Valuation Flashcards
What is the full title of the Red Book?
RICS Valuation Global Standards plus UK Supplement
When did the current edition of the Red Book come into force?
January 2020.
Who are the International Valuation Standards Council?
global independent body overseeing valuation standards – not for profit. RICS & big 4 accountants.
What editions of the Red Book have been in effect during your APC training period?
2017 and 2020. UK Supplement 2019.
What is the purpose of the Red Book?
to provide a framework for uniformity and best practice.
What is the purpose of the UK National Supplement?
provides supplementary information and guidance for valuers in the UK in accordance with UK law and accountancy practice.
To what valuations does the Red Book apply?
all valuations with the exceptions of those listed in Professional Standard 1.
What valuations are exceptions to the Red Book?
Agency, Litigation, Internal, Expert Witness, Statutory
Can you name some valuations that are carried out for a statutory function?
rating, s18 diminution, CPO, 1954 renewals.
What is the difference between Valuation Technical and Performance Standards (VPS) and Valuation Practice Guidance – applications (VPGA)?
VPS mandatory, VPGA advisory/guidance.
What are the possible consequences if a valuer does not comply with VPS?
member may face sanctions from RICS in accordance with Rules of Conduct.
What are the possible consequences if a valuer does not comply with VPGA?
may be used in court as best practice and count against valuer in case of negligence claim.
Describe how departure from the Red Book mandatory requirements may be possible.
if requested by client and agreed in Terms of Engagement and referenced in report. May impact accuracy of valuation.
What information would you require from a telephone enquier who asked ‘can you do me a valuation?’?
contact details (COI), property information, purpose of valuation, access details. Am I competent to undertake this?
What do your valuation files contain?
COI check, TOE, inspection notes, evidence used to support valuation (comparables) and analysis, valuation rationale, report.
What are the main contents of the Terms of Engagement for a valuation?
VPS 1 (TOE / Scope of Work) – 18 headings. Main ones arguably identification of client, identification of surveyor, identification of property, valuation date, fee basis, complaints handling procedure, nature and extent of work, assumptions/special assumptions, purpose of valuation, basis of valuation.
How would you respond to a request to value a property from a pavement assessment only?
request all information possible (plans, up to date internal photographs etc.). Agree limitations on inspection in TOE and resport.
Please name the Red Book bases of value.
market value, market rent, fair value, investment value.
Please name the UK-specific bases of value.
Existing Use Value (and two for residential)
What is the difference between a basis of value and a method of valuation?
basis = Red Book definition of value; method = process undertaken to arrive at value.
Describe three assumptions that are usually made in producing a valuation. –
good title, all necessary planning permissions and building regulations, no hidden defects, services all in good working order.
Give three situations when it would be appropriate to make a special assumption
valuing on the basis of a future planning permission, valuing on the basis of restricted marketing period, valuing on the basis of an occupier / VP (if otherwise); valuing on the basis of future improvements.
Define market value in your own words.
the price that a property should exchange on a given date between a willing buyer and willing seller, after a proper marketing campaign, at arms length when all of the parties have acted knowledgeably, prudently and without compulsion.
What do you consider Proper Marketing to be in the market value definition?
depends on the asset, but whatever exposure to the market is normative for that asset class in that location.
What is an arm’s length transaction?
the parties have not been previously connected or have special interests already in the property.
What is synergistic value?
the value of two purchases to a special purchaser, where the combination of them produce a greater value than the sum of their parts.
What is a special purchaser?
– a purchaser for whom the property gives special advantages and will therefore pay more than market value.
When is market rent not appropriate as a basis of value in providing a report on the rental value of a property, and why not?
lease renewals (s34); rent review (definition of rent governed by the lease).
When is fair value the most appropriate valuation basis?
valuation for financial accounts
What is a regulated purpose valuation?
used in the UK for company accounts.
What is an asset valuation?
valuation for accounting purposes.
When is existing use value the valuation basis?
for owner occupied, non specialised government purposes.
What is the fundamental difference between market value and existing use value?
– market value is the highest and best use.
When is DRC used in asset valuations?
– if there are no comps, no profits and no lease.
Name three situations that can adversely affect the certainly of valuations.
– unique features that impede comparability, limited information (restricted inspection, no lease), significant/disruptive events in the market.
Name the conventional methods of valuation.
– comparison, profits, DRC, investment, residual.
What are contemporary valuation methods?
DCF
What makes a property transaction comparable to the property being valued?
– similarity in one or more ways.
How many comparables are needed to produce a valuation?
– as many as possible
What is the longest time period before a valuation date that a transaction could be accepted as being comparable?
– depends on how quickly the market for that asset class / location moves, but generally 12 months.
What do you understand by the expression ‘weighting of comparable evidence’?
– different pieces of evidence may have more similarities to the subject property, so will be given more emphasis.
What do you understand by the expression ‘hierarchy of evidence’?
– attaching weight/importance to different transaction types.
What is ‘interpolation’ of comparable evidence?
– working within existing evidence.
What is ‘extrapolation’ of comparable evidence?
– working outside of existing evidence (high level of uncertainty)
What is the purpose of ‘zoning’?
to compare retail premises based on their frontage to depth ratios (it is a valuation technique, not a method).
What is the standard ‘zone depth’?
– 6.1m (in my experience).
How would you arrive at the market rent of the first floor of a retail unit?
– usually A/10 of ground floor. Comparables may also guide this.
How would you arrive at the market rent of a retail unit with a return frontage?
– apply a small increase to the Zone A (10% depending on the size of the return frontage) to account for the greater visibility to the high street.
How would you value a shop unit for rent review with frontages on two roads (ie, it is a through unit)?
– zone back from both frontages.
How would you determine the market value of an investment property let on internal repairing terms?
– apply a higher yield to account for landlord’s responsibility for external repair, insurance and management.
What factors make up the all risks yield?
– all factors are implicit in the ARY, but include repair, covenant strength, lease terms, unexpired period, under/over/market rented
What is the market capitalisation rate?
– 100 / ARY. The rate at which the market capitalises income.
How would you value a greenfield site with planning permission for residential development?
– residual valuation. Search for comparable evidence to see if that supports it.
