Valuation Flashcards
What is the All Risk Yield
A growth metric used in an investment valuation that reflects all the risks and rewards of the subject property.
The risks include tenant covenant, lease length, market conditions.
What is the Red Book?
The RICS valuation Global standards.
It sets out mandatory rules, best practices and professional guidance on property valuations.
Ensures valuations are consistent, transparent and compliant.
What is a valuation for insurance purposes?
Reinstatement costs assessment for insurance purposes.
what is an AVM valuation
An Automated Valuation Model.
used to generate property valuation that uses algorithms and sales data.
Quick assessments of value, but lacks accuracy of full RICS valuation.
What is a DRC valuation and when would it be used?
Depreciated Replacement Cost Valuation.
Used to value specialist properties where there is little or no market evidence.
It estimates the cost of rebuilding the property minus depreciation.
What current challenges is Covid and/or Brexit bringing to Valuation?
Costs of materials
Supply chain issues
Labour shortages
Market confidence
Demand shift
Interest rates inflation
What schemes were available to tenants during the pandemic?
Deferred or reduced rent agreements.
Rring fenced rent debt scheme.
Government published the Code of Practice for Commercial Property Relationships
Name 1 key change to Red Book from January 2025?
The restructuring of the Valuation Technical and performance standards.
Incorporation of ESG
Guidelines on AI
Further Alignment of IVS
Please give the definition of Market Value and when it should be adopted?
The estimated amount for which an assess or liability should exchange at a valuation date between a willing buyer and willing seller at an arms length transaction with property marketing where both parties are acting knowledgably, prudently and without compulsion.
Should be used to reflect fair and open market price of a property:
Secured lending
Financial reporting
taxation
probate
What are the requirements for conflict avoidance in terms of engagement.
Ensure Compliance with PS 2 of the Red Book and VPS
Disclosure and transparency
Client consent
Firm wide conflict checks
Pinetree’s Business Park, describe the property and a unique feature?
A large industrial Unit in central Norwich.
Internal cooling system for product.
Rare to have a property of that size so central.
Pinetree’s Business Park, what fee basis did you agree
One off Fee for report, paid on completion.
£1,250 plus reasonable incurred expenses.
***Pinetrees Business Park, how did the purpose influence your report (probate)?
We must ensure compliance with IHT requirements.
Valued as at the date of death.
Should this be HMRC open market value definition?
Pinetree Business Park Did you identify any factors from due diligence which impacted value?
The property didn’t have an EPC which could have an impact on value if the property wasn’t at the requisite level.
EPC expired. Advised to get done.
Pinetrees Business Park, What was the value you calculated?
£625,000
Pinetrees Business Park, Talk us through your calculations and rationale.
I reviewed the lease agreement and compiled comparable evidence.
I carried out a investment appraisal using bespoke development software called BOE.
Ensured the terms of the lease were correctly inputted, and applied suitable capitalization rates rates.
What was your reported value for St martin Lane?
£660,000
***Did you verify your value using any other methods for St martin Lane?
Cross check Comparable method of valuation
Considering alternative uses/redevelopment
Talk us through your analysis of the comparable evidence for St Martins Lane?
I looked at property Characteristics, size location and use
Lease terms
Yield analysis
context of the letting
Capital values
Market conditions
What was the rationale for the yield you applied at St Martin Lane?
I reviewed the lease and tenant strength.
Review the Risk.
Reviewed comparable evidence, compare investments
Yields reflect market sentiment and investor confidence and risk perception.
**How did the purpose influence how you conducted the valuation at St Martin Lane??
The purpose for a pension fund internal purpose and therefore influenced how it was conducted, in this case based on market value.
Because of its purpose it was therefore red book compliant.
Describe 1 of the 12 units at Grove Road, and a unique feature?
Unit 1, the largest of the 12 units, with a small courtyard.
What was your advice as to market conditions for Grove Road Industrial Estate?
Good for secured income producing sites, interest rates had however had an impact on the number of purchasers in the market, but there were a number for cash buyers in the market.
What was your advice on value of the Property for Grove Road
I valued the property at £400k but suggested that we enter the market at £415,000.
Talk through your calculations for valuing Grove Road?
I reviewed the leases and conducted an investment appraisal.
I complied comparable evidence and applied appropriate capitalisation rates.
For completeness, i looked at a residential development scheme considering the neighbouring properties which confirmed that it was not viable and the value was currently in an industrial estate.
Detail your advice as to marketing strategy with rationale for Grove Road?
Along with the usual marketing such as online portals, board and particulars, we targeted key investors that we believed would be interested.
We also carried out a targeted social media campaign that focused on commercial investment companies.
and whilst development wasn’t viable at the moment, it may well be in the future, so we also looked at targeting developers who were interested in short to medium term income opportunities with long term development potential.
Describe The Old Hatchery and its unique feature?
Redundant chicken shed set in an attractive location on the outskirts of Norwich. Desirable location.
What was your advice as to market conditions?
Market conditions were tough due to construction costs increasing considerably, and planning taking upwards for 18months to be achieved.
Developers were looking for secure sites that they could develop without getting into length planning disputes with local authorities.
How did the planning advice inform your advice for the The Old Hatchery?
The likelihood of achieving planning and the route of which this could be achieved.
The number of dwellings achieved ultimately fed into my development appraisal.
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 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
When would fair value be used and what is its definition?
It’s often applied where there’s a need to reflect the price between knowledgeable, willing parties in an orderly transaction, but not necessarily on the open market.
What does ESG stand for and can you give me examples of these considerations in a valuation?
Environmental Social Governance
E=Energy performance, flood risk assessments
S=Community facilities, accessibility, amenities
G= Regulatory compliance
What’s included within terms of engagement for a red book valuation
Property details
Purpose
Tenure
Basis of valuation
Currency
Assumptions
limitations
valuation date
content
conflicts
insurance
fees
ESG
What is the structure of the Red Book
Part 1 - Introduction
Part 2 - Definitions
Part 3 - Professional Standards
Part 4 - Valuation Performance Practical and standards
VPS 1 - Terms of engagement
VPS 2 - valuation approach
VPS 3 - Basis of value
VPS 4 - Inspection
VPS 5 - Modeling
VPS 6 - reporting
Part 5 - Valuation practice guidance applications
Main ones to note:
VPGA 1 financial reporting
VPGA 2 secured lending
VPGA 8 real property interests
Please can you give me an example of a valuation conflict of interest?
Previous advise provided to the buyer on acquisition but now providing the lending valuation advise
In a lease scenario, acting for the landlord, but the tenant is also a client.
What are the exemptions from the Red Book?
Agency and Brokerage
Explicitly agreed with the client
Internal purposes
Negotiations
Expert Witness Report
According to the RICS, what are the different basis of value and when should they be used?
Market Value - sale, tax, secured finance
Market rent - lease negotiations, rent reviews, valuation of tenancies
Fair value - financial reporting under IFRS
Investment value - for specific investment decisions, value to particular investor
Synergetic value - marriage value, used when two assets together are worth more than the individual parts.
Liquidation value - used in insolvency sale scenarios, reflects value from rapid sale, often discounted.
