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APC Revision ---- > Valuation > Flashcards

Valuation Flashcards

1
Q

What is an internal valuer?

A

Someone who undertakes a valuation for internal use only.

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2
Q

What is an external valuer?

A

Someone with no material links to the asset or client.

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3
Q

What checks do you undertake prior to commencing a valuation instruction?

A

Check competence, independence, and send terms of engagement (TOE) to the client for confirmation.

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4
Q

What statutory due diligence must valuers undertake?

A

Ensure checks for asbestos, business rates, contamination, high voltage lines, EPC ratings, and flood risks.

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5
Q

Talk me through a valuation?

A
  • Receive instruction
  • Check competence and conflicts
  • Send TOE
  • Gather info, inspect, research market
  • Undertake valuation and report
  • Issue report and invoice.
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6
Q

What are the methods of valuation?

A

Comparable, Investment, Profits, Residual, Contractors (DRC).

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7
Q

What are the valuation approaches?

A

Income, Cost, and Market approaches.

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8
Q

Give me an example of the cost approach?

A

Contractors method.

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9
Q

Give me an example of the income approach?

A

Investment, residual, and profits methods.

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10
Q

Talk me through the comparable method?

A
  • Search and verify comparables
  • Adjust and analyze them
  • Form an opinion of value.
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11
Q

What is the hierarchy of evidence?

A

Hierarchy: Open market lettings, lease renewals, rent reviews, 3rd party determinations, sale and leaseback, inter-company transactions.

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12
Q

What makes a good comparable?

A

Should be similar, recent, verifiable, and result from arm’s length transactions.

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13
Q

How do you find relevant comps?

A

Agent boards, local agents, auction results, in-house records, EGi, Focus.

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14
Q

How do you undertake an investment valuation?

A

Capitalize the rental income to find a capital value.

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15
Q

What does the conventional method assume?

A

Growth implicit valuation based on market capitalisation rate (yield).

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16
Q

When is a term and reversion used?

A

Used for reversionary investments that are under-rented.

17
Q

When is the layer/hardcore method used?

A

Used for over-rented investments, splitting income into bottom and top slices with different yields.

18
Q

What is a yield?

A

A measure of investment return, income divided by price x 100.

19
Q

How are yields found?

A

By analyzing comparable evidence.

20
Q

How is a years purchase calculated?

A

Divide 100 by the yield.

21
Q

What is a years purchase?

A

The number of years required for its income to repay its purchase price.

22
Q

What is the major factor when determining a yield?

A

Risk, related to factors like location, covenant, lease terms, obsolescence, income security, and market growth prospects.

23
Q

What is a return?

A

The performance of a property measured retrospectively.

24
Q

What method do you use to find the IRR?

A

Discounted Cash Flow (DCF) method.

25
Q

What is the difference between growth explicit and growth implicit?

A

Growth implicit assumes growth within yield, growth explicit identifies growth separately.

26
Q

What is an all risks yield?

A

A growth implicit yield that considers risk.

27
Q

What is a net initial yield?

A

Relationship between rent and capital value, net of costs.

28
Q

What is Equivalent yield?

A

A weighted average between the term and reversion yields.

29
Q

What is an equated yield?

A

The IRR applied to income flow over the investment life, discounted to match capital outlay.

30
Q

What is a reversionary yield?

A

Used when rent is expected to rise near a rent review or lease renewal.

31
Q

What is a DCF?

A

A growth explicit method projecting cash flows over a holding period and discounting them.

32
Q

When is it used?

A

Used for phased developments or investments with finite holding periods.

33
Q

How does this differ from the implicit approach?

A

Growth assumptions are explicitly identified in a DCF, not incorporated into the ARY.

34
Q

What are the steps when undertaking a DCF?

A
  • Estimate cash flow
  • Estimate exit value
  • Select discount rate
  • Discount cash flows
  • Sum DCF for NPV.
35
Q

What is NPV?

A

Net Present Value of cash flows over time.

36
Q

What does a + NPV mean?

A

The investment exceeds the investor’s target return and is viable.

37
Q

What is the IRR?

A

The discount rate that makes NPV equal to zero, assessing total return from an investment.

APC Revision ---- (17 decks)

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