing buyer and seller in an arm’s length transaction

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7
Q

Definition of Market Rent

A

Market Rent – the amount for which an interest in real property should be leased on the valuation date between willing lessor and lessee in an arm’s length transaction for an appropriate lease

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8
Q

What is Marriage Value?

A

Marriage Value – an additional element of value where the combined value of multiple assets is more than the sum of the separate values

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9
Q

What is a Special Purchaser?

A

Special Purchaser – a particular buyer form whom the asset has special value due to advantages of ownership others do not have

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10
Q

What is an assumption?

A

An assumption is a supposition taken to be true

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11
Q

What is your firms Conflict of Interest Procedure?

A

Firstly, when I receive a new instruction I would add it to the email that goes around the firm, this is looked at by all colleagues to check any conflicts – I also check this list daily. I would also look on our online database of clients to ensure there was no conflict.

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12
Q

What is an Assumption vs a Special Assumption?

A

An assumption is something that has a basis in fact, a special assumption is something that you know not to be factual that you are required to assume anyway – such as assuming that planning permission that is in place has actually not been granted.

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13
Q

What are the Basis of Value?

A

Market Value

Market Rent

Investment Value

Fair Value

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14
Q

What is the VRS?

A

Valuation Registration Scheme, all valuers need to register on this scheme.

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15
Q

What is the typical “agricultural” value of a farmhouse assigned by HMRC for IHT purposes

A

70% market value, leaving a 30% taxable element.

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16
Q

Explain the contents of a valuation report

A
  • Identification and status of the valuer and client
  • Outline purpose and scope of the valuation
  • Identification and description of the asset/liability
  • Valuation date
  • Any assumptions and/or special assumptions
  • Due dilligence
  • Restrictions on use/distribution/publication of the report
  • Confirmation the valuation has been done in line with Red Book IVS
  • Valuation approach and methodology and reasoning
  • Values
  • Commentary on any uncertainty or limitations
  • Disclaimer for firm – right to re-evaluate in light of new info
  • MUST INCLUDE SIGNATURE of VALUER and Statement confirming they are competent and in a position to provide unbiased, objective valuation
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17
Q

Give some examples of desktop due diligence for a valuation

A
  • Obtain copy of the title documents
    -Restrictive covenants or Overage
  • Any information on tenure – copy of leases/agreements if applicable
  • Any rights granted to third parties – wayleave, easement etc.
  • Designations – flood risk, NVS, AONB, SSSI etc.
  • PROW
  • National and Local planning policy – is the area zoned/allocated
  • Any agri-environment schemes
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18
Q

When was the latest edition of the RICS Valuation - Global Standards (Red Book) published?

A

Published November 2021

Effective from 31st Jan 2022

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19
Q

What does VPS mean?

A

Valuation Practice Standards

20
Q

What does VPS 1 refer to?

A

ToE

-Must include: ID and status of valuer, client, property/asset, use of valuation, valuation date, bases of value, extent of work, assumptions and special assumptions, restrictions of use, fee, CPH, limitations on liability

21
Q

What does VPS 2 refer to?

A

Inspections, investigations, and records/

-Nature of inspection required defined in ToE, desktop studies, revaluation without re-inspection, property records must be held

  • Valuer must take reasonable steps to validate info
  • Measurements must be in line with IMPS and RICS Property Measurement professional statement
22
Q

What does VPS 3 refer to?

A

Valuation Reports

-Reports must be clear and address same things as ToE (ID, purpose of val, assets, date of valuation, bases of value, extent of investigation, assumptions, restrictions of use, approach, limitations of liability)

23
Q

What does VPS 4 refer to?

A

Basis of value, assumptions, and special assumptions

-Fundamental measurement assumptions (Market value, market rent, investment value, fair value)

  • Assumptions – where it is reasonable the for the valuer to accept that something is true without specification verification (title, structurally sound, planning, contamination etc)
  • Special assumptions – an assumptions whereby the facts differ from those existing at the valuation date (planning permission, vacant possession, synergistic value, special purchaser)
24
Q

What does VPS 5 refer to?

A

Valuation approaches and methods

-Valuation must be classed within a market approach, income approach or cost approach – valuer to choose appropriately

25
Q

What is VPGA?

A

Valuation Practice Guidance – Applications (Advisory)

26
Q

VPGA Summary

A
  • Best practice guidance with specific reference to valuations for certain applications, such as financial statements, secured lending and plant and equipment
  • There are 10 and make reference to IVS guidance
  • VGPA1 – Valuation for inclusion in financial Accounts
  • VPGA2 – Valuations for secured lending (heightened COI checks/disclosure, reporting must include suitability of the property for mortgage purposes, anything that could affect the price, any difference in MV when using special assumption)
27
Q

Tell me why you think objectivity and independence is important?

A

To adhere to the Red Book Global Standards, to maintain public trust in the profession.

Stakeholders rely on RICS valuations to be accurate, they must therefore be prepared with impartiality.

28
Q

Give an example of due diligence a valuer should undertake in preparing a report

A

-Flood Zone
-Planning History
-Status of the local plan and whether any policies may affect the subject property.
-Agricultural land classification

29
Q

Why does the outcome of due diligence impact value?

A

Value is derived from a large number of factors. It is important to investigate these as part of your due diligence to arrive at a fair market value.

30
Q

Are there any proposed changes to the Red Book?

A

Yes, a revised Red Book is scheduled for publication in late autumn 2024 following the recent consultation. It becomes effective on 31 January 2025, in line with IVS.

31
Q

What are IVS?

A

International Valuation Standards - last updated in January this year.

32
Q

Are there any types of valuation that do not have to meet Red Book standards?

A

Yes, there are 5:
- Providing agency or brokerage advice for an acquisition or disposal
-Acting as an expert witness
-Performing statutory functions
-Providing a valuation purely for internal purposes, without liability and without communication to a third party
-Providing valuation advice in the course of negotiations or litigation where the valuer is acting as an advocate

33
Q

Give me an example of an Asset type, and why a valuation of it would be needed?

A

Development land - a valuation may be needed for a client/company to either obtain finance, or to simply understand the costings of a development project.

34
Q

How would you value development land?

A

I would use a residual valuation.

35
Q

How many valuation methods are there?

A

5

36
Q

Talk me through one of the specific responses you need to give in a Charities Act Report, with regard to valuation?

A

The main purpose is to ensure that a charity disposes of land in a manner that maximizes its value and benefits the charity in accordance with legal requirements.

A commentary on this is therefore essential.

37
Q

With regard to the marketing period at West Hoathly Road, what was the rationale for advising a suitable period had passed?

A

The Charities Act 2011 mandates ‘adequate time to market the asset to ensure all potential buyers are reached’. A standard asset like this agricultural land would usually be on the market for a maximum of 3 months. This land was marketed for around 6 months and we therefore advised that this was a sufficient marketing period.

38
Q

Did the Charities Act 2022 replace the 2011 Charities Act?

A

No, it amended and updated it. The 2011 Act remains the dominant legislation.

The 2022 Act simplifies some processes such as the disposal of assets, and provides greater flexibility for charities.

39
Q

Can I revalue without reinspecting?

A

Revaluation without reinspection cannot be undertaken unless you are satisfied that there have been no material changes to the physical or locational nature of the property since the last valuation.

40
Q

Mandatory or advisory?

A
  • Professional Statements - PS 1-2 - these are mandatory for all members providing written valuations
  • Valuation Technical and Performance Standards - VPS 1-5 - these are mandatory unless otherwise stated
  • Valuation Practice Guidance Applications - VPGA 1-10 - these are advisory and provide guidance on best practice.
41
Q

Tell us about the term and reversion method

A

It is used for REVERSIONARY (under-rented) investments
Income flow is divided vertically.
Term (passing rent) is capitalised until next lease event (review/expiry) at an INITIAL yield
Reversion to Market Rent valued in perpetuity at a reversionary yield
There is a yield differential; term at a keener yield to reflect lower risk.

42
Q

Tell us about the hardcore and top slice method

A

It is used for OVER RENTED investments.
Income flow is divided horizontally. The hardcore (MR) is valued into perpetuity at a net initial yield.
The top slice (PR-MR) is capitalised to next lease event at a net initial yield with a risk adjustment.
There is a yield differential; top slice at an inflated yield to reflect higher risk of over-renting.
Different yield type can be used based on market comparable evidence.
NO PV of £1 needed as both layers of income are being received NOW.

43
Q

What is the All Risks Yield (ARY) and what does it reflect?

A

The remunerative rate of interest used in valuation of fully let property let at Market Rent reflecting all the prospects and risks attached to particular investment.
It is an implicit method of valuing, as risk and rental growth is wrapped up in the yield.

44
Q

When would you use the Profit method of valuation?

A

For valuations of specialist trading properties or entities, where there is a ‘monopoly’ position
Where the value of the property depends upon the businesses trading potential
i.e. pubs, petrol stations, hotels, care homes, cinemas, golf courses

45
Q

What is the simple methodology to undertake a Profit method valuation?

A

(Annual Turnover – Costs/Purchases) = Gross Profit
(Gross Profit – Reasonable Working Expenses) = Unadjusted Net Profit
(Unadjusted Net Profit – Tenant’s /share) = Fair Maintainable Operating Profit (FMOP)
CAPITALISE at an appropriate yield to achieve capital value
Cross check with comparable method if at all possible

46
Q

When is the Depreciated Replacement Cost used?

A

It is a method used where direct market evidence is limited or unavailable for specialised properties (i.e. sewage works, lighthouses, schools).

47
Q

How do you undertake a Contractor’s/DRC valuation?

A

Value of land in its existing use (assuming planning permission exists)
Establish the replacement cost of the building PLUS Fee MINUS discount for depreciation* (use BCIS and then judge level of obsolescence)
Add the two together
*Estimate amount of depreciation appropriate for physical, functional and economic obsolescence

RICS APC 2024 (Rural Pathway) (12 decks)

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