Valuation Flashcards
What are the five main methods of valuation?
Comparable Method Investment Method Profits Method Residual Method Depreciated Replacement Cost Method (Contractors Method)
What are the approaches to valuation?
Income approach
Cost approach
Market approach
How would you use the income approach? And what methods of valuation rely on the income approach?
I would convert current and future cashflows into a capital value. This covers the Investment, Residual and Profits Method.
How would you use the cost approach?
The cost approach looks at the value of the land in its existing use and then adds the cost of replacing the building, plus fees and less a discount for depreciation and obsolescence/deterioration.
What is the market approach?
The market approach looks at using comparable evidence.
Give examples of the different types of properties that would be valued by the different methods of valuation.
Comparable - residential housing
Investment - offices (anything) with a rental income
Profits - pubs, hotels, leisure
Residual - development opportunities
DRC - owner-occupied properties or properties with no direct comparables i.e. specialised properties such as sewage works, lighthouses etc.
Why must you have the correct level of competence to complete a valuation?
Professional standard 2 covers ethics, competence, objectivity and disclosure.
Under PS2 the valuer must act objectively and independently and act in accordance with the five RICS professional and ethical standards and RICS rules of conduct. One of the RICS rules of conduct for members is competence and for the professional to work with due skill, care and diligence.
Why must you have signed terms of engagement?
Professional standard 2 says that the valuer must understand the clients’ requirements and comply with the minimum terms of engagement which are set out in VPS1
When do you not have to follow the RICS Valuation Global Standards 2017?
PS1 says that all written valuations must be written in accordance with the Red Book unless there are for one of five exceptions:
1. For negotiation / litigation
2. For a statutory function
3. For internal purposes
4. For agency / brokerage
5. For expert witness purposes
However, it does also say that you should try where possible to follow VPS1-5.
What would be included in Terms of Engagement?
Would include: Identification and status of valuer Identification of client Identification of intended users The asset to be valued The currency The purpose of the valuation The basis of value The valuation date Extent of investigation Nature and source of the info to be relied upon Assumptions and Special Assumptions Format of the report Restrictions of use, distributions and publication Confirmation of Red Book compliance Fee basis Complaint Handling Procedure Statment that the valuation may be subject to compliance by the RICS Limitation on liability agreed.
You say you valued a residential property in Winterbourne using the residual comparable method, why did you do this?
The comparable method is the preferred method of valuation as it uses the market to inform the opinion of value. Where there are a lot of comparables it should be the main form of valuation.
You say you valued a residential property in Winterbourne using the residual comparable method, what were your comparables like?
A collated a number of comparables. 2 on the same street. There was a difference in values so I spoke to market agents to help inform my opinion of value.
You say you inspected an apartment block in central Bristol for internal purposes, when you completed the inspection, what were you looking for?
I was looking for anything that would influence the valutationof the property such as the location, the aspect, the form of construction, any defects, the current condition of the building.
You say you assisted with the valuation of an apartment block in central Bristol for internal purposes, how did you negotiate the fee?
The client wanted a valuation and also a market report. Because they were asking for two separate reports but of the same building I informed them how much we would normally charge for each report and the discount I was willing to offer to provide both reports.
You say you undertook a valuation of a residential development in Limpley Stoke for loan security purposes. What advise did you give?
I advised that the 15no. unit scheme and the 20.no unit scheme were suitable for lending purposes as the Market Values established through my residual appraisals allowed for a suitable LTV ratio.
You say you undertook a valuation of a residential development in Limpley Stoke for loan security purposes.
What were the planning risks associated with the 20no. unit scheme?
The 20no. unit scheme required the building to be extended to provide an additional floor.
You say you undertook a valuation of a residential development in Limpley Stoke for loan security purposes.
How did you reflect risk in your valuations?
Risk was included in the residual valuations through contingency, developers’ return/profit.
(Risk can also be accounted for in time scales.)
You say you undertook a portfolio valuation for loan security purposes. Why did you advise that the portfolio was suitable for lending?
Why would you allow doe a bulk discount?
I valued each property in the portfolio separately (using the comparable method) and the accumulated value the properties was far in excess fo the loan value. I also advised that even if the portfolio was sold off as a portfolio there the bank would still be able to achieve a value in excess of the loan with a bulk discount.
You would allow for a bulk discount because it is the market norm standard. There arent many people in the market who can afford to buy properties in bulk and would they would expect a discount.
You say you were instructed to undertake a valuation of a college building in Bath for internal purposes. You say that you valued the property based on alternative use value. Why did you do this?
The property was used as an office but had an educational use class (D1). As educational facilities are rarely traded I advised the the building would recieve interested from the office market if sold but refelcted the risk of having to obtain a change of use in my valuation. The building’s layout was suited to an office configuration but I did also say that there would also be interest from other uses.
