Valuation Flashcards
What are the five principal methods of valuation set out in VPS 5?
Comparable, Investment, Residual, Profits (Receipts & Expenditure), Contractor’s method
What document sets out mandatory valuation standards for RICS members?
The RICS Valuation – Global Standards (Red Book) and the RICS UK National Supplement.
Why is the appropriate method of valuation chosen depending on the purpose and nature of the asset?
Different valuation purposes and asset types require different approaches to accurately reflect market value or worth.
What are some key purposes for undertaking valuations?
Lending, acquisition, financial reporting, taxation (e.g. Non-Domestic Rating, Capital Gains Tax), and statutory purposes.
What drives property value at a fundamental level?
Supply and demand, influenced by economic conditions, interest rates, market sentiment, property characteristics, location, planning constraints, and legal title.
What factors might you adjust for when using the comparable method?
Location, size, quality of fit-out, lease terms, specification, and position within a parade.
Why is transparency in recording comparables and adjustments important?
To allow clients, agents, and third parties to understand and audit the valuation rationale.
How do you weight evidence when using the comparable method?
Greater weight is given to comparables that are most similar to the subject in terms of key characteristics.
When preparing a residual valuation, what key market-supported assumptions are required?
Gross development value, construction costs, planning obligations, professional fees, and developer’s profit.
What is the purpose of Terms of Engagement in a Red Book valuation?
To set out the scope, purpose, basis of value, assumptions, and key terms clearly before proceeding.
What impact can biodiversity net gain have on a site valuation?
It can increase costs and risks, potentially reducing the deliverability and value of a development site.
Under which sections of the Red Book are Terms of Engagement required?
PS1 and PS2.
What are key factors assessed during an inspection for a Red Book valuation?
Size, condition, layout, lease restrictions, and any issues affecting value.
How should comparable evidence be treated when valuing a leasehold flat?
It should be critically analysed and adjusted for differences such as floor level, condition, and remaining lease term.
Why is professional judgement crucial in valuation?
Because no two properties are identical, and adjustments must reflect nuanced differences that influence value.
What should a Red Book valuation report include?
Methodology, evidence, assumptions, special assumptions (if any), and a reasoned conclusion.
How is the Investment Method of valuation generally conducted?
By capitalising the net income from a property at an appropriate yield derived from comparable investment sales.
How is the Contractors Method of valuation generally conducted?
By assessing the replacement cost of the asset, deducting depreciation, and adding land value to arrive at a value.
How is the Profits Method of valuation generally conducted?
By analysing the trading accounts of a business and capitalising a maintainable level of net profit to arrive at a value.
What role does market context play when forming a valuation opinion?
It ensures that the valuation reflects wider trends, market sentiment, and the competitive landscape.
How is the Residual Method of valuation generally conducted?
By calculating the gross development value of the completed scheme, deducting development costs, fees, and profit, to arrive at the residual land value.
How is the Comparable Method of valuation generally conducted?
By analysing the sale or rental evidence of similar properties, adjusting for differences, and applying the findings to the subject property.
How is the Comparable Method of valuation generally conducted?
The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and seller, in an arm’s length transaction after proper marketing and where both parties acted knowledgeably, prudently, and without compulsion.
When must a valuation be Red Book compliant?
When provided by an RICS Member or Firm acting in a professional capacity, unless a specific exception applies (such as providing agency advice).
What does VPS 1 of the Red Book require?
Clear Terms of Engagement — setting out the purpose, basis of value, assumptions, restrictions, and reporting format.
What are typical inputs you might assume in a residual valuation?
Gross development value, construction costs, planning obligations, professional fees, finance costs, developer’s profit.
How do you select comparables for a valuation?
By choosing evidence most similar to the subject property in terms of location, use, size, specification, date of transaction, and lease terms (for rentals).
What are the key valuation dates in rating work?
Antecedent Valuation Date (AVD), Material Day, and Effective Date.
What factors would you consider when analysing a lease for valuation purposes?
Lease length, rent review terms, break clauses, repairing obligations, incentives (such as rent-free periods), and alienation clauses.
How do you deal with dated comparables?
By adjusting for market movement, often using an index like the Land Registry HPI or another market evidence source.
