Valuation

Question 1

What is the RICS Valuation Global Standard 2017?

Answer 1

Provides mandatory and advisory best practice for members. E.g. PS2 outlining requirements for ethics.

Question 2

What are the 5 methods of valuation?

Answer 2

Comparable
Residual
Profits
Investment
Contractors

Question 3

What is the market approach?

Answer 3

Comparable method of valuation.

Question 4

Residual method?

Answer 4

Calculates the residual land value of the site, development appraisal can be used to assess the viability of a development site.

Question 5

Profits method?

Answer 5

Used by deducting expenses from turnover then capitalising to provide gross profit to give rental figure, genuinely used where rental evidence is limited therefore accounts looked at e.g. pubs/casinos/hotels

Question 6

Investment Method?

Answer 6

Capitalising a rental income.

Market rent
Yield @ x YP
= Capital value

Question 7

Contractors method?

Answer 7

Area x build costs of a MEA
Adjust build costs for age and obsolescence
Factor in land value / location factor
Factor in decap rate to provide rental figure
STAND BACK AND LOOK

Question 8

Who sets decap rates?

Answer 8

Prescribed by DCLG, lower decap rates adopted for work I’ve been involved in, 3.33% for education and healthcare facilities.

Question 9

What is a HMO and what guidance is available?

Answer 9

House in multiple occupation.

Valuation of Buy to let properties & Houses in multiple occupation 1st Edition 2016 Guidance Note.

Question 10

What is a yield and where is it derived from?

Answer 10

Yield = return on investment.

Derived from market evidence, rent / sale price = yield if not stated.

Question 11

What is years purchase?

Answer 11

Reflects the number of years the property’s income will take to repay the sale price.

Calculated from the inversion of the yield e.g. 1/0.08

Question 12

What types of obsolescence are there?

Answer 12

Economic
Functional
Physical

Question 13

What covid grants are available?

Answer 13

Tax holiday for retail, leisure and hospitality for 2020-2021.

Various reliefs for business types according to MCC -
Nursery relief if ofsted registered @100%

Small business £10,000 relief grant

Retail hospitality and leisure relief grants depending on RV @ £15,000 & £25,000 relief grant

Question 14

What are the 4 different bases of valuation?

Answer 14

Market value - estimated amount an asset or liability would exchange for between a hypothetical seller and hypothetical vendor at the valuation date

Fair value - price for transfer of an asset or liability between willing parties reflecting their respective interests

Equitable value

Existing Use Value

Question 15

What is the difference between a mortgage valuation , an insurance valuation and red book valuation?

Answer 15

The mortgage valuation is for the benefit of the mortgage lender. It is designed to give enough information for the lender to decide whether the property is safe to lend on, and up to what amount.

Insurance valuations establish that you owned the pieces at the time of the valuation and their correct replacement value for insurance purposes.

A “Red Book” valuation is designed to ensure that high standards of inspection, investigation, analysis, definitions, justification and presentation are met. The end product should therefore be a well considered and robust document that the intended parties can rely upon.

Question 16

What is a grade A office?

Answer 16

Grade A building has ‘high quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence

Question 17

What does PS1 and PS2 relate?

Answer 17

ps1 - compliance with standards regarding written valuations

ps2 - ethics, competency, objectivity and disclosures

Question 18

What is EBITDA?

Answer 18

Earnings before tax depreciation and amortisation.

Question 19

What is the title of the red book?

Answer 19

RICS Valuation - Global Standards effective 2020

Question 20

What is net yield?

Answer 20

calculated after cost deductions, rent return expressed as a % of purchase price less costs

Question 21

What is a reverse premium?

Answer 21

Lump sum payment made by the landlord to the tenant

Question 22

Value significant factors in leases apart from rent?

Answer 22

Break clause, premiums, incentives such as rent free, convenant strength

Question 23

Name the 5 Valuation practice statements

Answer 23

VPS 1 - minimum terms of engagement
VPS 2 – Inspection
VPS 3 – valuation reports
VPS 4 – bases of value
VPS 5 – Valuation approaches

Question 24

What is a loan security valuation?

Answer 24

A loan security valuation is a detailed report which allows banks (and other money lenders) to make a better informed decision about whether a loan should be issued and how much they could lend you safely.