Valuation General And Comparable Method Flashcards
Definition of an internal and external valuer
Internal
- employed by company to value the assets of the company
- valuation for internal use only
- no third party reliance
External
- has no material links with the asset to be valued or the client
What are the first steps you should take before undertaking a valuation instruction?
1competence
- am I competent in this area do I SUK have the skills knowledge and understanding?
Independence
- do I have any conflicts or independent interests?
Terms of engagement
- set out in writing full confirmation of instructions prior to starting the work.
Confirm competence of the valuer
Extent of and limitations of inspection should be stated
What are some examples of statutory due dilligence? And why should you do this?
To check if there is anything that could materially affect property value
Includes:
- Asbestos register
- Business rates/Council tax
- Contamination
- Equality Act 2010 compliance
- Environmental matters (high voltage power lines, electricity sub-stations, telecoms masts etc)
- EPC rating if available
- Flooding (check the Environment
Agency website) - Fire safety compliance
- Health and safety compliance
- Highways (check if roads are adopted by local highways agency)
- Legal title and tenure (check the boundaries, ownership, any deeds of covenant, easements, rights of way, restrictive covenants, way-leaves etc.)
- Public rights of way (from an OS sheet)
- Planning history and compliance (check any onerous planning conditions, whether the property is in a conservation area/listed and subject to a s. 106 agreement or CIL)
What’s re the 5 methods of valuation?
Comparable
Investment
Residual
Profits
Contractors method (depreciated replacement cost)
What are the IVS 105 valuation approaches and methods?
Income approach - future cash flows into a capital value
Cost approach - DRC
Market approach - comps
What are the six steps in comparable valuation method?
Search and select comps
Confirm/ verify the details
Assemble comps in a table
Adjust comparables using hierarchy of evidence
Analyse comparables to form an opinion of value
Report value and prepare file note
What is the professional standard that relates to comparable valuation?
RICS professional standard: comparable evidence in real estate valuation 1st edition 2019
What does the RICS PS: Comparable evidence in real estate valuation 1st edition 2019 set out?
Guidance on comparable valuation through all stages and includes guidance on what to do if limited availability of evidence
Sets out non prescriptive hierarchy of evidence
“The valuer should use professional judgement to assess the relative importance of evidence on a case by case basis”
Name some reasons why there may be a shortage of comparable evidence?
Market may be inactive with very few transactions
Market might be changing rapidly, leading to a situation where comps quickly become outdated
Local market may lack transparency
If there is little evidence, what else can you look at to inform value?
Local/ national economic data
Look further afield
If uncertain about a comparable method value due to little available comp data, you should
Comment on any material uncertainty in relation to the valuation where it is essential to ensure clarity on the part of the valuation user (VPS3)
What are the three categories in hierarchy of evidence?
CAT A
CAT B
CAT C
What is CAT A comparable evidence?
Contemporary:
Completed transactions of near identical properties for which full and accurate information is available
Completed transactions of similar real estate for which full data may not be available but for which enough reliable data can be obtained to use as evidence
Similar real estate being marketed where offers have been made but no binding contract yet
What is included as CAT B evidence? In Comps
General market day at that can provide guidance
- info from commercial data bases
Historic evidence
Demand/ supply data
CAT C comparable evidence includes:
Other sources
- including other real estate asset types and locations
- other background data including interest rates and Stock market movements
What are the best ways to find comparable evidence?
. Inspection of an area to find recent market activity by seeking agents’ boards
• Visit/speak to local agents
. Auction results (beware that these are gross prices)
. In-house records/databases and websites, such as Egi and Focus.
.Care needs to be taken when using auction comparables as there may be a special purchaser or an insolvency sale. The sale price is gross of costs.
• Market sentiment can be important when there is a lack of transactional evidence
• The date of the evidence is crucial, hence the focus on “contemporary” in the hierarchy above
What is the margin for error for Valuers
Permissible range
What case law sets out permissible range in margin of error for Valuers?
Singer and Freud lander Vs JD Wood 1977
Margin of error can be varied smaller for more straight forward valuations
What are the margins of error for standard residential and standard commercial vals
5% residential
10% commercial
What is hope value in valuation?
Value arising from any expectation that future circumstances affecting value may change
- achieving planning permission
- realisation of marriage value - merging two interests in the land
Is stamp duty payable on commercial and residential property?
Yes
What is the current rate of SDLT in England for residential?
£0-250k Nil
£250,001 - £925,000 5%
£925,001 - £1,500,000 10%
Over 1,500,000 12%
Are second homes and buy to let’s subject to same level of SDLT?
No they are not
They are 3% higher than the standard rates
What’s the SDLT brackets for commercial?
£0-£150,000 Nil
£150,001 - £250,000 2%
Over £250,000 5%
Is SDLT payable on the start of a new lease?
Yes
How is SDLT on a lease calculated?
NPV up to £150,000 Nil
NPV of over £150,000 1%
NPV over £5,000,000 2%
(Discount rate used is RPI inflation)
Party walls
There are specialist surveyors that handle disputes in party walls
Part Wall Act 1996
What RICS guidance protects rights to light
RICS guidance note: rights to light 2016
Rights to light after 20 years of being uninterrupted and if interrupted an injunction can be used
Valuations for charities the charities act 2011 requires charity to do what prior to disposing an asset?
Obtain a valuation
What is reinstatement value used for?
Insurance purposes and is not a written opinion of value so compliance with red book is not required
What are the three methods for calculating net effective rent?
1 straight line method
2 straight line method assuming time value of cash flow using a yield
3 DCF
What is the RICS valuer registration scheme?
Monitoring scheme for all Valuers carrying out red book valuations from October 2011
What are the tree aims of the Valuer Registration Scheme? (VRS)
- To improve the quality of valuation and ensure the highest possible professional standards
- To meet the RICS’ requirement to self-regulate effectively
- To protect and raise the status of the valuation profession as the leading expertise in valuation
What should a client expect from an RICS valuation?
• ‘Clients should be able to expect the following from an RICS valuation:
• Openness and transparency
• RICS protection and International valuation standards
• Expertise and clear reporting
• World class regulations’, RICS, 2010
To register as a registered valuer what information is required?
To register, information is required in respect of valuation work undertaken as follows
• Type of valuations
• Purpose of valuations
• Number of valuations
• Firm’s total fee income from Red Book Global valuations in the last year
• What data sources are used
• Quality assurance audit procedures in place
• History of any negligence claims and notifications
