Valuation

Question 1

What is the purpose of the Red Book?

Answer 1

It is there to provide consistency, transparency and a standardised guidance to valuing.

Question 2

What is Market Value?

Answer 2

The estimated amount for which an asset or liability is exchanged on a valuation date between a willing seller and willing buyer in an arms length transaction, after proper marketing and where each party had acted knowledgably, prudently and without compulsion.

Question 2

What is Market Rent?

Answer 2

The estimated amount for which an interest in real property is leased on a valuation date between a willing lessor and willing lessee on appropriate lease terms, in an arms length transaction, after proper marketing and where each party had acted knowledgably, prudently and without compulsion.

Question 3

What is Investment Value?

Answer 3

It is the value of an asset for an owner or prospective owner for individual investment or operational objective.

Question 4

What is Fair Value?

Answer 4

It is the price received for an asset or transfer in liability in an orderly transaction between market participants on a measurement date.

Question 5

What is a Yield?

Answer 5

The measure of a return on capital invested expressed as a percentage.

Question 6

What is a Gross Yield?

Answer 6

The market rent as a percentage of the purchase price.

Question 7

What is a Net Yield?

Answer 7

The market rent as a percentage of the gross acquisition cost.

Question 8

What are the five methods of valuation?

Answer 8

1. Investment
2. Comparable
3. Contractor
4. Profit
5. Residual

Question 9

What is a Residual Valuation?

Answer 9

The specific valuation of a property holding to determine the market value of a site based on market inputs.

Question 10

Is there any additional RICS notes on valuation?

Answer 10

UK National Supplement

Question 11

Who can do a Red Book Valuation?

Answer 11

RICS Registered Valuer

Question 12

What is marriage value?

Answer 12

The additional element of value created by two or more assets where the combined value is greater than the separate values.

Question 13

What is the difference between worth and value?

Answer 13

Worth is what an asset is worth to an individual owner.

Value is the market value - what the market would pay.

Question 14

Purpose of a Red Book Valuation?

Answer 14

1. To inform loans.
2. To inform mortgage applications
3. To inform investment decisions.

Question 15

What factors affect Valuation?

Answer 15

1. Lease terms
2. Tenant Covenants
3. Location
4. Condition
5. Specification

Question 16

What is an Assumption?

Answer 16

It is where you assume something to be true without the need for further investigation.

Question 17

What is a Special Assumption?

Answer 17

It is where you assume something to be true where you know it is not. For example, assuming planning is granted for a development.

Question 18

What is in a Terms of Engagement?

Answer 18

1. Identification and Status of Valuer
2. Identification of the client
3. Purpose of Valuation
4. Identification of Asset
5. Basis of Value adopted
6. Valuation date
7. Extent of investigation
8. Assumption and Special Assumptions
9. Restrictions on use
10. Valuation approach and reasoning
11. Amount of Valuation
12. Date of Valuation report
13. Any limitations

Question 19

When must you use a Red Book Valuation?

Answer 19

Mandatory, except:
1. Internal Purposes
2. In anticipation of disposal or acquisition instructions
3. Acting or preparing to act as an expert witness
4. Performing a statutory function
5. Preparation for or during negotiation or litigation.

Question 20

Can anyone do a Valuation?

Answer 20

Yes, within their area of expertise. However, only an RICS registered valuer can undertake a Red Book valuation.

Question 21

What is the Hierarchy of Evidence?

Answer 21

It is where you attach weight to different types of evidence.

Question 22

Can you list the Hierarchy of Evidence in order?

Answer 22

1. Open market letting
2. Lease Renewal
3. Rent Review
4. Independent Expert
5. Arbitration