Valuation

Question 1

What is the structure of the global standards

Answer 1

Pt. 1 Introduction
Pt. 2 Glossary
Pt. 3 Professional Standards (PS)
Pt. 4 Valuation technical and Performance Standards (VPS)
Pt. 5 Valuation (Property Guidance) Application (VPGA)
Pt. 6 International Valuation Standards (IVS)

Question 2

What are the changes of the global standards

Answer 2

1. Definition of Valuer and Valuation (Glossary)
2. Exemption is now Exceptions
3. New requirements for COI and adoption of IPMS
4. Advice on dealing with valuation uncertainty
5. Emphasis on the preparation of ToE for for when RBV is not mandatory (VPS1)
6. ToE - Addition requirements needs when identifying assets. Currency must be stated. Limit on liability. (VPS1)
7. Records of inspection must be kept in business format (VPS2)
8. Definition of Fair Value (VPS4)
9. Forced sale is not a basis of value - “the price that a seller will accept for an asset which reflects particular circumstances”

Question 3

What valuations require compliance with the Red Book

Answer 3

All valuations apart from the five exceptions set out in PS1

(ANIES)
Agency and brokerage excluding PRs
Negotiation and litigation
Internal valuations
Evidence as an external witness
Statutory functions excluding statutory tax returns

Question 4

What are the Valuation technical and Performance Standards (VPS)

Answer 4

VPS1 -ToE (a-r)

VPS2 - Inspection, Investigation and Records.

> Investigation
+ Valuer must take reasonable steps to verify the necessary information to be relied upon.
+ 4 requirements when undertaking a valuation on the basis of restricted information or without the physical inspection:
1) Nature of restriction must be agreed in writing in the TOE
2) Confirm in writing the possible valuation implications due to inspection restrictions
3) consider if the restriction is reasonable with regard to the purpose of the valuation
4) refer to the restriction in the report

> Revaluation
+ A revaluation without inspection must not be undertaken unless the valuer is confident that there’s been no material change
+ Must be confirmed in the TOG

> Records
+ Proper records must be held for the inspection in business format

VPS3 - Valuation Reports (a-p)
Sets out minimum requirements under IVS for a report

VPS 4 - Basis of value, assumptions and special assumptions

> 6 basis of value

1) Market Value (MV)
The estimated amounts for which an asset or liability should exchange:-
- on the valuation date
- Between a willing seller and a willing buyer
- in an arm’s-length transaction
- after proper marketing
- When parties had acted knowledgeably prudently and without compulsion

2) Market Rent (MR)
The estimated amount for which an interest in the real property should be leased:-
- on the valuation date
- Between a willing lessee and a willing lessor
- on appropriate lease terms
- After proper marketing
- When parties had acted knowledgeably prudently and without compulsion

3) Fair Value (FV)
The price that would be received to sell an asset or transfer liability in an orderly transaction between market participants at the measurement date.

4) Investment Value
The value of an asset to a particular owner, or prospective owner for an individual investment or operational objective

VPS5 - Valuation Approaches and Methods
3 approaches for valuation

1) Income approach
- converting current and future cash flows into a capital value (Investment, Residual, Profits)

2) Cost approach
- reference to the cost of an asset whether by purchase or construction (Depreciated Replacement Cost)

3) Market approach
- using comparable evidence (Comparable method)

Question 5

What is Market Value (MV)

Answer 5

The estimated amounts for which an asset or liability should exchange:-

• on the valuation date
• Between a willing seller and a willing buyer
• in an arm’s-length transaction
• after proper marketing
• When parties had acted knowledgeably prudently and without compulsion

Question 6

What is Market Rent (MR)

Answer 6

The estimated amount for which an interest in the real property should be leased:-

• on the valuation date
• Between a willing lessee and a willing lessor
• at an arms length transaction
• on appropriate lease terms
• After proper marketing
• When parties had acted knowledgeably prudently and without compulsion

Question 7

What is Fair Value (FV)

Answer 7

The price that would be received to sell an asset or transfer liability in an orderly transaction between market participants at the measurement date.

Question 8

What is Investment Value

Answer 8

The value of an asset to a particular owner, or prospective owner for an individual investment or operational objective

Question 9

What are the statutory due diligence for a valuation

Answer 9

The statutory due diligence for a valuation include checking:-

1) asbestos register
2) businesses rates
3) Contamination
4) Equality Act compliance
5) Environmental Matters
6) EPC Rating if available
7) Flooding
8) Fire safety compliance
9) Health and safety compliance
10) Highways
11) Legal title and tenure
12) Public rights of way
13) Planning history and compliance

Question 10

What’s the timeline of the valuation instruction

Answer 10

Receive instruction 
Check competence 
Check independence 
Send ToE
Revive signed ToE
Gather information 
Due Diligence 
Inspect and measure
Research market, assemble and verify comps
Undertake valuation 
Draft report
Have report check by another surveyor 
Finalise report
Issue report
Send invoice
File for archiving