Valuation Flashcards
What is market value for IHTA purposes?
the price which the property might reasonably be expected to fetch if sold in the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is marketed as one
What are the 5 valuation methods?
Comparable, Investment, Profits, Cost based and residual
What is a Discount Cashflow Valuation?
Valuation determines a company’s current value by analysing financial forecasts of its profits, typically through cash flows
What TofE would be in Red Book valuation?
VPS1:
Identification and status of the valuer
Client and any other users
Property to be valued
Currency
Purpose of Valuation
Basis of value
Valuation date
Special assumptions
List VPS 1-6
- VPS 1 Terms of engagement
- VPS 2 Bases of value, assumptions and special assumptions
- VPS 3 Valuation methods
- VPS 4 Inspections, investigations and records
- VPS 5 Valuation models
- VPS 6 Valuation reports
Market value
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 arms-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion
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 arms-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion
What is PS1?
PS 1 Compliance with standards where a written valuation is provided
What is PS2?
PS 2 Ethics, competency,
objectivity and disclosures
What are examples of non-redbook valuations?
Marketing appraisal, Compulsory Purchase, Negotiation, Internal purposes, Insurance and Accounting
Things to consider using comparables.
Location, date of sale, property type, Size, special purchaser
Fair value vs MV
Fair value is related to two specific parties taking into account respective advantage and disadvantages each will gain from transaction
If you provide preliminary advice what should you state?
Opinion is provisional subject to completion of report, advice for clients internal purposes only.
Can you revalue property without inspecting?
No
Can a special purchaser be considered in MV?
Only where special purchaser is known to market and is financially able.
How do you decide which valuation method to apply?
Consider the asset’s nature, marketability, available data, valuation purpose, market conditions, and data reliability.
When and why would you use the comparable method?
Used in Inheritance Tax (IHT) assessments. Lending purposes.
What is a years purchase multiplier?
Multiplying the annual income (like rent) by a factor based on the expected yield or rate of return.
Give me an example of a good covenant and how this might impact a valuation.
A positive covenant is a promise to do something or to make a financial contribution. Common examples include covenants to build and maintain a fence.
What is PI Insurance (PII)?
Business cover that protects against financial loss resulting from claims of negligence or errors in professional services provided to clients.
Tell me about the RICS requirements in relation to PII.
RICS’ minimum standards include a minimum policy wording and cover from a RICS-listed insurer, ensuring coverage for both current and past work.
How did the decision in Hart v Large affect PII?
It highlighted the need for surveyors to be clear about the scope of their inspections.
What should you do if you receive a notice of a PII claim from a client or their solicitor?
You must notify your insurer as soon as you become aware of a claim against your firm.
Is there a difference between being negligent when undertaking a survey/valuation and providing negligent advice?
Negligent advice involves providing incorrect guidance on a transaction, while negligent surveys/valuations involve failing to meet the expected standard of care in the inspection or valuation process.
What is run off cover?
To ensure that firms, members and their clients are not exposed to financial detriment in the period following a firm ceasing to trade for a minimum of 6 years.
What is the Red Book?
A publication by the Royal Institution of Chartered Surveyors (RICS) that outlines mandatory practices for RICS members undertaking valuation services.
Why does the Red Book exist?
To provide a comprehensive framework and mandatory standards for RICS members undertaking valuation services ensuring consistency.
What is your duty of care as a surveyor when undertaking a valuation?
Valuers owe a duty of care towards their clients, both in contract and in tort (for negligence).
Why is independence and objectivity important when valuing?
To ensure fair and reliable assessments, free from bias or conflicts of interest.
What is the UK valuation guidance called?
Red Book UK National Supplement was published on 19 October 2023 and is effective from 1 May 2024.
Why does the UK guidance exist?
Valuations undertaken subject to UK jurisdiction.
Which do you follow - the latest IVS or the Red Book Global?
RICS Red Book Global Standards
Which sections of the Red Book are mandatory and which are advisory?
In 2025, the mandatory sections of the RICS Valuation Global Standards (the Red Book) are Professional Statements (PS 1-2) and Valuation Technical and Performance Standards (VPS 1-6)
What can a small firm do to ensure objectivity in valuations?
Develop clear, written procedures for all valuation and decision-making processes.
What is a method for internal reviews in a small firm?
Implement a system where work is reviewed by other principals or colleagues, even if it’s not a formal rotation.
How can a small firm separate duties?
Try to separate valuation responsibilities from other functions where possible.
When might a conflict of interest exist in relation to a valuation instruction?
When there is a financial interest in the valuation outcome.
What RICS guidance relates to the use of comparable evidence?
Comparable evidence in real estate valuation
What is an internal valuer?
An employee of the entity that owns the assets being valued, or a related company, who provides valuations for internal use, such as financial reporting.
Can an external valuer provide an internal purposes valuation?
Yes
What happens if market conditions change between the valuation date and report date?
The valuer should draw attention to this in the report, as the valuation reflects the market state at the valuation date, not the report date.
Is special value from a special purchaser reflected in MV?
Special value is what a particular investor or group of investors believe the assets to be worth due to some unique advantages to be realized from the asset acquisition.
Where does the definition of fair value come from?
International Financial Reporting Standard (IFRS) 13
Does this differ from MV?
Fair Value is related to ‘two specific parties, taking into account the respective advantages or disadvantages that each will gain from the transaction.’
When is fair value used?
Fair value, a rational and unbiased estimate of a potential market price, is used in accounting, negotiations, and due diligence to assess the true worth of assets, goods, services, or liabilities, especially when recent sales data is unavailable or when valuing assets in less liquid markets.
What are the 3 valuation approaches set out in VPS 3?
The market approach, the income approach, and the cost approach.
What does VPS 5 say about valuation models?
A quantitative method that converts inputs into outputs used in value development.
What is the Valuer Registration Scheme?
A quality assurance program by the (RICS) that monitors all RICS members who carry out valuations within the scope of the RICS Valuation Standards (‘Red Book’) to ensure consistent standards.
What is a yield?
Yield are a measure of investment return. They show the income expressed as a percentage of capital invested.
(Income / price) x 100
Yields are growth implicit
What is the hierarchy of evidence?
RICS have categorised comparables into three categories, forming a hierarchy of evidence.
What is Category A in the hierarchy of evidence?
Category A direct transactional evidence.
What is Category B in the hierarchy of evidence?
Category B general market data providing guidance rather than a direct indication of value, such as evidence from published sources, historic evidence and demand/supply data.
What is Category C in the hierarchy of evidence?
Category C other sources, such as transactional evidence from other property types and locations and other relevant background data.
When would you use a DCF?
To estimate the intrinsic value of a business, project, or asset, by calculating the present value of its expected future cash flows, which is useful for investment decisions.
What is a PV/YP in perpetuity?
PV is current worth of future sum of money. Year’s purchase is a multiplier to determine capital value based on future income.
What is marriage value?
The additional value created when combining two or more assets or interests, where the combined value exceeds the sum of their individual values.
When would you include an element of hope value in a valuation?
Land with development potential.
Can you include hope value in a secured lending / mortgage valuation?
Not included in the valuation, as lenders base loan amounts on the current, tangible value of the property.
How would you value a ransom strip?
The value of the ransom strip equated to one third of the uplift in its value created by the release of the access across the ransom strip after deducting the developer’s profit and a further sum for the costs of ‘roads, sewers, fencing, consents and contingencies’ etc.
How does market value differ to investment value/fair value?
Market value is the current price an asset can be bought or sold for in the open market. Investment value or fair value represents the intrinsic worth of an asset, potentially influenced by an investor’s goals or specific circumstances.
What is a dual capitalisation rate and when would you use one?
Uses two different interest rates to value an investment, particularly leasehold interests, by considering both the return on investment and the need to replace capital over time.
What type of properties would you use the profits method for?
Shop.
What type of properties would you use the DRC method for?
Specialized properties where there is no active market or limited market transactions such as a school.
When would you use the profits method?
Value properties, particularly commercial properties, when the value is derived from the profitability of the business operating on the property.
How do you assess the value of the land?
Consider location, accessibility, road access, geographical features, market trends, utilities, environmental conditions, and mineral rights.
What would you do if the building could be replaced with a modern equivalent?
The modern equivalent will reflect the cost that would be incurred if the works were commissioned on the valuation date.
How would you deal with depreciation/obsolescence?
Use the Depreciated Replacement Cost (DRC) method, which involves assessing the cost of replacing an asset with a modern equivalent and then deducting for physical deterioration and all relevant forms of obsolescence.
Is the cost approach a market valuation?
No, it estimates a property’s value based on the cost to rebuild or replace it.
What is the margin of error?
Margin of error can be 10% either side of a figure.
What caselaw relates to margins of error?
Singer and Friedlander v John D Wood & Co [1977].
In a scenario where rents are static and the capital value increases, would you expect yields to increase or decrease?
Yield decreases (lower percentage of the total capital value).
What does the term ‘tone of value’ mean?
The general level or prevailing market value for a specific type of property in a particular area, taking into account comparable properties and recent transactions.
What key RICS guidance relates to rural valuation?
‘Valuation of Rural Property’ Professional Standard (reissued in 2022).
What types of property does the RICS Professional Standard Valuation of Rural Property apply to?
Commercial farms and farmland, all forms of rural landed estates and residential property in the countryside with land attached.
How do you tailor your valuation advice to rural clients?
Emphasis on rural markets (land, forestry, farms etc.).
How would you tailor your inspection to a rural valuation?
Take wellies and warm clothes, a plan of the fields.
What are some of the key factors that affect the value of rural property?
Land quality, condition, location.
How would you assess the quality or type of land being valued?
Land Capability Index.
What is a material consideration you may encounter in a rural valuation?
Matters may include: title tenure and possession leases, tenancies and occupational licences restrictions and encumbrances.
How do you assess the impact of secured tenancies on value?
An alienation clause prohibiting subletting could adversely affect value in a market with a significant proportion of buy-to-let investors in which there is demand to let on assured shorthold tenancies.
What is an annual return?
Legally required document that all registered companies must file with Companies House, providing key company information, including directors, shareholders, and registered office address, and must be submitted annually.
What happens if you have surplus money in a client account that is not claimed after 6 years?
It must be donated to a registered charity. A receipt will be obtained, and the charity may offer an indemnity, allowing the firm to recover the donation if a claimant later emerges.
What is a reconciliation?
Comparing two sets of financial records to ensure they are accurate and consistent.
What controls should be in place relating to holding client’s money?
Maintaining separate client bank accounts, providing written confirmation of account conditions, and notifying clients of account details.
What is VGPA?
specific guidance documents within the RICS’s Global Standards for property valuation
What is VPGA 2?
Valuations for secured lending
