Valuation Flashcards
What is the purpose of the Red Book?
It is there to provide consistency, transparency and a standardised guidance to valuing.
What is Market Value?
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.
What is Market Rent?
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.
What is Investment Value?
It is the value of an asset for an owner or prospective owner for individual investment or operational objective.
What is Fair Value?
It is the price received for an asset or transfer in liability in an orderly transaction between market participants on a measurement date.
What is a Yield?
The measure of a return on capital invested expressed as a percentage.
What is a Gross Yield?
The market rent as a percentage of the purchase price.
What is a Net Yield?
The market rent as a percentage of the gross acquisition cost.
What are the five methods of valuation?
- Investment
- Comparable
- Contractor
- Profit
- Residual
What is a Residual Valuation?
The specific valuation of a property holding to determine the market value of a site based on market inputs.
Is there any additional RICS notes on valuation?
UK National Supplement
Who can do a Red Book Valuation?
RICS Registered Valuer
What is marriage value?
The additional element of value created by two or more assets where the combined value is greater than the separate values.
What is the difference between worth and value?
Worth is what an asset is worth to an individual owner.
Value is the market value - what the market would pay.
Purpose of a Red Book Valuation?
- To inform loans.
- To inform mortgage applications
- To inform investment decisions.
What factors affect Valuation?
- Lease terms
- Tenant Covenants
- Location
- Condition
- Specification
What is an Assumption?
It is where you assume something to be true without the need for further investigation.
What is a Special Assumption?
It is where you assume something to be true where you know it is not. For example, assuming planning is granted for a development.
What is in a Terms of Engagement?
- Identification and Status of Valuer
- Identification of the client
- Purpose of Valuation
- Identification of Asset
- Basis of Value adopted
- Valuation date
- Extent of investigation
- Assumption and Special Assumptions
- Restrictions on use
- Valuation approach and reasoning
- Amount of Valuation
- Date of Valuation report
- Any limitations
When must you use a Red Book Valuation?
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.
Can anyone do a Valuation?
Yes, within their area of expertise. However, only an RICS registered valuer can undertake a Red Book valuation.
What is the Hierarchy of Evidence?
It is where you attach weight to different types of evidence.
Can you list the Hierarchy of Evidence in order?
- Open market letting
- Lease Renewal
- Rent Review
- Independent Expert
- Arbitration
