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.