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valuation > Valuation 2 > Flashcards

Valuation 2 Flashcards

1
Q

Name the Conventional Methods of Valuation

A
  • Comparison
  • Investment
  • Profits
  • Residual
  • Contractors (Depreciation Replacement Cost )
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2
Q

What are contemporarty valuation methods

A
  • Discounted Cash Flow
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3
Q

What makes a property transaction comparable to the property being valued

A

Similarities to the subject property in:
- physical characteristics
- location
- use
- tenure
- Timescale

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4
Q

How many comparable are needed to produce a valuation

A

As many as possible.
Enough comparables to establish a trend

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5
Q

What is the longest time period before a valuation date that a transaction could be accepted as being comparable

A

Subject to property and market conditions.

i.e Covid would have distorted comparable

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6
Q

What do you understand by the expression weighting of comparable evidence

A

Attach more weight to the evidence most similar to the subject property.

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7
Q

What do you understand by the expression ‘hierarchy of evidence’

A

Rank comparables by order of transaction type

  1. Open Market lettings
  2. Lease renewals
  3. Rent reviews
  4. Independent expert’s determination
  5. Arbitrator’s awards
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8
Q

What is interpolation of comparable evidence

A

Working on a valuation which sits between two known points of value.

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9
Q

what is extrapolation of comparable evidence

A

Working outside the range of known comparables.

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10
Q

what is the purpose of zoning

A

Technique used to calculate value at retail units with different depths and widths.

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11
Q

What is the standard zone depth

A

6.1m = 20ft

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12
Q

How would you assess the market rent of the first floor of a retail unit?

A

At 1/10th ITOZA

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13
Q

How would you arrive at the Market Rent of a retail unit with a return frontage?

A

put a % uplift on the area of the return frontage.
Usually 5%

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14
Q

How would you value a shop unit for rent review with frontages on two roads (through unit)

A

You would zone back from both shop fronts, this can be completed at different rates.

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15
Q

How would you determine the market value of an investment property let on IRI terms?

A

Check any comparable on similar terms.
Deduct external repairs, management fee and insurance to give you your net rent, which is capitalised.

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16
Q

what factors make up the all risks yields.

A

All risks yield is made up of all the risks associated with the investment:
- Construction
- Rental Growth
- Tenant’s covenant
- Lease terms
- Unexpired lease term

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17
Q

What is the market capitalisation rate?

A

the rate that the market will capitalise the income i.e all risk yield

18
Q

How would you value a green field site with planning permission for development?

A

First instance use comparative method.

If there is a lack of evidence use the residual method.

19
Q

Describe how you have carried out a residual Valuation?

A

Gross Development Value - development costs - developers profit = land value.

20
Q

What costs would you deduct in a residual valuation

A
  1. Demolition
  2. Construction
  3. Construction fees on construction (surveyors)
  4. finance
  5. contingency costs (allowance for fluctuation of costs)
  6. legal fees
  7. acquisition costs
  8. Developer’s profit
21
Q

What costs have you attributed to professional fees?

A

10%

22
Q

What cost would you attribute to finance

A

7%-8%

23
Q

How did you calculate developer’s profits in a residual valuation?

A

I used the industry norm at between 15-20% of GDV
Which reflected risk associated with the location.

22-25% of Total Construction cost

24
Q

What are the disadvantages of the residual method?

A
  • relies on a lot of assumptions and estimates
  • Does not account for the opportunity cost of the land. The value that you could be earned by using the land for another purpose.
25
Q

What are the usual acquisition costs of a development site?

A
  • Stamp duty land tax (0% on first 150k, 2% on next 100k, 5% thereafter)
  • Agents fees (1%)
  • Legal fees (0.5%)
  • Non recoverable VAT (0.3%)
26
Q

What is a ransom strip?

A

Land that gives sole access to the development land

27
Q

What is ransom value?

A

Value attributable to the ransom strip

28
Q

How did you value a ransom strip?

A

1/3 of the increase in value to the development land as a result of access.

29
Q

What does the Stokes v Cambridge case mean to you?

A

A 1/3 of the increase in value of the industrial unit

30
Q

What is the profits method also know as?

A

Accounts method

31
Q

Name three property types that would be valued by the profits method

A
  • Hotel
  • Cinema
  • Casinos
  • Golf Courses
  • Leisure Centres
32
Q

Why are certain properties valued by the profits method

A
  • Cannot be valued by comparison
  • Where use is integral to the property
  • Value of the property lies within the use
33
Q

Explain the basic approach of the profits method

A

Turnover (net of VAT)
LESS costs of generating turnover
= Net operating Profit
Which is then capitalised

34
Q

What valuation checks can be carried out on a valuation produced by the profits Method?

A
  • capitalising gross turnover
  • adjusted net profit by the required return on capital
  • price per seat, table, room
35
Q

When is the contractor’s method used in practice

A

It is a method of last resort.
- specified properties
- inclusion in company accounts

36
Q

what is another name for the contractor’s method?

A

Depreciated Replacement Cost (DRC)

37
Q

Explain the basic approach to the Depreciated Replacement Cost (DRC)

A

Gross Replacement cost
LESS Depreciation
= Net Replacement Cost
PLUS Value of Land

38
Q

Explain what is included in Reinstatement cost for insurance purposes

A

Demolition
Shoring up adjoining buildings
rebuilding in line with current building regs
Professional fees

39
Q

How would you value a property for which there is no comparables

A

Must resort to contract method

40
Q

What are the purposes of valuation

A
  • loan security
  • investment
  • taxation
  • internal purposes
41
Q

Is the red book mandatory?

A
  • You should confirm with the red book where possible
  • There are certain exclusions to the red book such as XYZ
  • If you do complete a valuation outside of the red book guidance, state in the red book.

valuation (3 decks)

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