Valuation Flashcards
What is the difference between a Internal Valuer and External Valuer ?
Internal - Employed by company to value the asset of company (In house) and is normally for internal use only
External Valuer - independent third party Has no Material links with asset to be valued or the client
What must I do before I undertake an instruction ?
- Competence
- COE
- TOE
Why is Due Diligence undertaken ?
Important to check that there are no material matters which could impact valuation .
What kind of statutory DD do I do
- Land Reg
- Planning
- Asbestos register
- Contamination
- Environmental Matters
- EPC
- Flood Risk
- Fire Safety compliance
- Highways
- Conservation Area , Listed building
What are the five main methods of Valuation ?
- Comparable method
- Profits Method
- Investment Method
- Residual method
- Contractors Method
What RICS document do you have regard for when looking at comparable evidence ?
RICS PS : Comparable evidence in real estate valuation
what does RICS PS : Comparable evidence in real estate valuation say ?
Principles of Comparable Evidence: It outlines fundamental principles for the proper use of comparable evidence in valuations, ensuring accuracy in deriving property values.
Hierarchy of Evidence: Comparable data is classified into three categories:
Direct comparables (most reliable, like similar property transactions).
General market data. - indices, historic evidence
Other sources (less direct but still useful information). - Interest rates, stock market
What is the investment method and when would I use it ?
Used when an asset is income producing
What are the different types of investment methods and when would you use them ?
The conventional investment method - Rent received * yp
Term and reversion = MR more than PR
Layer/hardcore method = Underrented
What is a yield
Return on investment expressed as a yield /risk
What is Years purchase
how many years of rental income it would take to equate to the property’s value.
What is GRY
Yield that reflect Market Rent
What is GIY
Yield that reflects passing rent
What is DCF and when would you use it
Value of the property by examining its future net income and discounting the cash flow to arrive at net present value
1. estimate value for agreed holding period
2. Estimate exit value
3. select discount rate
4. value is sum of completed discounted cf (npv)
Used for short leasehold properties, non standard investments, social housing
What is the profits method
The value of a property is determined by how profitable the business is used for hotels, pubs and petrol stations.
FMOP=Revenue−OperatingExpenses
Select an Appropriate Capitalization Rate:
Assume that the capitalization rate for similar
You can now determine the value of the property by capitalizing the FMOP:
What is a development appraisal
A development appraisal is a financial evaluation of a real estate project that assesses its feasibility and profitability.
difference between feasibility and viability
feasibility is a preliminary step that determines if a business idea can be achieved, while viability is about the business’s long-term success.
what is the difference between cil and s106
CIL is a standardized charge for general infrastructure needs, while S106 is a negotiated agreement addressing specific site impacts. Both are vital for ensuring that developments contribute fairly to community infrastructure.
What is GDV
Capital Value of completed scheme
What does bcis not include
VAT
External
what rics document is relevant when valuing development land
RICS PS : Valuation of Development Property
Pros and cons of residual method
Pros:
Market standard
Site specific
Cons :
Sensitives to change
How do you calculate finance
SONIA
BOE
Debt team
How is finance calculated
Site Purchase (Compound interest)
Total construction (s curve) - taking half the costs over length of build programme
Holding costs (Cover voids) - straight line
What is the s curve
An S-curve shows how costs or progress in a project start slow, rise quickly in the middle, and slow down again toward the end. I
what is a sensitivity analysis and what are the different types
Simple sensity - analysis of key variable
Scenario Analysis - Change scenarios eg timing, phasing scheme, changing design
Monte Carlo - using probability theory using crystal ball
When is DRC Used ?
Market evidence is limted or unavailable for specialised properties could be sewage, lighthouse oil refineries used for accounts/rating purpose. Not RBC
What is the DRC Methodology ?
- Value land in its existing use
- Add current cost of replacing the building
- Deduct depreciation, obsolescence, deterioration
What is depreciation, obsolescence, deterioration
Depreciation relates - natural aging.
Obsolescence deals with - outdated functionality or external market factors.
Deterioration - accounts for physical damage.
Functional Obsolescence: Loss of value due to outdated features or functionality that no longer meet modern standards.
Economic Obsolescence: Loss of value due to external economic factors affecting desirability or profitability, like location disadvantages or industry decline.
What does the red book stand for ?
RICS Valuation - Global Standards 2021
Why was the red book updated ?
Sustainability Esg glossary
Clarity no longer quasi red book, partial red book something is either red book or not !
Why is the red book important ?
it sets standardized guidelines for accurate, consistent, and ethical real estate valuations globally, ensuring professionalism and trust in property valuations.
What is the red book structure
- Intro
2.Glossary - PS
4.VPS
5.VPGA
6.IVS
What are the five exceptions to a RB valuation
Internal purposes
Statutory functions
Agency or brokerage services
Advice given as part of negotiation
Valuations not for third-party reliance
What is ps1 and ps2
ps1 - compliance with red book
ps2. ethic, competency and disclosure
What Are the VPS’S
VPS 1 - TOE
VPS 2 - INSPECTION AND INVESTIGATION
VPS3 - VALUATION REPORT
VPS4 - BASIS OF VALUE
VPS5 - VALUATION METHODS AND APPROACHES
What do you include in your TOE ?
Purpose of the valuation
Basis of value
Property address and description
Client details
Scope of work
Valuation date
Assumptions and special assumptions
Valuer’s qualifications and independence
Fee structure and payment terms
Limitation of liability
Confidentiality terms
Reporting format and delivery method
Compliance with standards (e.g., RICS Red Book)
Conflicts of interest statement
Inspection details (extent and limitations)
Use and reliance restrictions
Dispute resolution process
Sign-off and acceptance by client
What is a Assumption ?
Reasonable for the valuer to accept something is true without the need for specific investigation (Proof)
What is a Special assumption ?
Something taken to be true that is not true
Name an example of an assumptions vs Special assumption ?
Assumptions:
The property is in good condition and well-maintained.
The property complies with all relevant planning and building regulations.
There are no significant environmental issues affecting the property.
The property is assumed to have proper access to necessary utilities.
Special Assumptions:
The property is valued as if planning permission has been granted for a proposed development.
The property is valued as if it were vacant, allowing for potential redevelopment.
If instructed to do a desktop valuation what must I consider
- Valuation implication of restriction confirmed in writing before value is reported
2.Valuer should consider whether restriction is reasonable with regards to purpose of valuation. - restriction must be refereed to in report
When can I undertake a revaluation without reinspection ?
No material change changes to the property or nature of its location since last inspection
Minimum requirements within valuation report ?
Purpose of the valuation
Basis of value
Description of the property
Valuation date
Methodology used
Assumptions and special assumptions
Market analysis and comparable data
Valuation conclusion (final value)
Limitations and qualifications
Valuer’s details (qualifications and experience)
Compliance with relevant standards (e.g., RICS Red Book)
Signature of the valuer
What must I do when providing a draft report
Water mark as draft for internal use only cant be third party
subject to completion of final report and cant be relied upon
Definition of MV
estimated amount for which a property should exchange on the date of the valuation between a willing buyer and a willing seller in an arm’s-length transaction, after proper marketing and where both parties have acted knowledgeably, prudently, and without compulsion.
What is arms length
two parties who are acting in their own self-interest and are independent of each other. not under any duress
Definition of MR
estimated amount for which a real property should lease on the date of the valuation between a willing leesee and a willing lessor in an arm’s-length transaction, after proper marketing and where both parties have acted knowledgeably, prudently, and without compulsion.
Fair value
Price paid that would be received to sell an asset or paid to transfer liability in an orderly transaction between market participants at measurement date
What are things that you must include in a valuation report for secured lending
- Disclose any involvement identified in TOE.
- Valuation methodology station
- Comment on environmental factors
- Any circumstances of which valuer is aware could affect price.
- Transaction within the last 12 months
- Suitability for loan sec
when is fair value used and who moderates it
IFRS
Accounts purposes
For COE where may there be a COE in valuation
Having longstanding professional relationships with prospective borrower
Gain fee from introducing transaction to lender
Valuer retained to act in disposal or letting of dev.
What is the margin of error case law
Dunfermline Building Society v CBRE (2017) involved a dispute over a property valuation. The key points from the case are:
Background: Dunfermline Building Society engaged CBRE to provide a valuation for a property they were considering as security for a loan.
Issue: After the loan was granted, the value of the property fell significantly, leading Dunfermline to question the accuracy of CBRE’s valuation.
Outcome: The court ruled that CBRE was not liable for the loss because the valuation was based on the information available at the time and complied with professional standards. The valuer was found to have acted reasonably and appropriately given the circumstances.
What is hope value
Value arising from any expectation that future circumstances affecting the property may change eg: Future prospect of securing planning permission for dev of land where no planning permission exists at present time
What is Marriage Value
Value of merger of two interest is higher than separate
Stamp duty for commercial properties ?
Commercial
£0-£150,000 Nil
£150,001 - £250,000 2%
Over £250,000 5%
Stamp Duty for resi properties ?
Residential
£0-£250,000 nil
£250,001 - £925,000 5%
£925,001 - £1,500,000 105
+£1,500,000 12%
How do I calculate stamp duty land tax ?
Gov.com
What is Stamp duty for BTL properties or second homes ?
3% above band
Stamp duty for 1st time buyers
Nil upto £425,000 and 5% on portion from £425,000 - £625,000
What is ATED
Annual tax on enveloped dwellings, aim to stop on shore and off shore indv using companies to avoid SDLT for resi properties
What is a party wall ?
- A PW is if it stands astride the boundary of land belonging to 2+ diff land owners.
- IF YOU ARE A PW owner must inform adjoining owners of intention to undertake any works.
What is right to light
roperty owner the right to receive natural light through defined windows or openings.ypically, a right to light can be claimed if a property has received natural light through a window for a continuous period, usually 20 years, without obstruction.
Legal Protection: If the right is established, property owners may have grounds to prevent neighboring developments that would block their light.
what is a special buyer
A particular buyer for whom a particular asset has special value because of advantages arising from its ownership that would not be available to other buyers in the market
What is ransom strip
piece of land owned by someone else which controls access to another piece of land
what are the aims of the rics valuer registration scheme ?
- Improve quality of valuation and ensure the highest possible professional standard
- Achieve rics goal of self regulating
- protect and raise status of valuation profession
What can clients expect
openness transparency protection through ps experties
When must someone be registered on the registered valuer scheme
Once they are undertaking red book valuations
What info is required to register under the registered valuer scheme ?
- Type of vals
- Purpose of vals
- Number of vals
- Firms total fee income from RBG vals in the last year
- What data sources are used?
- History of any negligence claims and notifications.
why is the RICS Valuer Registration Scheme important
Ensures adherence to high professional standards and ethical practices.
Protects consumers by qualifying only experienced valuers.
Holds valuers accountable for their work, fostering trust.
Encourages ongoing professional development.
Instills confidence in the accuracy of property valuations.
Aligns with global best practices for the valuation profession.
why is the red book important
Establishes Standards: Provides a framework of professional standards for property valuations and assessments.
Ensures Consistency: Promotes consistency and reliability in valuation practices across the industry.
Enhances Credibility: Increases confidence among clients and stakeholders in the accuracy of valuations.
Guides Best Practices: Offers guidance on ethical practices and compliance with relevant regulations.
Facilitates Global Operations: Ensures that valuations are aligned with international standards, making them applicable in global markets.
Protects Interests: Helps protect the interests of clients and the public by ensuring valuations are conducted by qualified professionals.
What does NHBC stand for ?
National House Building Council
Atomisation
Amortization its depreciation - refers to non tangible assets eg debt
what doesnt bcis
What is IRR
Rate of return over time period that results in Net present Value of 0
