Valuation

Question 1

What is the profits method of valuation?

Answer 1

The profits method is used to value properties not usually let on the open market based on their trading potential

Question 2

How is the profits method undertaken?

Answer 2

The net profit from trade at the premises is calculated and split into the retained profit and the rent, which equals the RV

1. Find gross profit (gross receipts - costs of sales)
2. Find divisible balance (gross profit - expenditure)
3. Divisible balance - tenant’s share = landlord’s share (RV)

Question 3

What are the 5 methods of valuation?

Answer 3

Comparable
Investment
Residual
Profits
Contractor’s

Question 4

What is the contractor’s method of valuation?

Answer 4

It is used for properties not commonly let on the open market that unsuitable for the profits method. The value is based on the cost to construct a modern equivalent

Question 5

What are the 5 stages of calculating a contractor’s valuation?

Answer 5

1. Estimate replacement cost of site, P&M and other rateable structures
2. Adjust cost to reflect difference the actual hereditament and modern substitute to arrive at the Effective Capital Value (ECV)
3. Add the estimated land value to arrive at the total ECV
4. Apply decap rate to ECV
5. Make subjective adjustments to arrive at RV a hypothetical tenant would pay

Question 6

What is the decap rate for 2023?

Answer 6

Education & health = 2.6%
Other = 4.4%

Question 7

What method of valuation is used for the central list?

Answer 7

Statutory formulae

Question 8

Why is the contractor’s method known as the method of last resort?

Answer 8

It is used when it impractical to use other methods

Question 9

What are some purposes of valuation?

Answer 9

Financial reports
Secured lending
Mortgages
Tax = capital gains, inheritance, rates
Compulsory purchase

Question 10

What is the Red Book?

Answer 10

It is a publication setting out the mandatory rules and guidance for RICS to follow when valuing properties