Valuation Flashcards
Looking at your retail unit in Romford, can you please outline your responsibilities in this instruction?
I was responsible for undertaking a conflict of interest, ensuring I was competent to undertake the instruction and ensuring I received singed terms of engagement. I then inspected and measured the unit on a NIA basis and took measurements to calculate the ITZA. I then drafted the valuation report.
(Retail Romford) I note that you measured the property on an NIA basis can you give me two things that you excluded from your measurements?
Columns and stairs
(Retail Romford) I note that you zoned, why did you zone?
Zoning allows us to compare long narrow stores to short wide stores. We do not always zone, it depends on comparable evidence and how this has been valued.
(Retail Romford) How did you zone? What measurements did you adopt? How did you weight each zone?
I measured back 6.1m per zone and a width in each zone and any remainder I calculated at the end. I halved backwards so Zone A A/1 and then Zone A/2 etc.
(Retail Romford) You mentioned you collected comparable evidence, how did you use the hierarchy in your analysis?
It sets out the relative weight attached to comparable evidence:
Category A - direct comparables
1) Open market lettings
2) Lease renewals
3) Rent review
3) Independent Expert
4) Arbitrator determination
5) Court determination under L&T Act 1954
5) Sale and leasebacks
Category B - general market data that can provide guidance
Category C - other sources e.g., transactional evidence from other real estate types and locations
Why is an open market letting preferred?
Open market letting is an arms length transaction, no relationship between the landlord and tenant.
(Retail Romford) You adopted the investment method, why did you adopt this?
It was an income producing asset.
I note your office in Marylebone was for loan security purposes. What are the differences between a report for account purposes and loan security?
Account purposes you report Fair Value.
Loan Security you report Market Value.
Loan security typically has special assumptions.
Why do we value on the special assumption of vacant possession?
Downside position of the asset, worst case scenario, what is the asset worth when there is no income in there.
In this example (Office Marylebone), can you tell me the advice that you gave your client?
I advised my client that the property was suitable for loan security purposes. I also undertook a SWOT analysis and advised my client of the strengths, weaknesses, opportunities and threats of the property such as there was only 3.75 years until the break date and the opportunity that the ERVs could increase at the break date should the tenant vacate depending on the market at this time.
(Office Marylebone) In terms of your advice that you gave on it being suitable for loan security, you noticed there was some limitations in the report in regards to its suitability. What were you referring to there?
It is suitable for lending purposes but there are some limitations such as the client currently has a tenant with uncertain covenant strength which could deteriorate. Additionally, there was only 3.75 years until the break providing a short term certain.
Overall, it is a good asset with good re-letting demand.
(Retail Kingston) You established the tenant covenant strength, can you tell me how you did this?
I used CreditSafe to identify the covenant strength by looking at their rating and pre-tax profit, net worth and turnover information and forming an opinion from this. Although, I am not a chartered accountant and this is just opinion based.
If we did not have the accounts on CreditSafe, how else would you assess the tenants covenant strength?
I would use the Profits Test where the tenant would provide 3 years of audited accounts and the net profit should be 3 times the annual rent.
(Office Marylebone) You said the office is Grade A, how did you establish it was Grade A?
It has raised flooring, double glazed windows, lift access and it had been recently refurbished.
What factors would you expect to influence market rental levels of an office?
The specification of the office, the location, transport links and size.
Cat A+, WELL rating and if it is fitted.
How would the factors that influence the rental value of an office differ from the value of a retail unit?
I would be looking at the pitch of the property whether it was prime or secondary, the frontage to depth ratio and the location in terms of other occupiers near by and whether they are national multiples or independent occupiers.
What is the RICS valuation global standards?
RICS Valuation Global Standards (November 2021)
The publication details mandatory practices for RICS members undertaking valuation services.
What are the changes from the previous red book version? When will these changes become effective?
1) Implementation of Valuation review recommendations
2) Alignment with development in other relevant global standards and regulations such as the new International Valuation Standards (IVS) published in 2024, IFRS and Basel 3.1
3) Adaption to evolving practices and processes for issues including ESG and technological advancements
31st January 2025
What are the five methods of valuation and when would you use each method
1) Comparative Method - Vacant property and when you want to compare properties on a like for like basis. When a purchaser is going to occupy the premises and it will not be income producing
2) Investment Method - when there is an income stream to value
3) Profits Method - used for valuations of trade related property, where there is a ‘monopoly’ position
4) Residual Method - used for property of land with development potential. The output is market value of the land and it requires valuers to make a variety of assumptions around input costs.
5) Contractor’s Method - used for owner-occupier or specialised property that is rarely sold on the open market. Known as the method of last resort and should not be used where there are market sales of comparable properties.
What are the advantages and disadvantages of Argus Enterprise?
Ad - time saving and efficient
Dis - lots of ways to do the same thing and things can quite often get hidden in the valuation
What are the principles of the RICS Professional Standard on Comparable Evidence in Real Estate Valuation (October 2019)
Comparable evidence is widely used in real estate valuation, even though comparables may not always meet the criteria. There are several reasons for this:
1) A limited number of available comparable transactions
2) Lack of up to date evidence
3) Special purchasers
4) A lack of similar or identical evidence
5) Real estate markets are not fully transparent
What are the purposes of the RICS Professional Standard on Comparable Evidence in Real Estate Valuation (October 2019)
Four main purposes
1) Outline principles of the use of comparable evidence
2) Encourage consistency in the use of comparable evidence globally
3) Address issues of availability and use of comparable evidence, especially in challenging market conditions
4) Consider potential sources of comparable evidence and their relative importance
What was the retail market like in Romford?
Prime pitch is where the subject property is situated with Zone A rates at c.£60 ZA. Anchored by two shopping centres making it an attractive retail area with national multiples.
Investor - Good yields between c.6% - 7%.
How do you carry out a conflict of interest check?
I use my company’s in-house database called Salesforce where I upload the property details including the post code and radius.
What is included in TOE?
1) Clients name and details
2) Property address
3) Basis of value
4) Scope of instruction
5) Currency
6) Professional Indemnity Insurance
7) Complaints Handling Procedure
8) Fee basis
What liability cap did you set you in your terms of engagement?
Typically 50% of Market Value but case-by-case basis
(Retail Romford) What did you note from the inspection?
The property was ground and first floor only, terraced building of brick construction on a pedestrianised street, close to public transport and in good condition.
