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APC > Valuation > Flashcards

Valuation Flashcards

1
Q

What is the format of the Red Book?

A

The Red Book is the RICS Valuation Professional Standards 2014. This sets out the RICS Professional Standards and Valuation Practice Statements:
• VPS1 – minimum terms of engagement
• VPS2 – inspections and investigations
• VPS3 – valuation reports
• VPS4 - bases of value, assumptions and special assumptions
• VPS5 - valuation approach

  • VPGA 1 - accounts valuations
  • VPGA 2 - loan security
  • VPGA 4 - profits valuations
  • VPGA 8 - real estate valuation (inspection)
  • VPGA 10 - certainty
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2
Q

When do you have to use the Red Book?

A

All valuations apart from:

  1. Negotiations or litigations
  2. Statutory functions
  3. Internal purposes without liability
  4. Agency and brokerage
  5. Expert witness
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3
Q

What are the five methods of valuation?

A
  1. Comparable
  2. Investment
  3. Profits
  4. Residual
  5. Contractors
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4
Q

What are the 4 basis of valuation?

A
  1. Market value – amount for which an asset should exchange at the given date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing where the parties had each acted knowledgably, prudently and without compulsion
  2. Market rent – amount for which an interest should be leased at the given date between a willing lessor and a willing lessee in an arm’s length transaction after proper marketing where the parties had each acted knowledgably, prudently and without compulsion
  3. Fair value – the price that would be received to sell an asset in an ordely transaction between market participants
  4. Investment value (worth) – the value of an asset to the owner, or prospective owner for individual investment objectives
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5
Q

What is marriage value?

A

The value attributed to the combination of two or more assets which creates a new asset that has a higher value then the sum of the individual assets.

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6
Q

How would you value a ransom strip?

A

The generally accepted method is to assign it a value of a third of the uplift in value which is created by releasing it

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7
Q

What is a yield?

A

A return on an income stream expressed annually as a percentage

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8
Q

What is an all risks yield?

A

The capitalisation rate which reflects all the prospects and risks attached to that particular investment – implicit yield.

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9
Q

What should you include in your terms of engagement for a valuation?

A
  1. Name of valuer and disclosure of any previous involvement
  2. Name of client
  3. Purpose of valuation
  4. Identification of the asset to be valued
  5. Basis of value
  6. Valuation date
  7. Extent of investigations
  8. Nature and source of the information to be relied upon
  9. Assumptions and special assumptions
  10. Restrictions for use or publication
  11. Confirmation of Red Book compliance
  12. Description of the report
  13. Fee basis
  14. Complaints handling procedure
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10
Q

What should you include in a Red Book Valuation report?

A
  1. Name of valuer and disclosure of any previous involvement
  2. Name of client
  3. Purpose of valuation
  4. Identification of the asset to be valued
  5. Basis of value
  6. Valuation date
  7. Extent of investigations
  8. Nature and source of the information to be relied upon
  9. Assumptions and special assumptions
  10. Restrictions for use or publication
  11. Confirmation of Red Book compliance
  12. Valuation approach and reasoning
  13. Valuation figure
  14. Date of valuation report
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11
Q

What is the purpose of the UK National Supplement 2019?

A

The first point that this document seeks to stress is that it is just a supplement to the global edition, because it has sometimes been mistakenly assumed that the UK material is self-contained. This has never been the case, and the new edition makes that clear.
outlines that international requirements are not fully suitable for the UK

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12
Q

What is outlined in the Valuation of Individual New build Homes 2012

A

Outlines the new build market, client instructions, reviewing the instructions, inspections and restricted inspections, assumptions and special assumptions, analysing the market and the valuation.

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13
Q

What is outlined in the Valuation of Development Land 2008 & Valuation of development property 2019

A
  1. Establishing the facts
  2. Assessing the development potential
  3. Valuing by the comparison method
  4. Valuing by the residual method
  5. The residual method
  6. Assessing the land value
  7. Reporting the valuation
  8. Conclusion
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14
Q

What are the purposes of valuation?

A 
Loan security 
Rating 
Accounts
Landlord and tenant functions
Tax
Real estate advice
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15
Q

When should you not do a red book valuation?

A 
Statutory basis 
Negotiation 
Internal purposes 
Agency 
Expert witness valuation - duty to the court
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16
Q

Outline the comparable method of valuation?

A 
Look at the subject property
Select comps 
Analyse comps
Display in matrix
Value property 
Stand back and look
17
Q

Outline the hardcore and layer method?

A

Used when current rent is less than market rent
Capitalise the term into perpetuity
Capitalise reversionary top slice at equivalent yield and defer until reversion
Add together
Stand back and look

18
Q

What is the hardcore and top slice method?

A

Used when current rent is more than market rent
Capitalise the market rent into perpetuity
Capitalise top slice until next review using a riskier yield.
Add two values together and stand back and look.

19
Q

What is the equated yield?

A

Internal rate of return with explicit growth.

20
Q

What is a hardcore and layer? When is it used? Draw what the cash flow would look like

A

where the rent passing is calculated into perpetuity and the reversion is valued into perp at a riskier yield and deferred for the number of years.

21
Q

What is a reversionary yield? What other yields are you aware of?

A

Reversionary yield is a term used in the property market to describe the yield that should be achieved if the passing rent adjusts to the level of the estimated rental value.
Equivalent yield
NIY

22
Q

What are you looking for which impacts value on inspection?

A

tenants fit out and use the 21 year rule

flexibility of floor space

23
Q

What is a term and reversion?

A

Rent passing is capitalised for the term

MR is capitalised into perp and then differed for the term

APC (15 decks)

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