Valuation Flashcards
What are the reasons for a Valuation?
Loans
Financial reporting
Investment portfolio performance
Takeovers and mergers
Purchase and sale
Taxation
Stock exchange
What Valuations are exempt from the Redbook?
Market appraisals (agency)
Valuation for Internal purposes
Statutory function (eg arbitration)
Negotiation/litigation (preparing for a negotiation to purchase/sell)
Expert witness (surveyors acting as an expert witness)
What is the formal name of the redbook?
RICS Valuation Global Standards 31st January 2022
Why is it important that valuation advice is correct and to a high standard?
‘The Red book global standards reflects the growing importance of successfully combining professional, technical and performance standards in order to deliver high quality valuation advice that meets the expectations and requirements of clients; of governments, regulatory bodies and other standard-setter; and of the public’
Ultimately to protect the client as your client will take action based upon the valuation you provide.
What is the structure of the redbook?
Professional standards
PS1- compliance with standards and practice statements
PS2 - Ethics, competency, objectivity and disclosures
Valuation perfomance standards
VPS1 - terms of engagements
VPS2 - inspections and investigation
VPS3 - reports
VPS4 - bases of valuation, assumptions, and special assumptions
VPS5 - valuation approaches and methods
Valuation applications
VPGA 1-10
VPGA 1 - inclusion in financial statements
VPGA 2 - for secured lending
VPS1 What do you need to include in terms of engagement for a valuation?
Client
Property
Purpose of valuation
Basis of valuation
Red book compliance
Assumptions and special assumptions
Extent of investigations and information relied upon
Valuation date
Status of valuer
Fee and liability
Complaint handling procedure
Conflict of interest
What are the key heading in Savills valuation reports?
Instruction and terms of reference.
-client, property, basis of valuation, Conflict of interest, dat of valuation, purpose of valuation, valuer details, inspection, liability cap, RICS compliance.
The property, statutory and legal aspects
- location, property schedule, photos, soil type, cropping, planning, services, designations, taxation, title, PROW, occupation
Market commentary
- Savills market reports/Market commentary
Valuation advice
-market value/market rent/other basis of valuation
General assumptions and conditions
What is probate valuation?
a detailed report on the value of a deceased person’s estate, which can help executors calculate inheritance tax
What’s the definition of market value?
The estimated amount for which an asset or liability should exchange on the date of valuation between a willing buyer and willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
What’s the difference between an assumption and a special assumption?
And assumption is something you reasonably assume to be true.
A special assumption is something you know to be false but assume to be true for the purpose of the valuation.
What is the definition of market rent?
The estimated amount for which an interest in real property should be leased on the date of valuation between a willing lessor and willing lessee on appropriate lease terms in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
What are the five methods of valuation?
Comparable
Investment : Where an asset has an income stream.
Profits : where the value of the property directly relates to it’s business.
Residual: used for development land where you take the value of the developed site and subtract construction costs planning fees and developer profit to get the residual value.
Replacement cost method
Used for insurance purposes to calculate the cost of rebuilding a property.
Who can provide a red book valuation?
RICS registered valuer
Valuers must have taken valuation to level 3
Must register as part of the scheme.
Pay the fee
Comply with regs
Complete annual audits
Carry out valuation CPD
How do you calculate Yield? (%)
(Property rent/property value) X 100
