VALUATION Flashcards
Can you tell me about your IHT valuation in Fulham?
I valued a 1930s flat for IHT purposes.
The value returned appeared low based on comparable evidence.
I inspected the property and recorded its condition and position within the building.
I noted that the flat was located on the top floor and it had a mansard roof.
I used the comparable method and identified evidence within the same block.
I agreed with the value returned and reported to HMRC.
What was the declared value for the flat in Fulham?
£950,000
Tenure of the flat in Fulham? Are you aware of any leasehold reforms?
Leasehold - lease term: 876 years (less 21 days) from the 25th March 2021.
Freehold Reform Act (May 2024) - making it cheaper and easier for people to extend their lease or buy their freehold so leaseholders pay less to have more security in their home.
What was the condition of the flat in Fulham? What VSF did you consider? Noted this was a 1930s building but were there any cladding issues? How would this have effected your valuation? Any guidance on the issue?
Good condition, has been modernised in the last 10 years.
VSF- Location, Views, Size, Condition, Floor Level.
Cladding issues- there were no cladding issues, the building was a 1930s, gated mansion block, tradition brick construction.
However, I would have referred to:
Valuation of properties in
multi-storey, multi-occupancy
residential buildings with
cladding, 2021.
Guidance for comparable evidence? What makes a good comparable?
When considering the evidence, I referred to the RICS Professional Standard “Comparable Evidence in Real Estate Valuation” 1st edition, October 2019.
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
How much lower was the returned value based on evidence for the flat in Fulham? Based on what evidence?
The comparable evidence ranged from £950,000 to £1,050,000.
How did you adjust for condition and position of the flat in Fulham?
As a result of the findings from my inspection, I was able to identify comparable evidence also on the top floor and adjust and analyse to arrive at an opinion of value.
The comparable evidence on the 4th and 5th floor that I had identified had full ceiling heights throughout, more usable space and a more traditional layout. Whereas in contrast, the subject had sloped ceilings, which reduced its functional floor area and made certain parts of the flat feel cramped and awkward.
Tell me about your evidence for the flat in Fulham?
The evidence I identified were located in the same block, had the same tenure and same number of bedrooms.
Same ground rent and service charge - peppercorn.
I identified comparables on the same floor and other floors.
How did you confirm these comparable transactions for the flat in Fulham? How did you confirm condition of your comps? Remaining years on lease or all long leases so virtual FH?
I confirmed through third sources such as RightMove, Land Registry. There were all long lease comparables.
How close were the comp transactions to your valuation date for the example in Fulham? Did you make an adjustment?
The comparable evidence identified were close to the valuation date so no adjustment was required, although if I had to, I would have considered the market data and trends.
How did you sense check your valuation?
I sensed checked my valuation to comparable evidence located on the same floor as the subject.
Is the VOA a part of HMRC? Regarding HMRC, are you an internal or external valuer?
The Valuation Office Agency is a government body in England and Wales. It is an executive agency of His Majesty’s Revenue and Customs.
Why did you adopt the DRC method for the LA school?
For rating, my choice of the valuation method is informed by the available evidence for the mode and category of the hereditaments to be valued. For LA schools, there is no reliable arms-length rental evidence, I therefore adopted the Contractors Method.
What is the difference between DRC and the Contractor Method?
The steps are the same for DRC but we do not apply the decap rate for the Contractors Method.
How did you apply the Guidance for the DRC method? Is this not now a Professional Standard? Are you aware that this was amended in Sept 2023? Why would you adhere to this guidance?
Depreciated replacement cost method of valuation for
financial reporting, 2019
I applied the 5 step approach to carrying out DRC method
What can you tell me about the 2017 Memorandum of Agreement?
A group pre-challenge review (GPCR) has been completed for the 2017 Rating List.
The GPCR comprised of agents including Wilks, Head & Eve, Avison Young, Lamberth Smith Hampton, Deloitte and Lancashire County Council.
Would you deviate from the scales for the adjustments for A&O?
The allowances for A&O have been discussed and agreed in the Memorandum. Therefore I would only change the A&O scales in exceptional circumstances where it is supported by evidence. I would also seek advice from a senior valuer who specialises in the Contractors Method.
What is a temp Cat 3 building?
Temporary structures that are to be demolished.
Talk me through your build costs and your calculation of the Estimated Replacement Cost? What evidence is this based on?
- The costs are at the AVD for 2017 i.e. 01 April 2015.
- The 2017 VOA Cost Guide is provided by our in-house QS and Building Surveyor Team aka the BEAMS team.
- Costs come from the actual cost evidence of modern schools. This includes:
o Cost information published by the Department for Education (DfE).
o From FORs where we ask for a breakdown of multiple elements e.g. the sub-structure, super-structure, fittings, services etc.
o Building Cost Information Service (BCIS).
o SPONS (a pricing book compiled by Aecom).
Talk me through your adjustments for A&O?
Guidance that has been established by QS, in the Rating Manual (simple route, someone has sat down and decided what adjustments they have on the value).
I applied 60% as the building was built in 1970-1990.
What types of obsolescence could you consider?
Physical - wear and tear due to the building’s age, periodic renewal of internal fit out, roof coverings and windows.
Functional - inadequate classrooms, smaller, outdated, limited or poorly designed common spaces, outdated accessibility, lack of specialised spaces.
Economic - lack sufficient writing and outlets for modern classroom technology, lack of IT infrastructure (high speed internet), missing security technology, such as CCTV or secure entry systems, poor insulation.
Did you not add the value of the land? How did you calculate the land value? What evidence is this based on?
Schedule 6, para 2(7) states that we value the heredit rebus at the material day. This means the land should be aligned with the type of hereditament we are valuing.
However, a lot of specialist heredits (like schools) have little to no evidence of land sales for that purpose. In these situations, Dawkins held that the prevailing land in the locality, may be taken as evidence of value, minus a modest discount.
Therefore, if we have a school in a residential area, we take the residential land values (based on the analysis of land transactions by DVS at the AVD) then discount it. In the VOA, we usually adopt 20%, please see the table below.
For school, the land is valued in two categories:
Developed Land
Covers buildings, landscaped areas, roads, car parks, playgrounds, and hard sports surfaces, excluding playing fields. Value is a percentage of total adjusted replacement costs. Classification as “urban” or “rural” depends on location.
Undeveloped Land
Includes playing fields and minor landscaping, excluding buildings and specialized sports surfaces. Areas with no practical use are ignored. Value is based on amenity land levels.
What decap rate did you apply and why?
After adding the ARC and the land value, I applied the 2017 statutory decap rate for educational hereditaments of 2.6% to calculate the RV.
4.4% for other uses.
How did you approach negotiations for the LA school? How did you achieve an agreement?
RV agreed with agent and Rating list updated.
Can you tell me about your IHT valuation for the detached dwelling in Kent?
I provided reasoned advice for a detached dwelling for IHT purposes.
The value returned valued the dwelling as an office as the property was being used as an office for the deceased’s firm.
I arranged an inspection and confirmed that the property’s optimum value was as a residential dwelling.
This was due to its location, lack of formal tenancy agreements, and relevant permitted development guidance.
Using the comparable method, I determined a higher valuation than that returned.
I entered into lengthy negotiations with the executor’s Valuer and we agreed a revised figure, which was higher than the original valuation returned.
What was the declared value?
£725,000
Why did you initially choose the investment method for the property in Ashford? Can you talk me through your investment valuation?
I initially valued the property in its existing use as an office using the investment method to establish a clear starting point for its value.
As there was no tenancy agreement in place, I estimated its potential income based on office comparables nearby and applied an appropriate yield to determine its value. I applied a higher yield rate to reflect the increased risk – location and lack of tenancy arrangements.
Annual Rent: £37,600
Yield Rate: 6.5%
Capital Value: £580,000
Gross Yield – stand back and look. Consistent approach in the comparable evidence.
What development guidance did you consider for the property in Ashford? How did this affect your valuation of the property?
Class MA (Part 3, Schedule 2) of the Town and Country Planning (General Permitted Development) (England) Order 2015
- permits the change of use of buildings from commercial, business, and service (Class E) to residential (Class C3) without the need for full planning permission, subject to certain conditions and prior approval from the local planning authority.
- Buildings used for offices, shops, restaurants, or other commercial purposes (Class E) can be turned into homes (Class C3).
- The building must have been used for Class E purposes for at least two years and vacant for at least three months before applying.
→ In this example, there were no tenancy arrangements in place so it would be possible to it would be possible to make the property vacant to meet the requirement of three months of vacancy before applying for conversion under Class MA.
Talk me through your comparable method valuation for the property in Ashford? What adjustments did you consider as the subject property was an office?
I selected and identified comparable evidence located on the same road as the subject.
I adjusted the comparable evidence to reflect the subjects condition.
The subject had not undergone any structural or internal changes to change it into an office, therefore nominal adjustment was required.
I analysed the comparable evidence to arrive at an opinion of value.
What was your assessment of their valuer’s valuation approach and evidence? How could you have sped up these length negotiations?
I would have arranged an inspection with their valuer to discuss the optimum use of the property on site.
Talk me through your agreement and revised figure for the property in Ashford?
The executor’s Valuer and I entered into negotiations, the Valuer argued that the property should be valued as an office but I advised due to the lack of tenancy arrangements and planning guidance, the optimum value is residential.
After lengthy negotiations, the Valuer and I agreed and settled at a higher figure.
What is your opinion of (Automated Valuation Model) AVM’s currently being used for residential valuation?
Pros-
Speed & Efficiency
Cost-effective
Cons-
Limited accuracy in complex situations
Over reliance on Historic Data
Lack of Market Expertise
General valuation question - What are your thoughts on the current market for a class of property locality that you’re familiar with?
TBC
What is happening in the current market, e.g. labour government encouraging change of use/relaxing planning law, aim to build 1.5m homes.
The target, set out in the 2024 Labour manifesto, is for 1.5 million new homes over the next parliament.
- social housing and community housing.
Planning reforms- simplified planning process, making it easier for developers to get planning permissions especially for affordable housing.
Could you tell me about your advice for your Red Book valuation in Purley?
I advised the valuation of a one bed flat in Purley, for disposal purposes.
I carried out a COI and prepared a TOE.
I arranged and conducted an inspection, measuring to IPMS3B and noted the property’s condition.
I used the comparable method to find similar transactions in the area to determine the market value.
I drafted a report following the RICS Red Book standards. A RICS Registered Valuer reviewed and approved the report.
Who was your client for the Red Book valuation?
Local council
Are valuations for disposals Red Book? What if your advice was in preparation for negotiations?
Yes, as valuation was required to inform the sale process, a Red Book valuation was required.
If this was advice in preparation for negotiations, such as informal and indicative advice, based on market conditions, the advice would not be considered a formal Red Book valuation.
For the red book valuation in Purley, what was the tenure? Leasehold? Length of lease? Ground rent? Service charge?
Leasehold
* 99-year leasehold from 1st January 2020, 95 years remaining.
* Peppercorn ground rent, £500 annual service charge.
- Age: 1960s
- Type: Ground floor, purpose built flat
- Construction: 3-storey, red brickwork, concrete panels, small balconies, timber framed windows, pitched roof.
How would you conduct your COI? Any guidance? How would you manage a conflict?
RICS Conflict of Interest, 2017.
I checked the property address and the client to ensure I had no professional or personal dealings.
If there was a COI, I would have ensured that they were disclosed.
If a conflict was identified, I would have withdrawn or managed the conflict.
I would have documented all disclosures and decisions to provide a clear record of compliance.
What were some of the agreed terms in your TOE? What was your fee basis?
RICS VPS 1.
1. Identification and Status of Valuer
2. Identification of The Client
3. Valuation Currency
4. Purpose of the Valuation.
5. The basis on which Fee is calculated.
DVS Charging Manual (fee is calculated)
What was the condition of the property in Purley?
Reasonable for its age, signs of wear and tear. Dated fixtures and fittings.
What approach would you take if this was a retirement home?
TBC
For the property in Purley, talk me through your comparables? Where did you source them? How did you ensure they were like for like? What difficulties did you encounter? How did you overcome these?
I sourced my comparable evidence from our internal database and Rightmove.
I ensured they were like for like by looking in the same apartment block, with the same number of bedrooms, similar condition, and positioning.
There was not many comparables that had sold recently, therefore I had regard to the market conditions and adjusted to reflect that the market had dropped.
Were all your comps measured to IPMS 3B? If not, how did you compare like with like?
IPMS3B includes areas with less than 1.5m head room, internal structural walls, columns, chimney breasts and garages.
I dual reported - measured to GIA and IPMS to ensure accuracy and to be able to compare like-for-like.
How did you sense check your valuation?
I sense checked my valuation by comparing it against the market evidence.
How did you comply with VPS 3? What are some of the things you included in your report?
VPS 3- Valuation Report.
- Valuer information
- Client Information
- Valuation Purpose
- Property Details
- Basis of Value (VPS4- Market Value)
- Valuation Date
- Investigations
- Information Sources
- Assumptions
- Usage Restrictions
- Compliance Confirmation
- Valuation Approach
- Valuation Opinion
- Report Date
Are you aware of any changes to the UK National Supplement, with effect May 2024?
- Valuer Rotation - min. initial engagement period of 5 years and min. 3 year break.
- Requirement for valuers to ask about the involvement of independent parties in the client’s valuation instructions.
- general administrative updates have been made to 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.
- These signpost additional HMRC and Valuation Office Agency guidance on the subject, while commentary on residential property developer tax has also been included.
How did you comply with the red book?
- Competent
- COI
- TOE
- RoC
What can you tell me about the Registered Valuer Scheme?
A risk monitoring and quality assurance program that ensures compliance with the RICS Red Book and high valuation standards.
By becoming a Registered Valuer, you offer protection and confidence to clients. You agree to audits by Regulatory Surveyors to check compliance with mandatory standards and best practices.
As a Registered Valuer, you can use the RICS Registered Valuer designation and accreditation logo.
How do you Registered Valuers handle PII at your firm?
We are insured by the Crown Indemnity Insurance.
What can you tell me about the Registered Valuer Scheme?
Members only eligible if they have completed APC and Valuation to Level 3.
Annual Fee must be paid to RICS.
To register, the information required:
- type of valuations
- purpose of valuations
- number of valuations
- firms total income from Red Book
- valuations in the last year
- what data sources are used.
The aims of the scheme:
1. improve quality of valuation and ensure highest professional standards.
2. meet RICS requirements to self-regulate affectively
3. protect and raise status of the valuation profession.
Can you talk me through your advice for the Tyre and Exhaust Centre? In this situation, who were you advising?
I provided reasoned advice for a 2017 Appeal where the appellants representative was arguing that a Tyre and Exhaust Centre should be valued as an industrial unit.
Subject hereditament was a single storey vehicle repair workshop and premises.
The appellants representative proposed that the RV be reduced.
The valuation approach for tyre and exhaust centres is distinct and the subject rent supported the valuation determined by the VOA.
The appeal was dismissed and the the current Rateable Value was accepted.
What valuation significant factors (VSF) did you consider for tyre and exhaust centres? How do the VSF differ from industrials?
The VSF for Tyre and Exhaust Centres, MOT Centres and Vehicle Repair Workshops are detailed in the Rating Manual.
VAPs and BAPs
VISIBILITY. The buildings location was highly visible to passing traffic. Industrial units do not rely on visibility in the same way and are often located in industrial zones with less foot or vehicle traffic.
ACCESS. Tyre and exhaust centres require access for customer vehicles. Industrial units, in contrast, prioritise access for delivery trucks and logistics rather than consumer vehicles.
PARKING. A tyre and exhaust centre will require adequate parking for customers. Industrial units, however, prioritise parking for employees and logistic vehicles, which requires more space for loading and unloading rather than customer parking.
BAYS. A tyre and exhaust centre needs specific services for bays for vehicles, a reception area for customers and storage for parts. An industrial unit, on the other hand will require large open floor areas for manufacturing, storage or distribution.
ADAPTABILITY. A tyre and exhaust centre will require a layout for vehicle movement and customer interaction, whereas industrial units need flexible spaces than can accommodate machinery.
Can you talk me through your Tyre and Exhaust Centre valuation approach?
Agent Evidence
When considering the evidence, I referred to the RICS Professional Standard “Comparable Evidence in Real Estate Valuation” 1st edition, October 2019.
The agent’s rental evidence comprised of standard industrials (i.e. industrial properties built between 1955 and 1970) which I reasoned were non-comparable. I therefore gave this evidence a low weighing.
The agent also provided historic evidence and general market data which I also gave a low weighing.
VOA Evidence
For my valuation, I advised the VT that direct transactional evidence for this class of property was the best evidence.
Due to the specific property type, there was a limited number of relevant transactions. However, I search wider in terms of location and valuation date and I sourced a basket 4 transactions.
My comparables were similar to the subject (same property class), arm’s-length (not connected parties), comprehensive (i.e. full details on the FOR), and verified transactions (FORs verified also 3rd party sources).
The rents ranged from £57/m2 to £78/m2 (let’s just imagine the comparable assessment evidence is rental evidence).
How is this Tyre and Exhaust Centre market distinct?
- CUSTOMER BASE. T&E serve retail customers (individual vehicle owners)
- LOCATION. T&E centres are located in easily accessible locations, close to residential or urban areas.
- SPECIALISED SERVICES.
- HIGH VOLUME, LOW COMPLEXITY.
- RETAIL, OFFICE AND WHOLESALE INTEGRATION.
Tell me about the subject rent of the Tyre and Exhaust Centre? How much weight did you attach? What other evidence did you consider?
The rent on my subject property was a clean transaction analysing to (maybe say) £61/m2.
I also considered my comparables, my subject property had inferior visibility, access and parking similar to the comparables at the lower end of the evidence range.
I therefore concluded the subject rent and basket of evidence supported a base price of £60/m2 which calculated to an RV of £29,250.
I provided by recommendations to the VT and who confirmed by valuation and dismissed the appeal.
Did you consider P&M on site – compressors which provide power, along with any pits in the floor etc, vehicle hoists? What are the regulations?
The Pathway Guide says, “In respect of machinery and business assets they should also be varied according to industry sector”.
The actual valuation includes an air compressor (a common type of P&M for this class of property. As this was a rating valuation, I valued the air compressor as P&M as per statutory guidance.
In line with The Plant and Machinery Order 2000, the air compressor is a Class 1 item of P&M and therefore rateable.
Did you inspect the Tyre and Exhaust Centre? Why / why not? If not, can you defend that action? What did you learn if you did go?
No, I did not inspect the property because it had been recently inspected, and the check was agreed with the agent, with all facts confirmed. I was able to assess the VAPs and BAPs through a thorough desk-based review and felt confident that I had all the necessary information in accordance with VPS 2.
Did you make any allowances to the property in Ashford to reflect that it required a change of use?
There was no work required to convert it. It was set out as a residential property, being used as an office.
When carrying out COI, what would you do if there an a council tax appeal on the property?
Not a conflict, VOA have banded every house, required to do this work. In private sector, there would need to be an agreement.
Where did you get the cost from for the ERC?
For rating, we go to the Rating Cost Guide.
The figures come from our internal QS/BS.
How do you carry out a Profits method?
• Used for valuing trade related properties in markets where there is a monopoly position
• Used where the value of the property depends on the profitability of the business and trading potential
• Used for pubs, petrol stations, hotels, day nurseries, leisure and healthcare properties.
• Basic principle is the value of the property depends on the profit generated from the business not the building or location.
• Need accurate accounts for 3 years if possible
You’ve mentioned RICS Registered Valuer, what it the importance of that?
Ensures that clients can have that level of reassurance that they’re getting a professional that’s dealing with their valuation.
Qualified an up to date on how to do the work. Sign of professionalism and trust.
What is the difference between market value for tax purposes and Red Book.
For statutory purposes, we consider special purchaser and we disregard the flooding of the market (eg. 500 houses in the village- don’t assume that they were all put on the market at the same time, as this would impact on value).
What is prudent lotting? And what is the case law?
The dividing or grouping of property and land into parcels in order to achieve the best value. DOB v IRC (1967)
In your Red Book report of the residential property, what was your recommendation?
The market value.
I did this by… step by step approach
What was your approach is arriving at your Red Book valuation.
Comparable method.
How were VSF reflected in your red book valuation?
I identified that the subject was in dated condition, therefore I identified comparable evidence in a similar condition.
What were your findings from your Red Book inspection?
My findings was that the property was in reasonable but dated condition.
What is a purpose built flat?
A residential unit that was designed and constructed to be an apartment or flat from the outset, rather than being converted from a house or another type of building.
Was there a lift in the building? How does this affect value?
Yes there was, the lift can increase the market appeal due to convenience and accessibility.
Did you consider the dates of sale of comparables?
Yes, I considered evidence of comparables sold close to the valuation date.
