Valuation Flashcards
What is heritage relief on IHT?
100% relief on property that is open to the general public for a certain amount of days per year.
When would a firm use an internal vs. external valuer?
For internal accounting purposes
How long is a red book valuation valid for?
3 months
Would you carry out an insurance reinstatement valuation?
No
What are the requirements for secured lending valuation?
- Normal valuation headings
- Details of loan
- Insurance reccomendations
What is Agricultural Value?
the value of the property assuming it is only suitable for agricultural purposes.
Assumes AOC on any dwellings
When would you use Discounted Cash Flow method for valuation?
When no comparable evidence available.
How would you measure residential property?
Net Internal Area
How would you measure an Agricultural Building?
Gross External Area
What is the base date for Capital Gains Tax?
31st March 1982
What is Market Value?
Estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
What is a gift with reservation benefit.
Gifting a property with the reservation to continue living there at a market rent.
What is Fair value?
the price that would be required on selling an asset or paid to transfer a liability between market participants
What is investment value?
The value of an asset to a particular owner, or prospective owner for individual or operational investment
What would you consider amongst total Development Costs?
- Site preparation
- Planning costs
- Building costs
- professional fees + VAT
- Contingency
- Marketing costs and fees
- Calculation of finance
What is the nominal yield?
Initial yield assuming rent is paid in arrears
What is the all risk yield?
The rate of interest used in the valuation of a fully let property let at market rent reflecting all the prospects and risks attached to the particular investment
True Yield
Assumes rent is paid in advance not arrears
When is Inheritance Tax paid?
Inheritance tax is tax paid on the estate of someone who has died when the value is over £325,000.
When is Inheritance tax not due?
- The value of the estate is below £325,000
- Everything above £325,000 is left to spouse, partner, charity or community sports club.
When might IHT Thresholds increase?
If you leave your home to your children, threshold can increase to £500,000
What is taper relief?
A sliding scale of rateable value on gifts given 3 to 7 years before death.
Only applies if total value of gifts made are over threshold.
What are the IHT tax rates?
Standard rate is 40%
Rate can be reduced by 36% on some assets if 10% or more is let to charity
What are taper relief rates?
3-4 years = 32%
4-5 years = 24%
5-6 years = 16%
6-7 years = 8%
7+ years = 0&
What is agricultural property relief
A tax relief on IHT on a qualifying Agricultural property.
How does property qualify for Agricultural relief?
- Must be part of a working farm in the UK.
When is 100% agricultural property relief due?
- Owner farmed it themselves
- Let on short term grazing licence
- Let on FBT
Agricultural property relief on Mortgaged property
Must deduct any outstanding mortgages on the property or any other secure liabilities before calculating relief.
What qualifies for Ag property relief?
- Growing crops
- Stud farms
- Trees harvested & planted atleast every 10 years
- Land not farmed under crop rotation scheme
- Farm buildings, cottages and houses
When would property not qualify for agricultural relief?
- Farm equipment and machinery
- Derelict Buildings
- Harvested crops
- Livestock
- Property subject to binding contract for sale.
What is included in Terms of Engagement?
- Valuer and Status of Valuer
- Client
- Premises to be valued
- Fees
- Purpose and basis of Valuation
- Valuation date
- Assumptions and special assumptions
- CHP
- PII
What is a commercial Yield in your area?
8-15%
What is a residential yield in your area?
3-4%
What are the different needs for a valuation?
- Buying or Selling
- Letting or agreeing rent review
- Assess tax or business rates payable
- Insurance
- Compensation payment
- Secured lending
RICS Definition of professional standards
Sets out requirements or expectations for RICS members and firms with a focus on baseline expectations for competence and ethical behaviour.
RICS Definition of practise information
Sets out supporting guidance to advise surveyors in delivering specific services or working in specific areas or practise.
What is IPMS?
International Property measurement standards
- formed in 2013
When was IPMS all buildings introduced?
2023
What is Professional Standard (ps) 1?
Compliance with standards where a written valuation is provided.
What is PS 2?
Ethics, Competency, objectivity and disclosures.
- ensures that all members practising must have the appropriate experience, skill and judgement for the task.
what is the purpose of the RICS red book?
To provide members and clients with consistency, objectivity and transparency.
What is VPS 5?
Valuation approaches and methods
what is VPS 4?
Basis of value, assumptions and special assumptions
What is VPS 3?
Valuation reports.
- Sets out the minimum requirements to be included in reports.
what is VPS 2?
Inspections, investigations and records.
What is VPS 1?
Terms of Engagement
- Must be confirmed in writing to the client prior to commencing a valuation
What is a yield?
The annual return on investment expressed as a percentage of the capital value
What are the five valuation methods?
- Comparable
- Residual
- Investment
- Profits
- Depreciated Replacement Cost
What is statutory due dilligence for valuations?
Includes checking the following;
- Asbestos register
- Council tax/business rates
- contamination
- environmental matters
- EPC Rating
- Legal title and tenure
- Planning history
Why is PII important?
- Protects against claims of negligence
- Protects clients from any financial losses that a firm cannot meet.
What Non-physical factors which affect value?
- Planning
- Designations
- Lease terms
- Ownership shares
- Restrictive covenants
- Overage
What physical factors affect value?
- Location
- Character
- Condition
- Size
- Construction
- Access
How would you carry out the comparable method?
Collate similar property transactions that have completed recently. Sort and analysis based on location, character andsize. size.
Explain the profits method and when you would use it?
Used where the rent or market value of a property is derived from the income it can generate
- establish fair main table operating profit, capable of being generated by a reasonable operator
- establish the fair maintainable turnover
- deduct turnover from profit
- MR X VP for term @ % yield.
Explain the depreciated replacement cost and what to use it?
DRC is used for specialist building with no market (Hospital or church)
- Establish cost of constructing a contemporary version and plus 10% for professional fees and base value of land.
- Deduct obsolescence (Physical, Functional & economic)
- Quantify this (takes experienced valuer.
Explain what is the residual method and when you would use it?
Usually used to value development land.
- Establish GDV
- Deduct costs (construction, planning, fees)
- Deduct developer profit (usually 20%)
- Consider interest over construction period
- what someone will pay for land as is.
How does an AOC affect value?
Comparable evidence suggests 20-30% discount of market value.
- Limits the pool of people who are eligible and limits mortgage providers.
What is a charities act valuation?
A charity must see the guidance of a registered valuer prior to disposing of a property.
The charities act 2011 (amended 2022)
What should be included in a charities act valuation?
- Comply with red book
- advise on sale methods
- state repairs that need doing
- state lease terms
How would you value a retail building?
Investment method
How does a lease with a short term remaining affect investment value?
INCREASES RISK
- uncertainty about tenant renewal or reletting
LOWER CAPITAL VALUE
- Investors may demand a higher yield, reducing value
POTENTIAL VOID PERIODS
- risk of vacancy and reletting costs
REDUCED INCOME SECURITY.
What is a special assumption?
Assumes facts that differ from those existing on valuation date
What is an assumption
Something that is likely to be true - although may not be able to prove it.
What is investment value?
The worth of the property to a particular investor, or class of investors for identified investment objectives.
What is an arms length transaction?
A business deal in which buyers and sellers act independently without influencing each other.
What are the bases of value? (VPS 4)
- Market Value
- Market Rent
- Investment value
- Fair value
What should you do before accepting/undertaing a valuation?
Check competency
What is the structure of the red book?
- Introduction
- Glossary
- Professional Standards
- Valuation technical and performance standards
- Valuation applications
- International valuation standards
What is the red book?
A set of valuation standards and guidance notes to provide guidance when undertaking valuations
How would you estimate life expectancy for a tenant?
Parrys tables
How is the profits method calculated?
Annul turnover MINUS costs and expenses = Gross profit
MINUS working expenses = Unadjusted net profit
MINUS Tenants share = Adjusted net profit
Capitalise at appropriate yield
How would you undertake a lease hold valuation?
use the investment method (term and reversion)
What is the role of the international valuation standards?
To improve valuations globally and maintain cohesiveness for all members
what is the full name of the red book?
RICS VALUATION - GLOBAL STANDARDS 2022
What is the prupose of a stock taking valuation?
To identify and carry costs incurred before end of accounting period
What is the basis of for stock taking valuation?
Fair value minus costs to sell or costs of production
What is the RICS guidance for stock taking valuation?
RICS Guidance note - Farm stock taking valuations
DEFRA Helpsheet HS232 Farm Stock Valuation (2022)
What is a Red book valuation?
A formal opinion on value
How would you become a registered valuer?
Do valuation to level 3 and be sponsored by firm
if not done valuation to level 3;
- Application form
- Valuation based record of experience
- case study
- CPD record
- Must be signed off by registered valuer.
When can you not account for hope value?
For a secured lending valuation
What is Marriage Value?
When the combined value of two entities is greater than separate ones.
What is the Inheritance tax value definition? (Inheritance Tax Act 1984).
the price which the property might reasonably be expected to fetch if sold in the open market
at that time, but that price shall not be assumed to be reduced on the grounds that the whole property is
to be placed on the market at the same time.
What is Hope Value?
An element of market value in excess of the
existing use value, reflecting the prospect of some more valuable future use.
What is the definition of market rent?
the estimated amount for which
an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion’
where would you find the inheritance tax definition?
S.160 IHT ACT 1984
When is a valuation not red book?
- Market Appraisal
- Expert witness
- Statutory Functions
- Internal Purposes
- Litigation
