Valuation Flashcards

Question

# South Acton Residual Could you have used another valuation method?

Answer 1

- Best practice = avoid relying on a single method (valuation of development property, 2019) - Could use the comparative method (land value per square foot) to check residual value - However, as first pass and atypical asset for the client, not necessary.

Answer 2

- Such a low offer means the landowner wouldn’t even consider the bid. Therefore no point wasting resources on this - Also, not their typical project

Answer 3

Although not qualified, as an aspiring surveyor I know that where written valuation advice provided PS1 and PS2 mandatory even when advice only internal - **Follow Key Principles**: Ensure impartiality, competence, transparency, and consistency in the valuation process. - e.g not fudge numbers to give myself more work! - **Apply Professional Judgment**: Use your expertise to interpret market data and manage risks, while ensuring ethical standards are maintained.

Answer 4

- Used to assess market rent and market value - Can be used when goof body of recent, reliable comparable rental, yield or sales evidence

Answer 5

Used when there is an income stream to value (i.e property is tenanted) Rental income capitalised to produce a capital value Traditional apoproaches = growth implicit (growth built into yield) - Conventional method (rack rented) ----> rent recieved/market rent * YP = value - Term and Reversion (under rented) ----> reducing term yield to reflect below market rent until reversion - Hardcore (over rented) ----> increasing yield above market in topslice to reflect risk of over rent - Alternate approach = use Discounted Cash Flow (DCF), which is modelled explicitly.

Answer 6

Used when market rent more than passing rent (under-rented) * Term capitalised until next review/lease expiry at an initial yield * Reversion to market rent valued in perpetuity at a reversionary yield

Answer 7

Used when passing rent more than market rent (over-rented) Income flow divided horizontally -> combines bottom slice and top slice to give market value * Bottom slice = market rent capitalised into perp (lower yield as lower risk) * Top slice = rent passing less market rent capitalised into perp until lease event (higher yield applied to top slice to reflect additional risk)

Answer 8

Where projected cash flows are explicitly estimated over a finite period, e.g On complex projects over multiple phases

Answer 9

- The client wanted an indication of value, and the comparative would provide the required components (rents and yields) to be able to provide the capital value. - Then, the conventional investment method was used by dividing the rent by an ARY to give a capital value.

Answer 10

Use comparative method to determine **£Capital Value PSF**

Answer 11

- If it was under-rented, I would use Term and Reversion method, and if over rented would use layer and top slice method

Answer 12

- There was a lack of letting transactions. I therefore had to look further afield, as supermarket transactions were not overly common in the area.

Answer 13

- Strong evidence of similar rack rented transactions, therefore I was confident that the net initial yield you applied was reflective of the future income risk within the property

Answer 14

Resulting yield adjusting for purchasers costs (typically 6.8%) Therefore reflected more realistic view of investment.

Answer 15

- The initial income after operating expenses divided by the purchase price, providing a clearer reflection of actual return. ---> NIY= rent / initial yield * 1/(1-PC) - accounts for expenses and is calculated at the time of purchase, focusing on the actual return an investor is likely to get right after buying the property.

Answer 16

A measure of investment return -> expressed as a percentage of capital investment Calculated by expressing rental income as a % of property cost -> (income/price x 100)

Answer 17

The yield not adjusted for purchasers’ costs (such as an auction result)

Answer 18

Yield achieved if the passing rent adjusts to the level of estimated rental value Market rent divided by current price on an investment let at a rent below the Market Rent

Answer 19

The internal rate of return taking into account growth (growth in future income)

Answer 20

Weighted average yield -> Average weighted yield when a reversionary property is valued using an initial and reversionary yield

Answer 21

Simple income yield for current income and current price

Answer 22

Assumes rent is paid in advance not in arrears (traditional valuation practice assumes rent is paid in arrears)

Answer 23

Initial yield assuming rent is paid in arrears

Answer 24

The yield at one moment in time

Answer 25

The remunerative rate of interest used in the valuation of fully let property let at market rent reflecting all the prospects and risks attached to the particular invesmtent The construction (age, design, specification) The quality of the tenants covenant The amount of rent (i.e. market-rented, over/under-rented) The unexpired lease term The other lease terms Anticipated rental growth (location)

Answer 26

* Asbestos register * Business rates / council tax * Contamination * Equality Act compliance * Environmental matters * Fire safety and H&S compliance * EPC rating * Flooding * Planning history and compliance

Answer 27

1. Check competance upon receiving instruction 2. Conflicts of interest check 3. Issue ToE and receive signed 4. Gather information (leases, licences, title docs, planning info, OS maps) 5. Due diligence check (ensure no matters could adversely impact value) 6. Inspect and measure 7. Research market and assemble, verify and analyse comparables 8. Undertake valuation 9. Draft report 10. Have report reviewed by another surveyor 11. Finalise and sign report 12. Report to Client 13. Issue invoice 14. Ensure files kept for archiving

Answer 28

RICS Valuation - Global Standards (2025) Contains mandatory rules, best practice guidance and related commentary

Answer 29

* To promote and support high standards in valuation delivery worldwide * Establish a framework for best practice for valuers * Enables consistency, transparecy and avoids conflicts

Answer 30

Assists with the application of global standards in a local context

Answer 31

1. Search & Select comparables 2. Confirm / verify details and analyse headline rent to give a net effective rent as appropriate (e.g incentives)? 3. Assemble comparbles in schedule 4. Adjust comparbles using hierarchy of evidence (& knowledge) 5. Analyse comparables to form opinion of value. Sense check! 6. Report value and prepare file note

Answer 32

- **Category A - Direct Comparables of contemporary** --> Completed transactions of near-identical/similar properties where full and accurate data is available - **Category B - General market data that can provide guidance** --> Information from published sources or commercial databases - **Category C - Other Sources** --> Transactional evidence from other real estate types and locations/economic data

Answer 33

- I found 1-3 bed comparables on Rightmove/Zoopla, analysed and adjusted them based on similarity to the asset - I then calculated a £psf rate for each unit type - This rate was then applied to the relative NIA’s (as consented) - The total of this gave the total GDV for the resi element development

Answer 34

term and reversion

Answer 35

hardcore/ layer method

Answer 36

Number of years it takes for investment property to repay initial purcas price inverse of a yield

Answer 37

Current value of a future sum of money or stream of cash flows given a specified rate of return

Answer 38

1. Estimate the cash flow (income less expenditure) 2. Estimate the exit value at the end of the holding period 3. Select discount rate 4. Discount cash flow at discount rate 5. Value is the sum of the completed discounted cash flow to provide the NPV

Answer 39

RICS Guidance Note on Rights of Light 2016 -> 20 years uninterrupted enjoyment of light = right to light

Answer 40

AKA Party Wall Award - a legal agreement between neighboring property owners that outlines the rights and responsibilities related to shared party walls or structures.

Answer 41

Rent received less ground rent = net rental income Capitalised at appropriate yield for remaining term = Market Value of leasehold interest

Answer 42

Weighted average Unexpired Lease Term - remaining to the first break or expiry of a lease across asset weighted by the contracted rent - Calculation often undertaken when valuing an asset or considering appropriate investment yields comparables for multi-occupied individual investments or portfolios

Answer 43

from 17th March 2016: - 0% on first £150k - % on next £100k - 5% above £250k

Answer 44

Agent Fees Legal Fees Search/Registration Fees Stamp Duty land Tax

Answer 45

Developer needs to borrow money for the: 1. Site purchase - compund interest 2. Total construction costs and associated costs - calculation based on an S-curve and taking half of the costs over the length of the build programme 3. Holding costs to cover voids until the disposal scheme -> compound interest on a straight line basis

Answer 46

**Estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and willing lessee** 1. appropriate lease terms 2. in an arm’s-length transaction 3. proper marketing 4. parties acting knowledgeably, prudently and without compulsion**

Answer 47

**The estimated amount for which an asset or liability should exchangeon the valuation date between a willing buyer and a willing seller** 1. in an arm’s-length transaction 2. after proper marketing 3. and where the parties had each acted knowledgeably, prudently and without compulsion

Answer 48

The value of an asset to the owner or a prospective owner forindividual investment or operational objectives

Answer 49

an interest where redevelopment is required to achieve the highest and best use, … or where improvements are either being contemplated or are in progress at the valuation date