Valuation Flashcards
What is Market Rent?
The estimated amount that a interest in a real property should be leased on the valuation date.
Between a willing lessee and willing lessor on appropriate lease terms.
In an arms length transaction after proper marketing.
Both parties have acted knowledgably, prudently and without compulsion.
What is Market Value?
The amount at which an asset or liability should exchange on the valuation date.
Between a willing seller and willing buyer.
In an arms length transaction after proper marketing.
Both parties have acted knowledgably, prudently and without compulsion.
What is Fair Value?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
What is Investment Value?
The value of an asset to the owner or a prospective owner for individual investment or operational objectives.
What is a cap rate?
The yield used to capitalise a rental income or value to determine the capital value.
What is an Exit Yield?
The capitalisation rate used to capitalise the rental income or value at the terminal date of the DCF valuation.
What is an Initial Yield?
The current income level obtained from the asset at the date of valuation expressed as an annual percentage return of the capital value.
What is a Net Initial Yield?
The current income level obtained from the asset at the date of valuation expressed as an annual percentage return of the capital value plus any purchaser’s costs.
When a property is rack rented.
What is a Reversionary Yield?
The percentage return on capital value of the rental value of the asset at the date of valuation.
When a property is under rented.
What is an Equivalent Yield?
Averaged weighted yield when a reversionary property is valued on an initial and reversionary yield.
What are the five methods of valuation?
Comparable Method
Investment Method
Residual Method
DRC
Profits Method
When would you use the comparable method?
To find market rent - e.g. during rent review or lease renewal.
When would you use the investment method?
When there is an income stream to value.
The income is capitalised through to produce a capital value.
When would you use the profits method?
For trade related properties - e.g. pubs, hotels.
When the value of the property is dependent on the profit of the operations.
When would you use the residual method?
To find the market value of a site.
GDV - BC & DP = Residual Land Value.
When would you use the DRC?
Last resort method - for specialised properties that are not normally traded in the open market.
E.g. lighthouses.
Cost of modern building - less depreciation + land value = Value.
What is a DCF?
Growth explicit investment method of valuation.
Seeks to determine a property value by examining projected cash flow and then discounting the cashflow to establish current value.
Can you explain the key changes brought by the RICS Valuation – Global Standards (2024), effective from 31st January 2025?
What are the significant points in the RICS Valuation – Global Standards: UK national supplement (2023), effective from 1st May 2024?
Rotation policy:
5 years for single ‘responsible valuer’.
10 years for a firm.
3 year min before re-engagement.
Preventing client’s influence in valuation:
must keep note of discussions with client on draft valuations - e.g. information provided by client, how the information was used to change/not change valuation, reasons why the valuation changed/didn’t change.
