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valuation Flashcards

1
Q

What is the difference between development and residual valuation?

A
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2
Q

What is a development appraisal and what is it used for?

A
  • dev consultancy - to establish which scheme to most profit
  • valuation of site for sale/acquisition
  • dev appraisals use client provided assumptions
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3
Q

What are the five different methods of valuation?

A

Comparative, profits, residual, investment and depreciated replacement costs.

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4
Q

Assumption vs special assumption

A
  1. Fact
  2. Assumption that assumes facts differ from actual facts existing at valuation date
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5
Q

Can you give some Special assumption examples?

A
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6
Q

Residual valuation - You said you allowed for planning costs, site clearance costs and construction costs. Can you tell me about where you got the data from?

A
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7
Q

Redbook 2025:
Where does the new Red Book apply?
When does the new Red Book apply from?
Why has the Red Book been updated?

A

31 January 2025.

RICS have updated the Red Book to:

Reflect the changes to the latest version of IVS

Incorporate changes from the RICS Valuation Review

Future proof valuation practice, e.g., updates relating to technology and ESG

Help valuers to provide the highest standard of service

Simply and clarify guidance for valuers

Build public trust in valuations provided by RICS Registered Valuers

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8
Q

what are the main changes in Red book 25?

A

The VPS have been re-mapped to the new IVS:
* VPS 1 – Terms of engagement (scope of work) – no change in title
* VPS 2 – Bases of value, assumptions and special assumptions – this is similar to the former VPS 4. Transaction costs are now dealt with in VPS 2.
* VPS 3 – Valuation approaches and methods – this is similar to the former VPS 5, but includes methods, as well as approaches
* VPS 4 – Inspections, investigations and records – this is similar to the former VPS 2
* VPS 5 – Valuation models – new in 2025, building on the former VPS 5
* VPS 6 – Valuation reports – this is similar to the former VPS 3

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9
Q

What is years purchase?

A

The relationship between the income (a constant income) and its capital value is traditionally known as the years’ purchase (YP)

YP = (1-PV) / i
where ‘i’ is the discount rate and ‘PV’ is the present value of £1 in ‘n’ years at ‘i’%.

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10
Q

What is reversionary rent, , rack rent , over rent?

A
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11
Q

What is term and reversion?

A
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12
Q

why don’t we use T&R in real life?

A

does not apportion risk appropriately ie in reversion risk can be too high

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13
Q

What is hardcore/ layer?

A
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14
Q

What is present value and how to calculate?

A

PV = 1/1+i

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15
Q

What are the other measures of profit?

A
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16
Q

What is IRR?

A
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17
Q

Rental valuation – why did you look for comparables over the last 12 months?
Had the market changed over this time

A
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18
Q

What is the Red Book?

A

It is Professional Statement from the RICS for best practice valuations.

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19
Q

What are the main sections of the Red Book?

A

PS –
VPS –
VPGA –
IVS –

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20
Q

How would you adjust the yield for a term and reversion investment valuation?

A

Would depend on the level of rent and the level of risk.
For a bigger rental difference, the yield may be higher due to a higher level of risk associated with it, whereas for a smaller lift in rent the yield may be less high.

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21
Q

When is a term and reversion valuation used?

A

Under rented (reversionary)

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22
Q

What yields would you apply to the term and the reversion?

A

Net Initial Yield for the Term
Reversionary Yield into perpetuity for the reversion

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23
Q

What is a net initial yield?

A

(income/ property value ) * 1/1.068 (purchaser costs)

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24
Q

What is a reversionary yield?

A
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25
Q

What is the speculative investor approach?

A
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26
Q

When you use the speculative investor approach – what costs would you include in the void?

A
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27
Q

What is the NPV?

A

Net Present Value – shows the sum of discounted cash flows
If positive shows that they have exceeded their rate of return
If negative fallen under rate of return

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28
Q

What are the limitations of the residual method of valuation?

A

Sensitivity to inputs
Importance of accurate information

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29
Q

Do you get rates relief for vacant buildings? What are these levels?

A

3 months rates relief
6 months for industrial
Listed building – no rates if vacant

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30
Q

When you are valuing the LLH interest of something what should you have regard to?

A

That it is a wasting asset, so a sinking fund may need to apply throughout the interest to recover the cost of buying it over the term.

Gearing

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31
Q

What is profit rent?

A

Difference between market rent and contracted rent

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32
Q
  • Can you give an example of when your valuation advice influenced a client’s decision-making in a significant way?
A

Strategic example -

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33
Q
  • How do you ensure that your valuations comply with the Red Book and other relevant professional standards?
A
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34
Q
  • Have you ever had to defend your valuation in front of a third party, such as a client, auditor, or court? How did you approach it?
A

Client – 15-25 Artillery lane
unhappy with the high EY applied - argued that it was due to it being on a long leasehold, and provided comparables of other Long lease hold, spoke with our investment teams to give a view on current market

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35
Q
  • Describe a situation where you had to value a multi-tenanted building. How did you account for the various lease structures?
A

all risk yield - cap rates adjusted for shorter leases, weaker covenants

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36
Q
  • Can you give an example of a DCF (Discounted Cash Flow) valuation you have carried out? What were the main assumptions?
A
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37
Q
  • How would you adjust comparable evidence to reflect the differences between properties?
A

Example: Jelson homes leicestershire

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38
Q
  • Can you describe the steps you take to inspect a commercial property before carrying out a valuation?
A
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39
Q
  • Can you describe the steps you take to inspect a commercial property before carrying out a valuation?
A
40
Q

can you explain the hierarchy of evidence?

A
41
Q
  • Explain the difference between Market Value and Fair value
A
42
Q
  • What are the key factors that influence the value of a commercial property?
A
43
Q
  • What are the different methods of valuation, and when would you apply each method?
A
44
Q
  • Can you explain the principles of valuation in commercial property?
A
45
Q
  • How would you advise a client about the long-term impact of inflation or rising interest rates on the value of their commercial property investments?
A
46
Q
  • You are instructed to value a commercial property that is partially vacant. How would you adjust your approach to reflect this, and what impact would it have on your valuation?
A

Vacant possession
assumptions on re-letting, for example speak with local agents

47
Q
  • Your client owns an industrial property with a long-term tenant. The tenant is requesting a rent reduction due to market conditions. How would this affect your valuation advice, and how would you recommend the client proceed?
A
48
Q
  • A client is considering purchasing a multi-let office building. How would you advise them regarding the value and potential future income? What factors would you highlight?
A
49
Q
    1. How have you advised a client on a valuation for secured lending purposes? What factors did you emphasize in your report?
A
50
Q
  • Can you describe a time when you provided advice on a sensitive valuation issue, such as a compulsory purchase or insolvency?
A
51
Q
  • Have you had to recommend a method of valuation that differed from the client’s expectations? How did you manage their expectations?
A
52
Q
    1. How have you provided strategic valuation advice in relation to a client’s portfolio management?
A
53
Q
  • How would you value a property subject to planning restrictions or environmental issues?
A
54
Q
  • Can you provide an example of when you advised a client on the valuation of a leasehold interest? What were the challenges involved?
A
55
Q
  • How do you incorporate capital expenditure (CAPEX) into your valuation calculations for a commercial property?
A
56
Q
  • How would you calculate the equivalent yield in an investment valuation, and what does it represent?
A

Equivalent yield is weighted average of initial and reversionary yield

57
Q
  • How do you approach the valuation of a specialist commercial property (e.g., a hotel or a care home)?
A

Profits method or DCF

58
Q
  • Can you walk me through the process of valuing a retail unit in a prime city centre location?
A
59
Q
  • What are the implications of a property having a short lease term on its value?
A
60
Q
  • What is the role of uncertainty and risk in valuation, and how do you account for them?
A

all risk yield - adjust up

61
Q
  • Can you explain the term “over-rented” property, and how does it affect the valuation?
A
62
Q
  • How does the Rent Review clause in a commercial lease impact the valuation of a property?
A
63
Q

explain the different Approaches to valuation

A
64
Q
  • Can you explain the concept of the All Risks Yield (ARY) and how it is applied in commercial property valuations?
A
65
Q
  1. What does VPS and PS stand for in reference to the Red Book?
A
66
Q
  1. Which VPS from the Red Book deals with bases of valuation?
A
67
Q

What are the different bases of value?

A
68
Q
  1. Tell me about the Perreira Gray Review.
A
69
Q
  1. What yield did you adopt for your term? What yield did you adopt for your reversion? Why?
A
70
Q
  1. What is the hierarchy of evidence in comparable valuation?
A
71
Q
  1. What is the matrix technique of the comparable method of valuation?
A
72
Q
  1. What is the definition of market rent?
A
73
Q
  1. What is the definition of fair value?
A
74
Q
  1. What is the difference between the simple method and hardcore method of the investment method?
A
75
Q
  1. What measurement basis did you use for your office valuation?
A
76
Q
  1. Talk me through you discussion with your investment agent colleague. How did your recommendation affect your clients investment value?
A
77
Q
  1. Talk me through your investment method of valuation?
A
78
Q
  1. Talk to me about the market for business parks in Oxford.
A
79
Q

Beyond the Red Book what other RICS guidance is in place for valuations? Has there been any changes to this guidance recently?

A
80
Q

What is the definition of Market Value?

A

Market value is defined in IVS 102 Bases of Value: Appendix A10.01 as: ‘the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.’

81
Q

What area of the Red Book would you have consideration to for loan security valuations?

A
82
Q

What area of the Red Book would you have consideration to for the process of a valuation?

A
83
Q

How would you have approached a valuation is it was over rented?

A
84
Q
  • how has Perreira Gray affected the industry?
A
85
Q
  • why discount reception area at 50%
A

general rule of thumb - as only used for - if it was multi-let would not value

86
Q
  • hardcore method how did you apply?
A
87
Q
  • when would you apply value to mezzanine?
A
88
Q
  • how do service charge caps affect a valuation?
A
89
Q
  • how short you consider to be short enough to be explicitly factored into the valuation. For example a new 999 year lease compared to a lease with 75 years UXT.
A

Generally, alarm bells start ringing (and pricing affected) around the 100 year mark.

90
Q

What is an assumption

A

supposition taken to be true - involves facts, conditions or situations affecting the subject of or approach to a valuation that by agreement do not need to be verified

Assumptions are matters that are reasonable to accept as fact in the context of the valuation assignment without specific investigation or verification. They are matters that, once stated, are to be accepted in understanding the valuation or other advice provided

91
Q

what is special assumption

A

Not true, but assumed to be true - must be grounded by something realistic

A special assumption is an assumption that either assumes facts that differ from the actual facts existing at the valuation date or that would not be made by a typical market participant in a transaction on the valuation date

92
Q

Examples of assumptions and special assumptions

A

Assumption:an assumption about tenure, property condition or services

Special assumption: planning consent given
a reduced marketing period for
selling the property

93
Q

what are the 3 approaches to valuation?

A

Market (comparable)
Income (traditional, DCF) - based on capitalising cashflows
Cost (DRC)

94
Q

When can exceptions be made to VPS 1 - 6

A
  1. Providing agency or brokerage wrt acquisition or dispisal of assets
    1. Valuation for litigation
    2. Expert Witness
    3. Performing statutory functions
      5 . Valuations purely for internal purposes (not seen or communicated to third party)
95
Q
A

考试 (18 decks)

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