Valuation Flashcards
Are you aware of the updated framework?
Yes the Valuation Red Book was updated from 31st January 2025.
Why was there an update?
- Reflect Changes to latest version of international valuation standards
- Incorporate changes from RICS valuation review.
- Futureproof Valuation Practice
- Help valuers provide best standard of service
- Simplify guidance
- Revised order of VPS’s to align with IVS
What is the structure of the new Red Book
- Introduction
- Glossary
- Professional standards (PS1 and PS2)
- (VPS’s) Valuation technical and performance standards
- (VPGs) Valuation practice guidance applications
- (IVS) International valuation standards
Which parts of the structure are mandatory?
Part 3 and 4
Which parts of the structure are advisory?
Part 5
What is PS1?
Compliance with standards and practice statements where a written valuation is provided.
What is professional standard 2?
Ethics, competency, objectivity and disclosures.
What does ps2 mean for members?
- Members undertaking valuations must act in accordance with RICS Rules of Conduct 2021.
2 Valuer and firm must act objectively and independently, must not be influenced by any situation which could threaten professional objectivity.
Should apply professional scepticism when reviewing information.
What are the Valuation Technical and Performance Standards (VPS)
VPS 1 - Terms of Enagement
VPS 2 - Bases of Value, assumptions and special assumptions
VPS 3 - Valuation approaches and methods
VPS 4 - Inspections and investigations
VPS 5 - Valuation models
VPS 6 - Valuation reports
Which VPS is new in the latest addition?
VPS 5
Where does the new Red Book Apply?
Globally
What are the 5 methods
Investment
comparable
residual
profits
contract
What is a yield
return on investment
What are the different types of yields
All risk yield
Gross yield
Initial yield
equivalent yield
nominal yield
What is the Red Book?
The Red Book is a publication offering best practice and guidelines for surveyors and valuers.
When does the Red Book not apply to a valuation?
- Providing an agency or brokerage service in respect of the acquisition or disposal of one or more assets.
- Providing valuation advice in preparation for or during negotiations or litigations.
- Acting or preparing to act as an expert witness
- Performing statutory functions
- providing advice for internal purposes.
Definition of Market Value
Estimation for which asset or liability should exchange for
on valuation date
willing buyer and seller
arms length transaction
proper marketing
parties acting accordingly
Definition of Market Rent
Estimated amount for which an asset would exchange
Definition of Fair Value
Price that would be paid to sell an asset or transfer liability in orderly transaction between market participants at measurement date.
Definition of Investment Value
Value of an asset to owner or prospective owner for individual investment or operational objectives.
For your investment comparables what did you look for?
I could use national evidence as long as it was in a similar submarket to the property.
What is special purchaser?
A buyer who has a a unique advantage compared to other market participants.
What is a reversionary asset?
A property that is under rented.
How would you value a reversionary asset.
Term and reversion method of valuation?
What is the method?
You value the term at a specific yield, and then you value the reversion at another yield.
What’s the difference between a Red Book Valuation and a brokers opinion of value?
You can rely on a Red Book valuation for funding.
What is an equivalent yield?
Weighted average between reversionary and initial yield.
what is a residual valuation?
Method used in Real Estate to determine the value of an asset
How do you do a residual valuation?
Determine GDV
Subtract development cost
Deduct developers profit
Arrive at residual land value
If property is rack rented what method do you use?
Investment method
If property is under-rented what method?
Term and Reversion
If property is overrented what method?
Hardcore and Topslice
What is an all risk yield
rate of interest used in fully let property @ market rent
What is an reversionary yield?
current price on investment let below market rent
What is an initial yield?
Simple income yield for current income and price
What is a true yield?
Assumes rent is paid in advance not arrears
What is a nominal yield?
Annual income/initial cost x 100
Equivalent yield
Average weighted yield be
Talk me through a residual valuation
What is the contingency cost for a residual valuation on an industrial spec unit?
3-5%
What is developers profit likely to be on a speculative industrial scheme
15/20%
What is the profit likely to be on a pre-let?
10%
If unit is under rented what method do you use?
Term and Reversion
How do you calculate a yield.
Income/capital value x 100
Can you tell me the levels of Stamp Duty Land Tax for commercial properties?
Up to £150,000 - Zero
£150,000 - £250,000 - 2%
£250,001+ - 5%
Why undertake valuation due diligence
To check there are no material matters which could impact upon valuation.
Such as
Check for flood risk
Environmental matters
Contamination
EPC
Asbestos register
Business rates
Equality act compliance
What is VPS 1
Terms of Engagement (Scope of work)
What is VPS 2
Bases of value, assumptions, special assumptions
What is VPS 3
Valuation approach and methods
What is VPS 4
Inspections investigations and records
What is VPS 5
Valuation models
What is VPS 6
Valuation reports
What is included in valuation TofE
Identification and status of valuer
Client
Identification of any other users
Asset to be valued
Currency
Purpose of valuation
Basis of value
Valuation date
Extent of investigation
Nature and source of information
Assumptions and special assumptions
Format of report
restriction for use
Confirmation of Red Book compliance
Fee basis
Complaints handling procedure
Statement that valuation may be subject to RICS compliance
Limitation on liability
What are the minimum requirements to be stated within a report
Identification and status of the valuer
Client and other intended users
Asset to be valued
Purpose of valuation
basis of value
valuation date
extent of investigation
nature & source of information relied upon
Assumptions & special assumptions
restrictions on use and distribution
instruction undertaken in accordance with IVS
Valuation approach and reasoning
Valuation figure
What are the 3 valuation approaches set out in IVS 105
Income
Cost
Market
