Valuation Case Specific questions Flashcards
What was the need for the valuation of the plot to take place in 2018?
It took place prior to the development of the timber kit property which was installed.
Why did you use DRC method when valuing farm buildings and what valuation method is this?
DRC is the ‘Contractors Method’ of valuation.
DRC is used to value the landlords buildings within the AHA tenancy.
I am aware this is not typical for DRC and it is used in more unique circumstances (e.g. police station)
Can you talk me through why you used an Investment method valuation when trying to value the farm with a sitting tenant?
Why was your client looking to sell the AHA farm in the first place?
They were undertaking a ‘pilot’ of selling off the land to the sitting tenants, and were keen to assess the ‘appetite’ for this with the tenants.
What was the appetite in the end for the farm sales?
The appetite was low due to:
- Client being a good landlord, undertaking regular maintenance of FE so tenants didn’t feel the urge to buy
- High interest rates on bank loans
- Farming not hugely profitable in the area, cash flow
How did you take the SSSI into consideration when valuing the land?
The SSSI has limitations of access due to ‘operations requiring consent’ could only be grazed for a limited number of months a year, and required consent in order to do so. Fencing had to be maintained.
In terms of Nevie Farmhouse, can you talk me through the valuation figures with Vacant Possession?
My client was not focused on the exact current value of the asset in its current condition; the client had their own internal estate wide valuation.
The internal valuation suggested the value to be £75.000 with sitting tenant, and £150,000 with VP.
Did you take the value of the £ into consideration when projecting rental income for Nevie Farmhouse?
No, my client was only looking for preliminary figures and were not looking for that level of detail.
Had it been a client focusing more on economic return, I would have calculated the Present Value of the future income and apply a discounted cash flow
Did you discuss the change in value of the property with your client following on from the renovation work?
Yes, within the case sheet proposal I advised that if we were to invest £323,000 into the property, I advised that the value of the property value would increase from £150,000 to £360,000 at completion. However, this was an internal estimated value and could not be relied upon.
I advised my client that upon completion, we would provide an updated valuation and a revised EPC in order to truly measure the value generated.
Who helped you come to the figure of £360,000 for the completed Nevie Farmhouse?
I struggled to find local comparable evidence in the area for 4-5 bedroom energy efficient properties.
I approached our residential sales team who had experience of selling properties of this size in the area, and our rural valuation team. They discussed figures internally and agreed this was a fair and sensible figure.
My client was content with this, and I advised that this figure was simply a guide and could not be relied upon.
What do you take into consideration when valuing an 1991 Act tenancy with a sitting tenant?
Need to take into account the possibility of Vacant possession.
- Age, health condition of tenant
- Do they have any plans for succession (near/non near relatives)
-You can use Parrys life tables to help
You mentioned you gave a 50% reduction given that Nevie was occupied by a tenant. How did you come to this %?
- Nothing written on how this is to be valued
- Generally accepted 50% reduction in value.
- Dependent on external factors including the possibility of getting it back in hand.
- Figure was within my clients estate wide internal valuation
Tenant in 50s, still healthy and active.
Why did you not provide more accurate valuation figures for the property with VP and sitting tenant.
My client is unique, and was more focused on
You suggest that it would take in excess of 21 years to see a ROI, would you normally advise this?
No, in this instance my client is very unique, and they were more focused on releasing the asset to re-purpose it to help meet their wider residential objectives.
If this were a different client, I would advise that this investment would not ‘stack up.’ I would advise them to consider investing elsewhere and would have pushed the ‘sale’ recommendation.
You mentioned you estimated a rent review increase of 5% over 3 years. Can you explain how you got to this figure and did you take into account ROI?
- I used a local average RR achieved across the board pre-covid.
- I wanted to manage expectations, and did not want to overpromise rent review return to my client. I felt an annual rent review which totalled 5% across 3 years was achievable.
- My client was less focused on ROI and therefore we did not look into detail
