Valuation Flashcards
5 Methods of valuation
- Profit 2. Residual 3. Investment 4. Contractors / Replacement cost 5. Comparable
part 4: Valuation technical and performance standards
VPS 1 - Terms of engagement (scope of work) VPS 2 - Inspections, investigations and records VPS 3 - Valuations reports VPS4 - Bases of value, assumptions and special assumptions VPS 5 - Valuation approaches and methods
what is in a terms of engagement
1) Identification of the Client 2) Identification of any other intended users 3) Purpose of the valuation 4) Identification of the asset or liability to be valued 5) Identification and status of the Valuer 6)Basis of value adopted 7)Valuation currency 8)Valuation Date 9)Conflict of Interest 10)Assumptions to be made 11)Limitations 12)Special Assumptions 13)Nature and sources of information upon which the valuer will rely 14)Restrictions on use, intended users, third parties’ liabilities, distribution and publication of the report 15)Format of the Report 16)Fees and basis on which the fee will be calculated 17)Confirmation of compliance 18)Complaints handling 19)Professional Indemnity Insurance 20Limitations of liability
3 type of approaches
Market approach Income approach cost approach
Bases of value
Market value Market rent Investment value Fair value
Market value
the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.’
Market rent
‘the estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.’
Investment value
‘the value of an asset to a particular owner or prospective owner for individual investment or operational objectives.’
Fair value
The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties’
Special assumption
When an assumption assumes facts that differ from those existing at the valuation date. They are assumptions being made about a future state or event. e.g. Property being vacant but occupied on valuation date or Planning permission being granted.
Assumption
The Valuer accepts something is true without the need for specific investigation or verification e.g. Title Boundaries, Conditions of buildings, services, contamination and hazardous substances, environmental matters, sustainability
Comparable method
use by reviewing evidence of recent sale of similar properties size age condition location quality
Profit
Used for property valuation where the major value component is driven by the profitability of the business that occupy the building (hotels, pubs, cinemas, petrol station)
Residual
Used for valuing developments to establish the viability/profitability. o Method: Gross Development Value (GDV) minus Total Development Cost minus Profit and Purchaser’s Costs = Site Value (NOT market value) (Gross development value less Development costs less Development profit)
Investment
Used to value properties held as investments, when there is an income stream to value e.g. Tenanted Farms There are 2 methods to calculate the Present Value (PV)of a property investment–All Risk Yields (AYR) or Discounted Cash Flow (DCF).