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.
