Valuation Flashcards
1
Q
What did Dunfermline Building Society V CBRE (2017) assume?
A
An acceptable margin of error of +/- 15%
The claim was dismissed as the MV was within the margin of error
2
Q
What additional information is included under VPGA 2 reporting procedures?
A
- Disclosure of any COI identified or arrangements agreed
- Valuation Methodology adopted
- Recent transactions of the subject and the extent to which that information has been relied upon
- Where the enquiry does not reveal any information, the valuer will make a statement to that effect in the report
- Comment on any environmental consideration
- Comment on suitability of the property for mortgage purposes
- Any circumstances of which the valuer is aware that could affect the price
- Any other factor that potentially conflicts with the definition of MV or its underlying assumptions
- Any other relevant normal valuation enquiries are undertaken
- Where a special assumption has been used then a comment must be made in the report on any material difference between the report value with and without the special assumption
- Acknowledges that sustainability factors are becoming a more significant influence and valuations for secured lending should have appropriate regard to their relevance to the instruction
3
Q
What are the current tax rates for SDLT for non-residential or mixed-use property?
A
£0-£150k (NIL)
£150,001 - £250K (2%)
Over £250,001 (5%)
4
Q
What is VPGA 8?
A
Valuation of real property interests
5
Q
What are the five exceptions for using the Red Book Global?
A
- Advice is expressly provided in preparation for, or during course of negotiations or litigation
- The valuer is performing a statutory function except for the provision of a valuation for inclusion in a statutory return to a tax authority
- Th valuation is provided for a client purely for internal purposes, without liability, and not communicated to any third party
- The valuation is provided as part of agency and brokerage work in anticipation of receiving instructions to dispose of, or acquire, an asset, except when a purchase report is required which includes a valuation
- The valuation advice is provided in anticipation of giving evidence as an expert witness
- A replacement cost figure which is provided for insurance purposes, whether separately or within a valuation report is not a ‘written opinion of value’
6
Q
What is an incremental tax?
A
Different rates are charged depending on the portion of the purchase price that falls into each rate band
7
Q
What is the Margin of error?
A
The permissible range allowed by courts for example in respect of a valuation
8
Q
How does SDLT apply to second homes and buy to let properties?
A
The Autumn Statement 2015 introduced from 1 April 2016 outlines that a higher SDLT of 3% will be charged of purchases of additional residential properties
9
Q
What is the land tax for Wales?
A
Land Transaction Tax (LTT)
10
Q
What is Marriage Value?
A
Created by a merger of interest - can be physical or tenurial
11
Q
When can a Revaulation (Without re-inspection) occur? VPS 2
A
A revaluation without re-inspection of the property previously valued must not be undertaken unless the valuer is satisfied that there had been no material changes to the property or nature of its location since the last inspection
This must be confirmed in the TOE and in the valuation report
12
Q
When would a Premium arise?
A
- Key money paid by an in-going tenant of a retail property to secure a prime shop
- A sum of money to represent fixtures and fittings within a building, paid by an in-going tenant
- A sum of money paid by an in-going tenant for a leasehold interest, to represent the positive difference between the passing rent and the market rent of the property. This can also be known as profit rent which can be capitalised until the next lease event to calculate the premium. - If this is a negative difference a reverse premium may be paid by the outgoing tenant to the new tenant
- The sum of money paid by a landlord to a tenant for the surrender of a leasehold interest and the grant of a new lease
13
Q
Latest Red Book date?
A
RICS Valuation - Global Standards 2021 (“Red Book Global”)
Effective from 31st January 2022
14
Q
What are the current tax rates for SDLT for residential property?
A
£0 - £125k (NIL)
£125,001 - £250K (2%)
£250,001 - £925K (5%)
£925,001 - £1.5M (10%)
Over £1.5m (12%)
15
Q
What is PS2?
A
Ethics, Competency, Objectivity and Disclosures
16
Q
What is a VPGA?
A
Valuation Practice Guidance Applications
17
Q
What is the right to light?
A
The right to light of a building arises after 20 years uninterrupted enjoyment of light without the consent of a third party by way of an easement with a prescriptive right.
If a light to right is infringed an injunction may be granted or damages awarded
18
Q
What is the land tax for Scotland?
A
Land and Building Transaction Tax (LBTT)
19
Q
What is VPS4 4?
A
Bases of Value, Assumptions and Special Assumptions
The valuer must determine the basis of value that is appropriate for every valuation to be reported
20
Q
What does the RICS Global Guidance Note “Sustainability and ESG in commercial property valuation and strategic advice” outline?
A
Provides a useful glossary of relevant terms and factors which valuers should incorporate into their valuation approaches including:
Terms of Engagement
Valuation purpose
Inspection
Reporting
Relevant sustainability characteristics, considerations and risks which should be considered when analysing comparable and other market information
How these should be considered in the choice of valuation methodology
21
Q
What is the definition of Market Rent?
A
The estimated amount which an interest in real property should be leased:
On the valuation date
Between a willing lessor and a willing lessee
In an arms length transaction
After proper marketing
Where the parties had acted knowledgeably, prudently and without compulsion
22
Q
Are the VPGA’s mandatory?
A
They are not mandatory under the Red Book and they are considered Best Practice
Additionally, they cross over with the IVS which are mandatory
23
Q
Analysis of rent free periods / headline rents
A
This is how you devalue a headline rent with a rent-free period to produce a net effective rent
Straight line basis either until end of lease or until the next review/lease event
Understand the difference between a headline rent and net effective rent which is the real market rent
Normally a 3-month rent fitting out period is deducted from the rent-free period before devaluation
24
Q
Does a client have to agree to a Special Assumption?
A
Yes - this must be agreed in writing prior to the commencement of the instruction
25
What factors should be considered by the valuer when they are instructed to undertake a valuation of restricted information or without physical inspection?
1. The nature of the restriction must be agreed in writing in the TOE
2. The possible valuation implications of the restriction confirmed in writing before the value is reported
3. The valuer should consider whether the restriction is reasonable with regard to the purpose of the valuation
4. The restriction must be referred to in the report
26
What are the six definitions of value under VPS 4?
1. Market Value
2. Market Rent
3. Fair Value (IFRS13)
4. Investment Value
5. Equitable Value (IVS 104)
6. Liquidation Value
27
Part 6 International Valuation Standards 2017
Mandatory
General Standards address matters such as terms of engagement, approaches to and bases and methods of valuation as well as reporting
Asset Standards which provide requirements relating to specific types of asst, such as real property and development property
28
How does the RICS monitor the VRS?
The RICS monitor the VRS through the submission of the firms annual returns
Additional monitoring ranges with Risk Based Reviews from desktop investigations to site based Regulatory Review Visits (RRVs) dependent on the risks identified
The Head of Regulation has the power to remove a valuer from the Scheme
29
What is the definition of Market Value?
The estimated amount which an asset or liability should exchange:
On the valuation date
Between a willing buyer and a willing seller
In an arms length transaction
After proper marketing
Where the parties had acted knowledgeably, prudently and without compulsion
30
What is PS1?
Compliance with standards and practice statements where a written valuation is provided
31
What do the UK VPGAs include?
1. Valuation for financial reporting
7. Valuation of registered social housing providers' assets for financial statements
8. Valuation of charity assets
10. Valuation for commercial secured lending purposes
11. Valuation for residential mortgage purposes
14. Valuation of registered social housing for loan security purposes
15. Valuation for CGT, Inheritance Tax, SDLT and ATED
32
Please can you give me an example of when hope value would arise?
1. Future prospect of securing planning permission for the development of land where no planning permissions currently exist
2. The realization of marriage value arising from the merger of two interests in land
33
What does VPS 2 say on records?
Proper records must be held of the inspections and investigation and of other key inputs in an appropriate business format
Note the importance given to ESG and Sustainability
34
What is Liquidation Value?
This basis of value can be used for a group of assets sold in a piecemeal basis considering the costs of getting the assets into a saleable condition
Not used in the UK
35
What is the RICS guidance on rights of light?
RICS Guidance Note on Rights of Light 2016
36
What is a surrender and renewal and how would you undertake the valuation?
1. When the LL/T wants a surrender of the existing lease and agrees to grant a new lease usually longer on different lease terms simultaneously
2. Calculation of the premium to reflect the change in value of the leasehold interest
3. Need to value the before and after leasehold interest
Understand the valuation of premiums
37
What does VPGA 1 outline?
Fair value will be adopted for all IFRS adopted accounts
Prescribed performance standards must be adhered to
38
What is a Premium?
A premium is a capital payment made by one party to another
39
What have RICS referenced in relation to ESG?
RICS Global Guidance Note "Sustainability and ESG in commercial property valuation and strategic advice" December 2021 (effective 31 Jan 2022)
40
What is the UK National Supplement?
1. Effective from 14th January 2019
2. Sets out clarification that the national supplement augments the Red Book Global requirements for valuations in the UK and is not substitute for it
3. Provides specific requirements for members on the application of the Global Standards to valuations undertaken subject to UK jurisdiction
4. It contains 18 Valuation Practice Guidance Applications (UK VPGAs) - regrouping many to become more user friendly
5. Most of the advice is not mandatory but is for advisory guidance
41
What is a Special Buyer?
1. A particular buyer for whom a particular asset has a special value because of advantages arising from its ownership which would not be available to other buyers in a market.
2. Special value is an amount that reflects particular attributes of an assets that are only of value to a special purchaser
3. This could arise from physical, functional or economic association of the property with some other property such as an adjoining property
Example - A tenant purchasing their freehold interest
42
What is UK VPS 3?
Regulated Purpose Valuations (RICS Valuation Monitoring)
43
Who undertook the valuation review?
Peter Pereira Gray
44
What does PS2 outline?
1. Professional and Ethical Standards
Members undertaking valuations must act in accordance with the RICS Rules of Conduct
2. Independence, objectivity and the identification and management of conflicts of interest:
The valuer/firm must act objectively and independently and not be influenced by situatio s which could threaten professional objectivity
Professional Scepticism when reviewing information and data before relying on it
Detailed advice on dealing with COI
3. Terms of Engagement
Members must understand the clients requirements and comply with the minimum terms of engagement. Members must be able to demonstrate professional competence
45
What was the RICS response to the review?
The findings have been accepted in full and will be implemented in due course
46
How would return frontages be treated with zoning
Add usually 10% uplift (dependent on comps and footfall)
47
What were the key changes to the UK National Supplement, 2018?
1. More user-friendly with clear advice on what is and what is not mandatory
2. Clarity that the UK national supplement augments the Red Book Global for valuations in the UK
3. New UK VPGAs have been included for the valuation of central government assets, local authority assets and registered social housing providers assets
4. For financial reporting valuations, there is greater differentiation between UK GAAP and IFRS requirements
5. New section on valuation for commercial lending
48
What were the changes to the Red Book from the previous edition?
1. Sustainability and ESG factors
2. The use of the Profits Methods
3. Definitions and scope of valuations contained within the International Valuation Standards (IVS)
49
What are the usual purchasers costs?
SDLT - at rates
Agents fee - say 1% of the purchase price plus VAT
Solicitors fees - say 0.5% of the purchase price plus vat
50
Purchasers Cost
It is usual valuation practice to deduct the likely costs of purchase from the Gross Market Value to provide a net Market Value of a property as a purchaser will have to pay these costs
51
Under UK VPS 3 what rules are there for properties introduced or purchased by the valuer's firm?
When a property is purchased or an introductory purchase fee accepted by the firm, it cannot be valued for a regulated purpose valuation for 12 months by the same firm
52
What is needed to register for VRS?
Type of valuations
Purpose of valuations
Number of valuations
Firms total fee income from Red Book Global valuations in the last year
What data sources are used
Quality assurance audit procedures in place
History of any negligence claims and notifications
53
What does VPGA 2 outline on reporting procedures?
As well as the minimum requirements of a valuation report:
Additional information must be reported to give the lender more information regarding the instruction
The valuer should be able to advise whether to agree to the loan or in the case the borrower defaults
54
What is Mirror Zoning?
Used for shops with two main frontages
55
What is Investment Value?
The value of an asset to a particular owner or prospective owner for individual investment or operational objectives
- This may differ from Market Value
- This is sometimes used as a measure of worth to reflect the value against the clients own investment criteria
56
What should Clients be able to expect from an RICS valuation?
Openness and transparency
RICS protection and International valuation standards
Expertise and clear reporting
World class regulations
57
What is the leading case for Margin or error?
Singer & Friedlander Ltd V J. D. Wood (1977)
It held that the usual margin of error can be varied and it will be narrower for a relatively straightforward valuation case and wider for a more complex case
58
What is VPGA 10?
Matters that may give rise to material valuation uncertainty
59
Aims of VRS
1. Improve the quality of valuation and ensure the highest possible professional standards
2. To meet the RICS requirement to self-regulate effectively
3. To protect and raise the status of the valuation profession as the leading expertise in valuation
60
What is the RICS guidance on Leasehold Resi?
RICS Guidance Note: Valuation of Residential Leasehold Premises (2021)
61
What is Natural Zoning?
When the property zones reflect physical changes in the building such as steps
62
What is Equitable Value (IVS 104)
The estimate price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interest of those parties
- Not used in the UK
63
What is VPS1?
Valuation Technical and Performance Standards (VPS)
Mandatory
VPS - TOE
(IVS 101 Scope of Work)
64
In particular what were the changes to Sustainability?
Inspections and Reporting (VPS 2 & VPS 3)
- Valuers should have regards to the relevance and significance of ESG and Sustainability Factors when considering the valuation approach and reasoning
Valuation for Secured Lending Purposes (VPGA 2)
- ESG and sustainability factors should form part of the valuation approach
- Commentary may also be required on the maintainability of income and future cost liabilities to meet changing regulations and investor expectations
65
What is Masking?
A technique used for the valuation of hidden/obscured areas
66
What else can SDLT be payable on?
New leases and premiums payable calculated on the Net Present Value (NPV) of the lease, discounted at the RPI at the following rates as a incremental tax:
NPV of up to £150K (£125K for resi) - 0%
NPV of over £150K (£125K for resi) - 1%
NPV over £5M - 2%
67
Under VPS 2 - What is a desktop valuation known as?
Restricted Information (desk top) valuations (no inspection undertaken)
68
What changes were there to the Profits Method in the new Red Book?
A non exhaustive list of properties including self-storage, flexible workspace and purpose built student houseing
69
What are the 13 recommendations from the Gray review?
1. Governance arrangements
2. Separation of valuation from advisory activities within firms in respect of the use of valuation data and instructions
3. Developing a time-specific, mandatory procurement and rotation process for valuers
4. Developing a Valuation Compliance Office role within firms
5. Processes to raise concerns about ethical conduct including improper pressure placed on valuers
6. Establishing a valuation regulatory quality assurance panel
7. DCF as the principal model applied in preparing property investment valuations
8. Improving the knowledge and application of valuers in respect of advanced analytical techniques
9. Independent review of real estate investment valuations
10. Review of post-qualification requirements for valuers and regular re-validation of valuers
11. Continue to build on its important work to ensure a diverse and inclusive valuation profession
12. These findings may have far reaching consequences for valuers and their firms
13. RICS hopes that changes brought following the recommendations will increase trust in the profession and the confidence that clients will have in the quality of the valuation process
70
How is a ransom strip valued?
The Upper Tribunal (Lands Chamber) evidence suggests that the value could be in the order of 15%-50% of the development value unlocked by the inclusion of the ransom strip within the proposed development scheme
In some cases a fixed sum has been awarded
The Upper Tribunal (Lands Chamber) assesses each case on its own facts
Key case law - Stokes V Cambridge (1961) - when a value of one third of the uplift in the development site value was awarded to the owner of the ransom strip
71
Other key information of VRS?
Registration is not mandatory for valuation work excluded from the Red Book Global
Any valuer registered can use 'RICS Registered Valuer' on their business stationery and marketing material
RICS publish a register of the Registered Valuers
Members are only eligible if they have completed APC vals to Level 3 or subsequently qualify for registration
There is a alternative post qualification route for those who did APC o Level 2
Annual fee payable to the RICS upon registration
72
How do you value long leasehold interests?
1. Rent received less ground rent (=net rental income)
2. Capitalized at an appropriate yield for the remaining length of the lease
3. Result in the MV of the leasehold interest
73
What other information has to be provided as part of valuation monitoring requirements?
In the last financial year whether percentage fee income from the client is less or more than 5% of the total fee income - if more than 5% it must be disclosed to the nearest 5%
Whether since the end of the last financial year, this has changed or will likely change
There should be a policy in place on the rotation of valuers when the asset is regularly valued. RICS recommends a 7 year maximum rotation policy
74
What does VPGA 2 highlight?
Dealing with conflicts of interest for secured lending valuations
Reporting procedures
75
What is the advice on Preliminary (draft) valuation advice?
Preliminary valuation advice can be given - it must be marked as draft, for internal purposes only, cannot be relied upon and on no account can it be published or disclosed
A draft report provided to the client must state that it is a draft and it is subject to the completion of the final report
A draft valuation can be discussed with the client but the valuer is not to be influenced by the client in any way in respect of the final valuation figure stated in the report
Any changes made to a preliminary valuation must be noted on file and reasons provided
Any additional information supplied by the client as a result of the discussion regarding the draft report must be stated in the report
76
What is a Party Wall?
A wall is a party wall if it stands astride the boundary of land belonging to two or more different land owners.
There are Chartered Surveyors who specialises is party wall disputes
77
What is VPS 5?
Valuation Approaches and Methods
78
Contents of the UK National Supplement?
Part 1 - Introduction
Part 2 - UK Professional and Valuation Standards (Mandatory)
Part 3 - UK Valuation Practice Guidance Applications (Advisory)
Part 4 - Summary of changes from Red Book UK 2014 (revised 2015)
79
What are the minimum requirements under VPS 3?
A. Identification and status of the valuer
B. Client and any other intended users
C. Purpose of valuation
D. Identification of the asset to be valued
E. Basis of value
F. Valuation date
G. Extent of investigation
H. Nature and source of the information to be relied upon
I. Assumptions and special assumptions to be made
J. Restrictions for use, distribution and publication
K. Instruction undertaken in accordance with IVS standards
L. Valuation approach and reasoning
M. Valuation figure(s)
N. Date of valuation report
O. Comments on market uncertainty
P. Statement setting out any limitations on liability that have been agreed
80
Please can you tell me about the recent review undertaken into valuations?
Independent Review of Real Estate Investment Valuations (December 2021)
81
What are the three approaches to calculating the net effective rent?
1. Straight line method
2. Straight line method assuming time value of cash flow using a yield
3. Use of DCF
82
What is a special assumption?
A supposition that is taken to be true and accepted as fact, even though it is not true
83
What is VPS 2?
Inspections, Investigations and Records
84
What is a ransom strip?
A piece of land which controls the access to another piece of land
85
RICS Valuer Registration Scheme (VRS)
RICS introduced a regulatory monitoring scheme for all valuers carrying out Red Book Global Valuations from October 201
86
Please can you give me a special assumption?
Assuming planning consent has been granted for a particular use or the property is vacant or let at the date of valuation
87
Would secure lending valuation be considered as Regulated Purpose Valuation?
No - as they are not relied upon by third party or in the public interest
88
What is Stamp Duty Land Tax?
It is the tax payable by the purchaser in respect of the transfer of land and buildings (a progressive / incremental tax)
89
What is an end allowance?
Can be used in zoning for shape such as split levels, excessive front to depth ratio and hard frontages (such as banks) depending on comparable evidence
90
What is the key case law in Right to Light?
HKRUK II (CHC) Ltd (a subsidiary of Highcross) V Heaney 2011
The outcome of this case has left Highcross with a remedial works bill and a mandatory injunction to reduce the scale of its extended Toronto Square scheme in Leeds where two new floor levels were added to tan existing office building
91
What does UK VPS 3 include and what are the five purposes of the valuations?
These are valuations relied on by third parties who have not commissioned the valuation and they are subject to valuation monitoring
Valuations for FIVE purposes:
1. Financial Reporting (Company accounts)
2. Stock Exchange listings/inclusion in prospectuses and circulars
3. Takeovers and mergers
4. Collective investment schemes
5. Unregulated property unit trusts
92
Building cost reinstatement valuations /estimations
1. For building insurance purposes
2. The cost of the reinstatement of the building without a profit
3. Use of RICS Building Cost Information Service (BCIS) adopting GIA for commercial properties and gross external area for residential properties
4. Have to add VAT / Demolition costs / professional fees / planning and building regulation fees and inflation allowance if applicable
5. A replacement cost figure which is provided for insurance purposes, whether separately or within a valuation report is not a 'written opinion of value' so Red Book Global compliance is not required
93
How would Marriage value be calculated?
Undertake a before and after valuation and calculate the level of marriage value created
Typical negotiated outcome is to split the marriage value created 50:50 or divide it pro-rata to the value of the individual interest
94
What is VPGA 1?
Valuation for inclusion in financial accounts
95
What is the Annual Tax on Enveloped Dwellings (ATED)?
The tax is payable by UK companies who own UK residential dwellings of over £500,000
Aims to stop on-shore and off-shore individuals using companies to avoid SDLT for residential property
96
What are the valuation monitoring requirements
Inspections by RICS' professional regulation team now take place
There is an annual declaration for all members who undertake regulated valuations. The length of time, purposes, extent and duration of the firms relationship with the client has to be outlined.
97
What legislation applies to Party Walls?
Party Wall etc Act 1996
Provides a framework for resolving disputes in relation to party walls, boundary walls and excavations near neighboring buildings
The Act provides a building owner who wishes to carry out various sorts of work to an existing party wall, with additional rights going beyond ordinary common law rights.
If you are a party wall owner you must inform all adjoining owners of your intention to undertake any works to the party wall
98
What is an Assumption?
These are made where it is reasonable for the valuer to accept that something is true without the need for specific investigation
99
Zoning
A technique not a method
Used for the comparison of retail properties to create a unit of comparison for different sized buildings
Rental value of the property decreases away from the street
Zones 6.1m (20ft)
Zones of 9.14m (30ft) - are used for prime streets in London, Belfast and Scottish
Basement/First Floor areas are usually treated as A/10 dependent on comparable evidence
Quantum discount can be used for size
100
What is the structure of the Red Book?
Part 1 - Introduction
Part 2 - Glossary
Part 3 - Professional Standards (PS)
Part 4 - Valuation Technical and Performance Standards (VPS)
Part 5 - Valuation Applications (VPGA)
Part 6 - The International Valuation Standards (IVS)
101
What must be undertaken when undertaking a valuation of a charity?
The Charity Commission requires the trustees of a charity to obtain a Section 119 of the Charities Act 2011 valuation when the charity is seeking to buy or sell property
The valuer must follow the Act's requirements
The surveyor must comment as to whether the purchase or sale is in the charity's best interest
Reports must state whether terms agreed are the best that can be reasonably obtained for the charity
UK VPGA 8 sets out advice in respect of the provision of valuation advice to charities
Basis of valuation to be MV or MR
102
What did K/S Lincoln and Others V CB Richard Ellis (2010) show?
The principle of a 10% margin of error was reinforced in respect of a valuation of 4 hotels in 2005.
The judge stated that an appropriate margin may be +/-5% for a standard residential property but for a one-off commercial property +/-10% and if there are exceptional features of the property the margin could be +/-15%
103
What does the Red Book say on TOE?
Provides a list of minimum matters which must be confirmed in writing to the client as a minimum PRIOR to commencing a Red Book Global valuation
104
What is important to remember when valuing residential leasehold interests?
A single rate yield is used in current valuation practice which is discounted to reflect an additional element of risk as it is a wasting asset
As a leasehold interest is a wasting asset, dual rate tables adjust a leasehold valuation to be on the same basis as a freehold by using a sinking fund - however in practice leaseholders do not use sinking funds so the method is as above
105
Under VPGA 2 what examples of involvement may result in a COI?
1. A longstanding professional relationship with the prospective borrower or owner
2. When the valuer will gain a fee from introducing the transaction to the lender
3. If there is a financial interest in the property holding or prospective borrower
4. When the valuer is retained to act in the disposal or letting of the completed development on the subject property
106
WAULT
Weighted Average Unexpired Lease Term remaining to the first break or expiry of a lease across asset weighted by the contracted rent
A calculation often undertaken when valuing an asset or considering appropriate investment yield comparables for multi-occupied individual investments or portfolios
Understand how to calculate a WAULT longhand
107
How many findings were there in the review?
13 wide ranging recommendations
108
What does VPGA 10 outline?
The overidding requirement is that a valuation report must not be misleading
The valuer should clearly draw attention to, and comment on, any issues resulting in material uncertainty in the valuation on the specified date relating to the risk surrounding the valuation of the asset
A standard caveat should not be used
109
What is the NPV?
Net Present Value
The total rent payable over the term of the lease, reduced by an annualised discount rate
There is a calculator on the HMRC website
Break clauses are excluded from the calculations
110
What is VPS 3?
Valuation Reports (IVS 103 Reporting)
111
What does VPS 5 Outline?
Valuers are responsible for choosing and justifying their valuation approach and use of model
In some cases, more than one approach may be appropriate
112
What is PS and is it mandatory?
Professional Standards and they are mandatory
113
What does VPS 2 say with regards to inspections?
Valuers must take the steps to verify the necessary information being relied upon for a valuation to ensure the information is professionally adequate for its purpose
114
What is the definition of fair value?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
- This basis of valuation is now required if the International Financial Reporting Standards have been adopted by the client
- It is adopted by the International Accounting Standards Board
- The RICS view is that his definition is generally consistent with the definition of Market Value
115
What must be included within a TOE?
A. Identification and status of the valuer
B. Identification of the Client
C. Identification of any other intended users
D. The asset to be valued - if a portfolio then lotting of assets should be considered
E. Currency
F. Purpose of the valuation
G. Basis of value
H. Valuation date
I. Extent of investigation
J. Nature and source of the information to be relied upon
K. Assumptions and special assumptions to be made
L. Format of the report
M. Restrictions for use, distribution and publication
N. Confirmation of Red Book/IVS compliance
O. Fee basis
P. CHP to be made available
Q. Statement that the valuation may be subject to compliance by the RICS
R. Limitation on liability agreed
116
What is a desktop valuation?
This is a Red Book Global valuation unless for one of the specific purposes set out in PS1
117
What is VPGA 2?
Valuations for secured lending
118
What is the latest UK national supplement?
RICS Valuation - Global Standards (UK National Supplement, 2018)
119
What does VPGA 8 outline?
1. Covers inspections and investigations with particular emphasis on ESG and specific environmental constraints and sustainability issues
2. Identifies ESG and Sustainability issues including the need to consider:
Direct Valuation Factors (Storm/Flood risk)
Indirect Valuation Factors (resilience or carbon emissions)
Physical Risks (heat or wildfire)
Transition Risks (regulatory change or carbon emissions)
120
What is Hope Value?
The value arising from any expectation that future circumstances affect the property may change
121
What is the definition of fair value?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
- This basis of valuation is now required if the International Financial Reporting Standards have been adopted by the client
- It is adopted by the International Accounting Standards Board
- The RICS view is that his definition is generally consistent with the definition of Market Value
122
Under VPGA 2 what is procedures for dealing with a COI?
1. Disclosure to the lender - any previous / current / anticipated involvement
2. Previous involvement is defined as being in the past two years - but can be longer in some circumstances
3. If the valuer or client considers that a COI is unavoidable the instruction should be declined
4. The valuer is responsible to accept / refuse the instruction with regard to the ROC
5. If the conflict can be managed this must be agreed with the client and recorded in writing within the TOE and valuation report
123
What is amortisation?
Spreading the cost of a loan repayment over an agreed time period- ie 3-5 years
124
Why would a bank client request a valuation with a restricted marketing period?
A bank would only request this for a valuation for secured lending purposes. Banks need to know what the value of property would be if their client defaults. This would result in a quick sale hence the restricted marketing period.
125
How did you identify a road as ‘adopted’?
A publicly maintained road at the public expense via the Highway Authority/Council
126
How can you date buildings?
• Planning application history.
Identify materials used in construction and the design of windows.
• Possible inscription into the property on historic buildings.
• Architecture styles: Gothic, Vernacular, Tudor, Georgian, Art Deco.
• Ask the owner/occupiers for the history of the building.
• Historic maps and look up bomb damage from World War Two.
127
How can you date buildings?
• Planning application history.
Identify materials used in construction and the design of windows.
• Possible inscription into the property on historic buildings.
• Architecture styles: Gothic, Vernacular, Tudor, Georgian, Art Deco.
• Ask the owner/occupiers for the history of the building.
• Historic maps and look up bomb damage from World War Two.
128
What are the first three steps to undertake when valuing?
1. Competence - Do you have the correct skill level, understanding and knowledge? (SUK?)
2. Independence - Are there any conflicts? - WHO and WHY?
3. Terms of engagement
-Set out in writing full confirmation of instructions and receive confirmation in writing.
- Confirm the competence of the valuer.
- The extent and limitation of the valuer's inspection must be stated.
129
Give examples of Statutory Due diligence
1. Asbestos Register
2. Business rates/ council tax
3. Contamination
4. Equality Act 2010
5. Environmental matters
6. EPC (If available) - See card on EPC certificates.
7. Flood risk
8. Fire Safety Compliance
9. Health and safety Compliance
10. Highways (check the road to see if they are adopted highways)
11. Legal title and tenure - Boundaries, deeds, ownership, covenant.
12. Pubic Rights of way.
13. Planning History - Onerous planning conditions.
130
What are the five main methods of valuation?
1. Comparative Method
2. Investment Method
3. Profits Method
4. Residual Method
5. Contractor's method (Deprecated replacement Cost)
131
What is the professional standard that covers comparable evidence?
(What are the 3 levels of evidence)
Comparable Evidence in Real Estate Valuation, 1st Edition, 2019.
This sets out a non-prescriptive hierarchy of evidence - The valuer must use their professional judgment to assess the relative importance of evidence on a case by case basis.
3 Levels of evidence:
1. Category A: Direct comparable evidence - Evidence from the subject building. Completed similar transactions, similar real estate being marketed (asking prices with analysis).
2. Category B: General market data - From published sources or commercial databases. Other indirect evidence e.g. Indicies. Historic evidence and demand/ supply data for rent.
3. Category C:
132
