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? 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.
Condition? 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? Based on what evidence?
The comparable evidence ranged from £950,000 to £1,050,000.
How did you adjust for condition and position?
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.
I adjusted my comparable evidence to account for the mansard roof by identifying and cross-referencing comparable properties located on the same floor.
Tell me about your evidence?
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? 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.
How close were the comp transactions to your valuation date? 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? 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
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? 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 this method? 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? How did this affect your valuation?
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? 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?
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?
A housing association.
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.
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? 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?
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
