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APC > Valuation - General > Flashcards

Valuation - General Flashcards

1
Q

What are the 3 approaches to valuation ?

A
  1. Income - (Investment, Profits)
  2. Market Approach (market evidence)
  3. Cost approach (Depreciated Replacement Cost)
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2
Q

What is the traditional/conventional method ?

A

Rent received or market rent multiplied by yield.

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3
Q

What is the Layer/Hardcore method used for ? and what is it ?

A
  • Over rented properties.
  • The income flow is divided horizontally
  • Bottom slice being market rent
  • Top slice being rent passing minus market rent (until rent review/expiry)
  • A higher yield is applied to top slice to reflect additional risk
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4
Q

How do you calculate the yield of a property ?

A

Income % price
x 100

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5
Q

What are the risk factors involved in determining a yield ?

A
  • Prospects of rental/ capital growth
  • Location
  • Covenant
  • Lease terms
  • Voids
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6
Q

What does DCF involved ?

A

A DCF valuation involves

  • projecting estimated cash flows over an assumed holding period, plus an exit value at the end of the holding period.
  • The cash flow is then discounted at a discount rate (rate of return) that reflects the perceived level of risk.
  • The approach explicitly identifies growth assumptions
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7
Q

What are the various stages used in a DCF ?

A
  1. Estimate cash flow
  2. Estimate Exit Value
  3. Select the Discount Rate
  4. Discount Cash flow
  5. Value in the sum of a completed DCF to provide Net Present Value
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8
Q

What is Net Present Value (NPV)?

A
  • The sum of the discounted cash flow for a project.
  • When positive - the investment has exceeded investors target rate of return
  • When negative - the investment has not achieved the investors rate of return.
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9
Q

What are the elements of finance , a developer would need to borrow money for?

A
  • Site purchase
  • Construction costs
  • holding costs
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10
Q

How are professional costs calculated for a development appraisal ?

A

10 - 15% of total construction costs.

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11
Q

What is the contingency based on?

A

5 - 10% of total construction costs.

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12
Q

What is an S curve?

A

Reflects the payment of construction costs, shaped over the length of the development.

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13
Q

How do you calculate developers profit ?

A

It done as percentage of Gross development value/ or total construction costs.

It’s usually 15 % to 20% depending upon risk.

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14
Q

Give me some examples of development costs?

A
  • Site preparation (clearance/demolition)
  • Planning costs (Section 75’s)
  • Build costs
  • Professional fees (10 - 15% of total construction costs)
  • Contingency
  • Marketing costs and fee’s
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15
Q

What are the LBTT levels ?

A

Up to £150,000 = 0%
£150,001 to £250,000 1%
Above £250,00 = 5%

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16
Q

What are the basis of value?

A
  1. Market Value
  2. Market Rent
  3. Investment Value
  4. Fair Value
  5. Equitable Value
  6. Liquidation Value
17
Q

Define market value ?

A
  • 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.
18
Q

Define fair value?

A

The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

19
Q

Is a Depreciated replacement cost Red Book compliant ?

A

NO

20
Q

When is the Red Book not mandatory?

A
  1. Agency reports
  2. Statutory
  3. Expert witness
  4. Internal purposes.
21
Q

What does PS2 cover?

A

Ethics
Objectivity
Conflcits

22
Q

What are assumptions ?

A

Assumptions are made where it is reasonable for the valuer to accept something as true, without the need for investigation.

23
Q

What is a special assumption ?

A

Is a supposition that is taken to be true and accepted as fact, even though it isn’t a fact.

24
Q

Define investment value ?

A

The value of an asset to a particular owner based on individual investment or operational value.

25
Q

What part of the red book provide information on valuation for secured lending ?

A

VPGA 2

26
Q

What does VPGA 1 cover?

A

Valuation for financial accounts

27
Q

What financing standards need to be considered ?

A

International Financial Reporting Standards

28
Q

What examples of conflicts of interest are there for secured lending ?

A
  • If the valuer has provided advice to the borrower
  • ## If the valuer has a long standing business relationship with the borrower
29
Q

What is the STAMP duty for commercial property ?

A

0 - £150,000 = 0%
£150,001 - £250,000 = 1%
£250,0001 + = 5%

30
Q

What are the 3 main aims of the RICS Valuer Registration Scheme ? (PIM)

A
  1. Improve the quality of valuation
  2. Meet RICS requirements to self regulate
  3. Protect and raise status of valuation proffesion
31
Q

What are the most common bases of value ?

A
  1. Market Value - amount it would transact
  2. Market Rent
  3. Investment Value
  4. Equitable value
  5. Synergistic value
  6. Liquidation value.

APC (25 decks)

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