Valuation L1

Question 1

What are the five methods of valuation?

Answer 1

Profit (Income)

Residual (Income)

Investment (Income)

Comparable (Market)

Depreciated Replacement Cost (Cost)

Question 2

What 3 things should you consider before undertaking a valuation?

Answer 2

1. Competence
2. Independence
3. Terms of engagement

Question 3

Why might a valuation need to be carried out?

Answer 3

Valuations may be carried out for the following purposes:
- Loan security
- Accounts
- Tax (CGT/IHT)

Question 4

When would you use the Investment Method?

Answer 4

• When valuing an income stream
• Capitalise the rental income to produce a capital value

Question 5

What is your liability in a valuation?

Answer 5

33% or 75m

Question 6

When would you use the profit method?

Answer 6

• Valuing a property that depends of the profitability of the business?
• Operating profit capitalised as a yield

Question 7

When would you use the residual method?

Answer 7

• Find market value of site based on market inputs
• Inputs taken at time of valuation
• GDV-COSTS = LAND VALUE

Question 8

When would you use the depreciated replacement cost method?

Answer 8

When valuing specialist properties. e.g lighthouse

Value of land in existing use and cost of replacing the building

Question 9

When would you use the comparable method?

Answer 9

• Most common valuation e.g lone security
• search or comp
  -Adjust comps using hierarchy of evidence
• Form opinion of value
• Report value

Question 10

What is the purpose of the Global red book?

Answer 10

Consistency, Objectivity, Transparency

Question 11

What is the latest Redbook?

Answer 11

Global Standards 2021

Question 12

What are the key points of IVS?

Answer 12

• Promote transparency and consistency in global valuation practice
• Terms of engagement

Question 13

What is the definition of market value?

Answer 13

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.

Question 14

What is the definition of Market Rent?

Answer 14

The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee
On appropriate market terms, in an arms length transaction,

Question 15

Define fair value

Answer 15

‘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.’

Question 16

What elements of the redbook are most relevant to the work you carry out?

Answer 16

• Ethics
• Valuation performance standards (VPS)

Question 17

What are some of the ethical considerations from the Red Book (2021)

Answer 17

-Conflict of Interest

• Terms of engagement
• Accuracy of valuation

Question 18

What is enfranchisement?

Answer 18

Cost of increasing Lease

Question 19

What valuations are exempt from the Red Book?

Answer 19

• internal purposes,
• Agency,
• Expert Witness

Question 20

How many minimum terms must be included in the TOE and can you name a few?

Answer 20

18 minimum terms
- Identification and status of valuer
- Identification of client
- Identification of any other intended users
- Identification of the asset/liability being valued
- Purpose
- Basis of value

Question 21

What are the principles of the comparable method?

Answer 21

• Multiple comps
• Similar as possible
• Recent
• Verifiable

Challenges
- Challenging market
- no comps

Question 22

What is the RICS Guidance note on Comparable evidence in Real Estate (2019)

Answer 22

• Advice on how to use comps
• Encourage consistency in the use of comparable evidence globally
• Address issues of availability and use of comparable evidence, especially in challenging
• Hierarchy of evidence

Question 23

What is the time line of a valuation?

Answer 23

1. Instruction
2. Terms of Engagement
3. Inspection
4. Comparable evidence
5. Value - Methods
   6 Draft Report
6. Report to Client

Question 24

What does VPGA stand for?

Answer 24

Valuation Practice Guidance Application

Question 25

Name a few VPGA’s

Answer 25

VPGA 2 - Valuation for secured lending. ESG V important

VPGA 10 -

Question 26

What is VPGA 10

Answer 26

Matters that may
give rise to material valuation
uncertainty

Question 27

What does VPS stand for?

Answer 27

Valuation Performance Standards

Question 28

What are some important VPS?

Answer 28

VPS1 = Terms of engagement

VPS 2 = Inspections

VPS 3 = Valuation Reports

Question 29

What is a yield?

Answer 29

Measure of annual return expressed as a percentage
reflects risk

Question 30

What is an all risks yield?

Answer 30

Shows the rental revenue of an investment as an annual percentage of the property cost.

Question 31

What is a true yield?

Answer 31

Assumes rents are paid in advance not in arears

Question 32

Nominal Yield?

Answer 32

Initial yield assuming rent is paid in arrears

Question 33

Equivalent yield?

Answer 33

Is a weighted average of the Net Initial Yield and Reversionary Yield

Question 34

Running Yield?

Answer 34

The yield at one moment in time

Question 35

What is the IRR?

Answer 35

Initial rate of return

The annual rate of growth that an investment is expected to generate

Question 36

What are the proposed changes to the Investment methods?

Answer 36

More focus on Discounted Cash Flow which is more growth explicit

Question 37

What are the 5 VPs?

Answer 37

VPS1 - Terms of engagement

VPS2 - Inspection

VPS3 - Reports

VPS4 - Bases of value

VPS5 - Valuation method

Question 38

What types of statutory due diligence checks would you undertake when valuing a property?

Answer 38

Asbestos register, council tax, EPC, Flooding, Planning