Valuation General - Level 1

Question 1

What is the difference between an Internal Valuer and an External Valuer?

Answer 1

Internal Valuer - employed by a company to value the assets of the company/enterprise, these valuations are for internal use ONLY, no third party reliance

External Valuer - Has NO material links to the ASSET or the CLIENT

Question 2

What are the 3 important first steps to first undertake a valuation?

Answer 2

1. COMPETENCE - Do you have the correct level of Skill, Understanding and Knowledge (SUK)?
2. INDEPENDENCE - THINK FIRST and then check for any CONFLICTS or PERSONAL INTERESTS - WHO & WHY?
3. TERMS OF ENGAGEMENT - Set out I writing your full CONFIRMATION of instructions to the client prior to starting any work and receive WRITTEN confirmation of INSTRUCTION. Confirm COMPETENCE of the VALUE. The EXTENT and LIMITATIONS of the valuer’s inspection must be stated.

Question 3

Why must Statutory due diligence for valuations be done? Give some examples of what these might include.

Answer 3

Statutory due diligence must be carried out to check there are NO MATERIAL MATTERS which could IMPACT the VALUATION.

This could include:
1. Asbestos Register
2. Council Tax/ Business Rates
3. Contamination
4. Equality ACT 2010 and compliance
5. EPC Rating
6. Flooding
7. Highways (check if the roads are adopted by a local highway agency)
8. Legal title and tenure (check the boundaries, ownership, any deeds of covenants, easement, right of way)
9.Public rights of way
10. Planning History and Compliance (check any onerous planning conditions, conservation areas, listed, and subject to a s.106 agreement or CIL).

Question 4

What are the FIVE METHODS of Valuation?

Answer 4

1. COMPARATIVE METHOD
2. INVESTMENT METHOD
3. PROFITS METHOD
4. RESIDUAL METHOD
5. CONTRACTOR METHOD (DEPRECIATE REPLACEMENT COST)

PRICC - PROFIT, RESIDUAL, INVESMENT, COMPARABLE, CONTRACTOR METHOD

Question 5

What are the 6 STAGES of the Comparative method?

Answer 5

1. Search and select comparable
2. Confirm/verify details
3. Assemble comparables in schedule
4. Adjust comparables using a hierarchy of evidence
5. ANALYSE comparables to form an opinion of VALUE
6. Report Value and prepare file notes

Question 6

What use a valuer do when there is a limited availability of evidence? (as stated in RICS Professional Standard, Comparable evidence in real estate valuations- 2019).

Answer 6

‘The valuer should use PROFESSIONAL JUDGEMENT to ASSESS the RELATIVE IMPORTANCE of evidence on a case by case basis’

Question 7

Why must you be careful when using auction sales for comparable evidence?

Answer 7

Presence of a special purchaser, Insolvency sales and the sale price is gross of the cost

Question 8

How you find relevant comparables?

Answer 8

• Inspection of an area to find recent market activity such as agency boards
• Visit/speaking to agents
• Auction Results
• Databases Records e.g. Lores, Rightmove
• MARKET SENTIMENT - important when there is a lack of transactional evidence
• DATE of EVIDENCE is CRUCIAL, hence the importance of ‘COMTEMPORARY’ data in the hierarchy

Question 9

What is an Gross Yield?

Answer 9

The yield not adjusted for purchasers’ costs.

Question 10

What is the Net yield?

Answer 10

The resulting yield adjusted for purchasers’ costs

Question 11

What is the Contents of the RICS Valuation - Global Standards 2024 (‘Red Book Global)?

Answer 11

Six Parts of the Red Book

Part 1 - Introduction
Part 2 - Glossary
Part 3 - PS - Professional Standards
Part 4 - VPS - Valuation Technical and Performance Standards
Part 5 - VPGA (UK) Valuation Practice Guidance Applications
Part 6 - IVS - International Valuation Standards