Valuation Basics Flashcards
(75 cards)
What are the five methods of valuation
Calculation to derive valuation bases
- Market based:
- Comparable – find comparable evidence
- Investment – capitalise the rental value
- Residual – land value (GDV - development costs – profit = land value)
- Profits – use YP multiplier to capitalise profits
- Non-Market based:
- Depreciated Replacement Cost – current cost of reproduction/replacement
When instructed to do a valuation what steps would you consider?
In accordance with the RICS Valuation Standards
Competence
Independence
Issue TofE - conf of instruct. Competence. Extent and limitations
What are the global basis of value?
Market value Market rent Fair value Investment value (worth) Existing use vale (UK only)
What is the definition of market value?
The estimated amount a property or liability will exchange for on the date of valuation between a willing seller and willing purchaser at an arms length transaction after proper marketing where the parties have acted prudently, willingly and without compulsion.
Take me through the process of a valuation
Firstly I would check my competences, independence and issue ToE.
Signed by client, gather info, due diligence, inspect and measure. RESEARCH MARKET, analyse undertake val. draft report get checked finalise and issue. Send invoice, ensure invoice completed before archiving.
What checks would you do for a valuation? 11
- Asbestos register
- BUSINESS RATES
- Equality act compliance
- ENVIRONMENTAL MATTERS
- Contamination
- Flooding
- Fire strategy compliance
- H&S compliance
- HIGHWAYS
- Legal title and tenure
- Planning history and compliance
What is a valuation?
An opinion of the value of a specified interest in a property on the date if valuation put in writing after an inspection and thorough investigation; unless agreed in ToE not to.
What is worth?
The value a property to an investor (known as investment value)
What is the basis of value?
A statement of the fundamental measurement assumptions on which the reported value is based. Dependent on the purpose of the valuation.
What affects the basis of value?
The nature of the hypothetical transaction
The relationship and motivation of the parties
The purpose of the valuation
What are the different purposes of valuation?
Investment purposes Accounting purposes Loan security purposes Insurance purposes Development purposes
What is market rent?
An estimated amount for which a property will be leased
at the date of valuation
Between a willing lessor and willing lessee
On appropriate lease terms
At an arms length transaction
After proper marketing
Where the parties have acted willingly knowledgeable and without compulsion.
What is fair value?
The estimated price for the transfers of an asset
between identified and knowledgeably parties
that reflects the respective interests of said parties.
What is investment value?
The value of an asset to the owner or prospective owner for individual investment or operational objectives. (Worth).
What is a yield?
A measure of investment return expressed as a percentage of capital invested.
How is a yield calculated?
Income divided be price times 100
= of income was £350,000 pa and the price was £4,500,000 the yield would be
350000/4500000*100= 7.78%
What is a year’s purchase?
The number of years required for an income to pay the purchase price
How is the year’s purchase calculated?
Dividing 100 by the yield. = 100/7.78%= 12.85
What makes a good comparable?
Comprehensive Verifiable Very similar Recent Arms length transaction in open market Consistent with local market practice
What is the principle of comparable evidence?
Underpins valuation as providing the comparables meet the criteria it can provide an accurate indication of value.
What are the three main global approaches to valuation?
Market approach (comparable) Income approach (investment, profits) Cost approach (replacement, residual)
What is the main issue with comparable evidence?
No two properties are identical, lack of transparency affects the use if a comparable.
Therefore the valuer must analyse and interpret available data as a guidance rather than as a direct comparable. SEE RED BOOK GUID NTE 1, REFLECTING UNCERTAINTY IN VALS FOR INVEST PURPOSES.
When would you apply the investment method?
Used when there is an income stream to value. The rental income is capitalised to produce a capital value
When would you apply a term and reversion method?
When the market rent is more than the passing rent.