Valuation (L2)

Question 1

talk me through an example of when you’ve agreed ToE’s with a client?

Answer 1

i chekced for conflicts, comeptence and issured ToE’s in accordance with VPS1 of the Red Book

Question 1

what does VPS1 include?

Answer 1

id and status of vlauer, id of client, id of any other intended users, asset to be valued, currency, purpose of value, basis of value (market rent, market value, fair value and investment value), valuation date, extent of investigation, nature and source of info to be relied upon, assumptions (assume to be true without the need for further investigation eg correct planning use) and special assumptions (something that is known not to be true, but accepted as fact eg vacant posession) format of the report, restriction for use, distribution and publication, confirmation that it is redbook compliant, fee basis, complaints handling, statement of compliance by RICS, PII cover

Question 2

VPS1, 2, 3, 4 and 5

Answer 2

1 - T of E
2 - Inspection and investigation
3 - Report - sets out minimum requirements within report, drafts can be shared but must be albelled as draft, for internal purposes only, cannot relied upon and cannot be published or disclosed and subject to completion of final report, any changes to draft must be recorded with reasons
4 - Basis of value, assumptions and special assumptions
5 - valuation methodology and approach

Question 3

PS1Complaince with the Red Book

Answer 3

follow to ensure best practice, but expemt from the Red Book include
1. statutory, ie tax
2. internal management purposes, not relied on by a third party
3. agency purposes
4. expert witness
5. in preparation for negotiation or litigation.

Question 4

when does a valuation have to be red book compliant

Answer 4

• financial account purposes
• loan security purposes
• investment

Question 5

PS2

Answer 5

conflicts check and issue ToE and comply with Rules of Conduct

Question 6

VPS2

Answer 6

valuers must take steps to verify information being relied on for a valuation and is adequate for purpose

Question 7

minimum requirements of report

Answer 7

1. id and status of valuer
2. client and intended users
3. purpose of valuation
4. id of asset
5. basis of value
6. valuation date
7. extent of investigation
8. nature and source of info relied upon (eg leases)
9. assumptions and special assumptions
10. restrictions on use, publication and distribtion
11. compliance with red book
12. valuation apprach and reasoning
13. valuation figures
14. date of report
15. market commentary
16. statement setting out limitations agreed

Question 8

VPS5 - valuation approaches and methods

Answer 8

chosing the appropriate method (comparable, investment, profits) and approaches
(market, cost and income)

Question 9

Relevant Guidance?

Answer 9

RICS Prof. Standard, Comparable Evidence in Real Estate Valuation 2019

Question 10

can you describe the invesment method?

Answer 10

fo valuing properties which have an income stream. Rental income is capitalised to produce capital value

Question 11

can you describe term and reversion?

Answer 11

used for reversionary asset, when the market rent is above the passing rent
term = under market rent, capitalised to the next lease event
reversion = market rent capitalised into perpituity

Question 12

Hardcore/top slice

Answer 12

top slice = over market value capitalised to next lease event
hardcore = market value into perpetuity

Question 13

what is the DCF?

Answer 13

explicit
1. estimate cash flow (income less expenditure)
2. estimate exit value (all risk yield capitalised income at the end of the period)
3. select discount rate
4. discount the cash flow at the discount rate
5. value is sum of discounted cash flow (net present value)