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APC Session 1 - 2024 > Valuation (L2) > Flashcards

Valuation (L2) Flashcards

1
Q

Steps to take prior to commencing a valuation instruction?

A
  1. Check competence? Using SUK (Skills, Understanding and Knowledge)
  2. Check for any COI
  3. ToE
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2
Q

What is the definition of a valuer? Difference between internal and external valuers?

A

Someone who estimates the price that a property would achieve on the open market.

Internal valuer = undertakes valuations for their employer
External valuer = valuation for a third party

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3
Q

What are different reasons why a valuation might be required?

A

In order to value someone’s estate for IHT purposes.
Probate reasons
Independent expert
Internal valuation of assets

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4
Q

What are the 5 methods of valuation?

A

Comparable
Residual
Investment
Profits
Depreciated Replacement Cost/ Cost based method

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5
Q

When and why would you use one of these methods?

A
  • Comparable – search comparable (hierarchy of evidence (Category A – Direct Comparable,
    B – General Market Date & C – Other Sources)
  • Profits – When the value of the property depends on the business
  • DRC / Contractors (Depreciated Replacement Cost) – Limited/unavailable market evidence / Specialist properties
  • Investment – Capitalise a value based on income stream
  • Residual / Development Appraisal –Asses the financial viability of a site
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6
Q

What was the £psf of the comparable evidence looked at Clapham and what value did you apply for your units?

A
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7
Q

Tell me about how you would value a building using the
profits/contractors/investment/comparable/residual method of
valuation.

A
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8
Q

What was the % growth in the flat prices in Clapham within the time period?

A
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9
Q

How do you decide which valuation method to apply? When and why would you use one of these methods?

A

Firstly before any valuation I would ensure: Independence, Competence & Terms of Engagement

  • IVS 105 sets out three valuation approaches:
    o Market Approach – Using Comparable market evidence (Comparable)
    o Cost Approach – Measuring the cost of the asset (DRC)
    o Income approach – Convert cashflow into capital value (Investment, Profits, Residual)
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10
Q

Why is the Red Book needed, what is the latest updated and how often updated?

A

MANDATORY INTERNATIONAL STANDARDS that allow for consistency and transparency in valuations. Promotes high standards of valuation delivery worldwide.

Latest updated = Valuation Global Standards 2021.

Updated every 2-3 years.

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11
Q

What is the format of the Red Book Global?

A

Introduction
Glossary
Professional Standards PS (e.g. understanding when a valuation has to be Red Book compliant)
Valuation technical and performance standards VPS
Valuation applications (VPGA) (Guidance)
The International Valuation Standards (IVS)

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12
Q

Within the Red Book, what Valuation Technical and Performance standards (VPS’s) are you aware of?

A

Valuation Performance Standards are mandatory. These are:

VPS 1 = Terms of Engagement
VPS 2 = Inspection
VPS 3 = Contents of the report
VPS 4 = Basis of Value
VPS 5 = Valuation methods

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13
Q

When can a valuation not be Red Book compliant?

A
  1. When advice is provided solely for negotiations.
  2. Providing valuations to a client for internal purposes.
  3. In agency in prior to recieving an instruction to dispose of a property.
  4. Valuation prior to giving evidence as an expert witness.
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14
Q

Can you depart from the Red Book standards + example?

A

Yes it must be stated in writing in the terms of engagement and the reasons for it. Client must agree in writing.

E.g. if providing advice for a vendors personal family dispute.

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15
Q

What does the Red Book say about Terms of Engagement? & what does it require to be included?

A
  1. If a firms process means they can’t comply with an aspect of the global standards of valuation it must be identified in the TOE.
    Identification + status of the valuer
  2. Identification of the client
    Identification of the asset being valued
    Purpose of the valuation
    Basis of Value
    Valuation date
    Assumptions
    Fee basis
    Confirmation of Red Book Global compliance
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16
Q

What were the main changes to the RICS Valuation - Global Standards 2021 (“Red Book Global”)?

A

Valuations require more commentary on the relevance of ESG and sustainability factors which should then form an integral part of the valuation approach and reasoning.

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17
Q

Why are registered valuers required?

A

Ensures quality assurance and helps to ensure consistent standards of ‘Red Book’ valuations. They apply through the RICS

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18
Q

Are there any material uncertainty clauses you would include in a report today? ***

A

I would consult specialist advice

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19
Q

What is 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.

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20
Q

What is an arms length transaction?

A

act in their own self-interest and are not subject to pressure from the other party.

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21
Q

What are the assumptions made when determining Market Value?

A

Some of these are:
1. Property is sold by a willing seller and willing buyer in the open market at an arms length basis.
2. That VP is available.
3. That there are no restrictions affecting the property.

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22
Q

What is Market Rent?

A

The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

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23
Q

What is an Investment Value?

A

The value of an asset to the owner or a prospective owner for individual investment.

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24
Q

What did the Aldershot comparable valuation report include?

A

This included:

  1. Appointment/ client (Dispute Resolution Service)
  2. Status of the valuer
  3. Valuation Date (date of the report).
  4. Basis of Value
  5. Procedure (such what had been received by the parties, clarifying appointment as an independent expert not an Arbitrator and inspection procedure).
  6. Property Description
  7. Market Comments (including comments about the absence of market evidence to reflect unprecedented COVID-19 market)
  8. Valuation approach
  9. Value determination
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25
Q

How did you come to your valuation in Aldershot?

A
  1. Search and selected suitable comps
  2. Confirm/ verified details with agents
  3. Assembled comps in a table
  4. Adjust comps using the hierarchy of evidence
  5. Analysised the comps to form my opinion, this resulted in me making a deduction to reflect the condition of the property
  6. Reported value
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26
Q

What is a yield?

A

The measure of invested return and is measured as a percentage. It is determined using comparable. It reflects the risk of an investment. Higher yield = higher risk.

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27
Q

Can you name some of the risks are reflected in a yield?

A

Tenant risk: Covenant strength, Void, Lease terms, Service change, Transaction cost
Building risk: Undesirability, Planning risks, Climate Change, Flooding
Capital market risk: Financial Movement, The economy, Liquidity, Inflation

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28
Q

How would you calculate the yield?

A

Market value/ rent * 100

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29
Q

What is years purchased? What is a years purchase multiplier?

A

The number of years required for income to repay the purchase price. Calculated by assuming a suitable rate of interest in the market. For example, consider a rate of interest as 5%, the Year’s Purchase = 100/5 = 20 years.

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30
Q

What is the initial yield & how to calculate?

A

A simple income yield calculated by dividing passing rent by the gross purchase price.

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31
Q

What is a gross yield?

A

This is the yield which encompasses fees (stamp duty, agents fee 6%). It may be used to assess the relative returns on assets.

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32
Q

What is a net yield?

A

This is the yield of the asset once you have removed the associated costs. This is the ‘real’ return to the investor.

The Net Initial Yield is the current annualised rent, net of costs, expressed as a percentage of capital value, after adding notional purchaser’s costs.

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33
Q

What is a reversionary yield?

A

Market Rent divided by current price on an investment let at a rent below the Market Rent

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34
Q

What is an equivalent yield?

A

Average weighted yield when a reversionary property is valued using an initial and reversionary yield

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35
Q

What is an equated yield?

A

The yield on a property investment which takes into account growth in future income

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36
Q

What is a reversionary yield & how to calc?

A

Anticipated yield, which the initial yield will rise to once the rent reaches the Est Rental Value and when the property is fully let. Calculated by doing Market rent/ Market Value. Or you can look at comps and make the yield slightly higher to account for the added risk

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37
Q

Can you give me an idea of market yields for offices, industrial and retail?

A

Prime west end = circa 4%
South east office = circa 6.5%

Prime industrial = circa 5%

Prime retail london = circa 4% more like 3% for Bond Street
Other prime retail town and cities = circa 7%

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38
Q

Are there any other standards to be aware of when valuing Property?

A

Guidance Note: Comparable Evidence in Real Estate Valuation (2019)

  • Documents outline the principles of comparable valuation
  • Provides advice where there is limited availability of evidence
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39
Q

What is Hope Value?

A

Value arising from the expectation of an increase in the value of a property e.g. by gaining planning permission.

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40
Q

What is Fair Value and market value difference?

A

They are similar. Fair value is the value on the measurement/ inspection date, whereas market value is the value on the valuation date.

Market Value is subject to market forces such as supply and demand.

Whereas fair value is purely dependent on the assets true value.

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41
Q

What is Marriage/ Synegistic value? & how would you calculate it?

A

This is the value of a merger of values. Essentially 2 + 2 = 5.

I would value the properties individually and then value them together. The marriage value is the added value.

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42
Q

What are the current SDLT levels for land and residential property?

A

Land
£0 to £150,000 = 0
£150,000 to £250,000 = 2%
Over £250,000 = 5%

Resi I would refer to the Governments SDLT calculator.

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43
Q

When would you use a DRC method of valuation?

A

Used when valuing a niche/ specialist asset. There is no useful or relevant evidence of recent sales transactions due to the specialised nature of the asset (e.g. library, lighthouse, school etc)

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44
Q

How do you undertake a DRC/ contractors method of valuation?

A

Value of the sites existing use value
Add current cost of replacing the building plus fees
Less a discount for depreciation and deterioration i.e. cost of restoring the building
= capital value

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45
Q

What is meant by existing use value?

A

The value of the land in its current form.

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46
Q

What is a freehold?

A

This is the nearest to absolute ownership of land and buildings that is possible in English Law.

A freeholder has the right to retain possession of the property in perpetuity and dispose of the property at their will.

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47
Q

When would you use the investment method?

A

When there is an income stream to be valued.

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48
Q

When might you use T&R or Hardcore methods of investment valuation?

A

Term and Reversion when a property is under-rented.

Hardcore when a property is over-rented. (passing rent more than the estimated rental value)

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49
Q

How would you undertake an term and reversion valuation?

A

Term and reversion method. Used for valuing under rented properties:

Term = capitalised using an initial yield until next lease event

Reversion = market rent valued into perpetuity (capitalised using reversionary yield). The reversionary yield is typically higher than the initial yield to reflect further risk/ uncertainty as you might not achieve market rent or might not get a good covenant.

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50
Q

How would you undertake a hardcore and topslice valuation?

A

Hardcore method is used for valuing over rented properties:

Hardcore = market rent is capitalised into perpetuity using a yield taken from comparable evidence.

Top slice = this is the rent passing less market rent, capitalised until the end of the lease. A higher yield is applied to top slice to reflect additional risk.

The sum of these two ‘slices’ is the capital value.

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51
Q

Describe what a Discounted Cashflow is?

How does it look?

What are the inputs you would need to consider?

A

A DCF estimates the value (Net Present Value) of an investment today, using its expected future returns.

It typically would be set out in an excel sheet which shows the projects estimated cashflow over the time period (monthly/quarterly).

Inputs = GDV, Build Costs, Finance Costs, Land Value, Discount Rate

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52
Q

When would you use a DCF?

A

Within the investment method for valuations where the projected cash flows are estimated over an assumed investment holding period.

These are then discounted back to tell you the Net Present Value of an investment today based on future return. e.g. can be used for phased development projects.

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53
Q

Difference between a Residual Valuation and a Development Appraisal?

A

Residual method is used for developments to find the land value.

Development appraisal is used to calculate the profitability of a proposed scheme.

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54
Q

How do you work out a residual value?

A

Gross development value – total development cost – profit = site value (residual value)

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55
Q

What is the hierarchy of comparable evidence?

A

In terms of the RICS Guidance Note ‘Comparable Evidence in Real Estate Valuation’ (2019) there are three sections;
A = Direct comparables (e.g. complete transaction near property)
B = Wider comparables (e.g. indirect evidence like indicies)
C = Other market evidence (e.g. transactional evidence from other uses)

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56
Q

How many sqft in sqm?

A

10.7639

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57
Q

Please can you talk me through how you would go about undertaking a profits method of valuation? + example of an asset to be valued?

A

The profits method is used to value trade-related/ niche assets and the principle of the profits method is that the VALUE OF THE PROPERTY DEPENDS ON THE PROFIT GENERATED FROM A BUSINESS, not the physical building or location. E.g. valuing a cinema

Methodology
1. Annual turnover
2. Less costs
3. = gross profit
4. less overheads
5. = unadjusted net profit
6. less tenants remuneration
7. = adjusted net profit
8. adjusted net profit capitalised by the appropriate yield
9. = capital value

Cross-check with comparable sales evidence if possible.

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58
Q

Difference between gross profit and net profit?

A

Gross profit = Profit - cost of sales

Net profit = Gross profit - overheads (such as staff costs/ running of a business)

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59
Q

What type of properties would you use the profits methods?

A

Trade-related properties e.g. a pub

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60
Q

What makes a good comparable?

A

The most similair factors of comparable evidence in comparison to the subject property.

location
condition
specification
type of property
size
amenity space

61
Q

How would you value a ransom strip?

A

1) Subject to specific circumstances
2) Starting point is STOKES V CAMBRIDGE. Judge took the view that 1/3 of the uplift in the value of the subject site (ie the site’s development value) should be awarded to the owner.
3) Subject to negotiation

62
Q

What would you do if you were asked to value an asset which you were unsure how to value?

A

I would assess my level of experience prior to advising. As I have not valued this before, I would recommend someone who is competent to advise.

63
Q

If you were just qualified, would you take on a valuation for a cinema asset?

A

No as I only undertook valuation to level 2 and I’m not competent in the profits method.

64
Q

What is Japanese Knotweed?

A

Invasive plant that can damage hard surfaces such as walls. Not easy to control and costly to eradicate.

65
Q

Why was the Pereira Gray review required? What did the Pereira Gray review find?

A

Following concerns of the performance of the professions valuers, the Standards and Regulatory Board appointed Pereira Gray review to ensure that RICS valuation remain relevant and trusted.

The review made 13 core recommendations. These included:

> A new Valuation Compliance Officer role = to specifically cover the valuation processes
A rotation requirement for valuers undertaking valuations
More focus on the use of Discounted Cash Flows
New indepedent valuation quality assurance panel with lay members to report to the Standards and Regulatory Board.

66
Q

Give me an example of a good covenant and how this might impact a
valuation

A

A covenant is a provision, or promise, contained in a deed to land. Land may be subject to a covenant which affects or limits its use.

67
Q

What is PI Insurance (PII)? Why do surveyors need PII?

A

Covers the cost of compensating clients for loss or damage resulting from negligent services or advice provided by a business or an individual.

This cover gives you protection in the event that you are accused of providing incorrect or faulty advice which causes financial loss to your client

68
Q

How did the decision in Hart v Large affect PII?

A

High Court Case

The defendant surveyor was negligent in surveying a recently renovated residential property and awarded damages of £375,000 to the Claimants.

The Claimants, Mr and Mrs Hart, purchased a £1.2 million property in rural Devon in 2011 and appointed Mr Large to carry out a survey on the property. Mr Large viewed the property and highlighted two problem areas, being drainage and concerns with the pipes / gutters.

Following the purchase of the property, it quickly became evident that there were serious issues with water ingress and damp that ultimately required extensive rectification works.

Large was negligent in failing to advise obtaining a PCC (Professional Consultant’s Certificate) prior to purchase. It increases the cost of professional error 10 – 100 times

69
Q

Tell me about the RICS requirements in relation to PII. Tell me about the RICS requirements in relation to PII

A

The purposes of having professional indemnity insurance are to:
* ensure that if the firm faces a claim, it is protected from financial loss that it cannot meet
from its own resources
* protect the insured member or firm against the consequences of its liability to pay damages
to third parties for breaches of professional duty that it commits through its professional
activities and
* ensure that the firm’s clients do not suffer financial loss, which the firm cannot meet.
Firms will adopt different ways of meeting these aims according to their size, the risks attached
to the type of work they carry out and their resources.

£100,000 or less £250,000
£100,001 to £200,000 £500,000
£200,001 and above £1,000,000

70
Q

What level of PII cover does your firm have?

A

£10m

71
Q

How would you distinguish limitations on liability in your valuations?

A

In the legal agreement insert a liability cap. This is a binding contractual arrangement under which the client agrees that it can only recover damages up to a specified amount,

Retainer letter clearly sets out who the client is and what services the surveyor will, and just as importantly will not, provide

72
Q

Where in your valuation report do you state any limitations on liability?

A
73
Q

What relevance does Hart v Large have on your valuation practice? What aspect of Hart v Large allowed the judge to award damages
without applying the SAAMCO cap? What is the SAAMCO cap

A

Recommendations include:
o Being clear on the report about the scope of inspection including limitations, caveats and actions available to the client;
o Recommending justifiable further investigation;
o Taking all reasonable steps to ensure clients understand the differences between the levels of service, including the extent and limitations of each option

SAAMCO CAP
If negligent, the valuer is liable for the amount by which the property was overvalued, but not the full loss of the lender on a failed transaction which may arise from a drop in the property market.

Judge considered Watts v Morrow and difference between giving information and advice which Hart have a hybrid of advice and information - the transaction would not have proceeded but for Large’s negligence (not advising the need for a PCC).

Surveyors need to clear about the limitations of their inspections, what assumptions have been made and the scope of their responsibilities.

74
Q

Under the SAAMCO cap, is a valuer liable for losses due to a downturn in the market? Under the SAAMCO cap, is a valuer’s liability usually limited to the overvaluation on the valuation date?

A
  • No

If negligent, the valuer is liable for the amount by which the property was overvalued, but not the full loss of the lender on a failed transaction which may arise from a drop in the property market

75
Q

What would you do if you received a notice of a PII claim from a client or their solicitor?

A

Notify my firm, and insurance provider.

76
Q

Is there a difference between being negligent when undertaking a
survey/valuation and providing negligent advice?

A
  • Yes
  • Negligent Surveying – not surveying correctly, failing to identify an issue, over-valuation
  • Negligent advice - The service or advice you received was so bad that it fell below a reasonably acceptable standard for the particular trade, industry or profession
77
Q

What is run off cover?

A

Designed to protect you from claims after you have stopped operating as a business. 6 years

78
Q

What is the Red Book? Why does the Red Book exist?

A

The publication details mandatory practices for RICS members undertaking valuation services.

Promote and support high standards in valuation delivery worldwide.

79
Q

Tell me about a factor which may impact value

A

Restrictive covenant– not allowed to do something on the land

80
Q

What is your duty of care as a surveyor when undertaking a valuation?

A

The valuer has to be able to recognise defects and be able to assess value.

A valuer must do his/her best as a valuer and not as a general surveyor.

81
Q

To whom do you owe this duty of care?

A

Client, my firm, RICS and the profession

82
Q

Why is independence and objectivity important when valuing?

A

So there are no conflicts of interest

The valuation is not affected at all

83
Q

When was the Red Book last updated? Does this differ from when IVS were last updated? What changes were made?

A
  • November 2021
  • Effective from 31 January 2022
  • Sustainability & interpretation of ESG (Environmental, Social & Governance)
84
Q

What is the UK valuation guidance called? Why does the UK guidance exist? Is there a separate UK Red Book?

A
  • RICS Valuation - Global Standards 2017: UK national supplement
  • Sets out requirements for Valuation in the UK
  • To provide greater clarification in the UK jurisdiction
  • Most of the advice in guidance
85
Q

Which do you follow - the latest IVS or the Red Book Global?

A
  • IVS (International Valuation Standards) are included in Part 6 of the Red Book.
86
Q

Which sections of the Red Book are mandatory and which are advisory?

A
  • Part 1 (Intro), part 2 (Glossary)
  • Part 3 – RICS Professional Standards (PS) – Mandatory
  • Part 4 – Valuation Technical & Performance Standards (VPS) – mandatory
  • Part 5 – Valuation Practical Guidance Application (VPGA) – Guidance
87
Q

What type of valuations might be relied upon by a third party?

A
  • Valuation for the sale / purchase of land
88
Q

Tell me what the definition of MR/MV/investment value/fair value?

A
  • Market Value / Rent
    o On the valuation date
    o Between a willing buyer and willing seller
    o Arm’s length transaction
    o After proper marketing
    o Each party had acted knowingly
  • Investment Value
    o The value of an asset to a particular owner/buyer for investment objectives
  • Fair Value
    o The price that would be received for an asset to
    o In an orderly transaction between market participants
    o At a measurement date
89
Q

What is the difference between an assumption and a special assumption?

A

Assumption: reasonable for the valuer to accept that something is true without the need of specific investigation

Special Assumption: something is taken to be true and accepted as fact, even though it is not true.

90
Q

What does PS1-2/VPS1-5/VPGAs relate to?

A
91
Q

What type of advice does the Red Book cover?

A
92
Q

How else could you have identified build cost apart from your in-house estimating department?

A
  • Comparable evidence and benchmark it against BCIS
93
Q

What were the salient risks and opportunities of the site to your
financial appraisal?

A
  • Saliant (most important) inputs in an appraisal is the construction cost and GDV
94
Q

In your example at Bovington is this a valuation or development
appraisal?

A
95
Q

Why is it important to cross check your capital valuation and how did
you do this?

A
96
Q

At Clapham park was the comparable valuation method appropriate for both the residential and retail units? What alternative method of valuation could you have considered?

A
  • Yes – for working our Sales Vales and Commercial Rent
97
Q

Tell me about how you ensure that information relied upon in your
valuation is appropriate and reliable?

A
  • By ensuring information used is checked and validated
  • By seeking advice / information form professionals where necessary
98
Q

What are the differences between a desktop and a full valuation report?

A
  • Desktop - A client may require a restricted service (e.g. a short timescale) where reporting may make it impossible to establish facts that would normally be verified.
  • Full valuation report - Comprehensive type of valuation
99
Q

What does the Red Book say about reporting requirements? What does the Red Book say about inspections? What does the Red Book say about terms of engagement?

A
100
Q

What are the key elements included within terms of engagement?

A

Identificationand status of the valuer
Identification of the cliient and other intedned users
The asset to be valued
Purpose of the valuation
basis of value
Valuation date
Extent of investigation
Assumptions and special assumptions
Format of the report
Fee basis
Confirmation of red book compliance

101
Q

Talk me through an example of when you have agreed terms of
engagement with a client. Tell me why terms of engagement are important

A
102
Q

What checks do you undertake before accepting a valuation instruction?

A
103
Q

How do you ensure you know who your client is when undertaking a
valuation instruction?

A
104
Q

Are there any additional requirements when undertaking a valuation in which the public has an interest or third parties may rely?

A
105
Q

Are there any additional requirements for loan security valuations?

A
106
Q

What does the term ‘tone of value’ mean to you?

A
107
Q

What are the main drivers that impact value?

A
108
Q

What are the principles of professional practice, liability, and indemnity insurance.

A
109
Q

How is the commercial property market performing and what yields are being achieved in areas that you are working in?

based on CPD

A
110
Q

Can you define the difference between market value and land value?

A
111
Q

How do you calculate Years Purchase from a Yield and vice versa? If the Yield is 5% what is the YP?

A
112
Q

What is the purpose of the red book and what constitutes a red book valuation?

A
113
Q

How did you calculate the value of the commercial unit in your viability impact assessment?

What information did you provide for your VIA?

What adjustments did you make and how did you make them when you calculated your opinion of market value for your client?

A
114
Q

What does heterogenous mean in terms of comparable evidence?

A
115
Q

In a scenario where rents are static and the capital value increases,
would you expect yields to increase or decrease?

A

You expect yields to move in

116
Q

How can a NIY of zero be achieved?

A
117
Q

Explain the precent set in Hyde and another v Nygate and another
(2021) in relation to the valuation of high-profile development sites.

A
118
Q

Explain your understanding of K/S Lincoln v CBRE Hotels (2010).

A
119
Q

Explain what you understand by the term, margin of error. What caselaw relates to margins of error?

A
120
Q

Explain why the RICS are carrying out an Independent Valuation Review. Who is leading this?

A

Responding to feedback and rapidly changing market dynamics, the RICS Standards and Regulation Board (SRB) commissioned the Valuation Review in the public interest to futureproof practices in the valuation of real estate assets for investment purposes. The SRB accepted all recommendations from the review put forward by the review chair Peter Pereira Gray.

121
Q

How might onerous lease terms, e.g. restrictive user, break clause,
impact upon capital or rental value?

A
122
Q

What liabilities may be created through valuation?

A
123
Q

What is a liability cap and when would one be used?

A
124
Q

Is the cost approach a market valuation?

A
125
Q

What are the three ways to deal with depreciation?

A
126
Q

How would you deal with depreciation/obsolescence?

A
127
Q

What would you do if the building could be replaced with a modern
equivalent?

A
128
Q

How do you assess Gross Replacement Cost?

A
129
Q

What costs would you consider within DRC?

A

The DRC method is based upon the assumption that the market will pay no more for the existing property than the amount it would to buy an equivilant site + cost of building construction (airport)

Approach 1) Value land its existing use (assuming planning permission exists) using land comparable 2) add the current cost of replacing the building plus fees less a discount for depreciation.

130
Q

How do you assess the value of the land?

A
131
Q

What RICS guidance relates to the valuation of development property?

A
132
Q

Give me a limitation of this software (excel template)?

A

human error

133
Q

Viability is mentioned a lot throughout your submission. What is viability?

A
134
Q

When would a cost approach be used? What type of buildings would a cost approach be used for? What are the 3 components of the cost approach?

A
135
Q

Tell me why terms of engagement are important.

A
  • Sets out responsibilities, scope & fees to avoid conflicts later
136
Q

What checks do you undertake before accepting a valuation instruction?

A
  • Competence – Am I competent to undertake this valuation
  • Conflicts of Interest
  • Terms of Engagement – set out in writing the instruction.
137
Q

How do you ensure you know who your client is when undertaking a valuation instruction?

A
  • Set this out in the terms of engagement
138
Q

Are there any additional requirements when undertaking a valuation in which the public has an interest or third parties may rely?

A
  • Borrowing money / financing
139
Q

Talk me through an example of when you have agreed terms of engagement with a client.

A
  • Set out KPI’s (Margin & ROCE)
  • Set out timeline
  • Set out standard levels of contingency, S&M budget etc.
140
Q

What are the key elements included within terms of engagement?

A
  • Responsibility
  • Fee
  • Competence
  • Timescales
141
Q

What does the Red Book say about terms of engagement?

A

Set out in RICS Valuation – Global Standards Effective from 31 January 2022
* VPS 1 (Valuation Performance Standards) - Sets out minimum matters that should be confirmed in writing to the client prior to commencing a red book valuation:
o Valuer & Client
o Currency
o Purpose
o Asset being valued
o Report format
o Fee

142
Q

What does the Red Book say about inspections?

A
  • Valuers must take steps to verify the information being relied upon
143
Q

What does the Red Book say about reporting requirements?

A

Set out in RICS Valuation – Global Standards Effective from 31 January 2022

  • VPS3 - Minimum requirements to be stated in the report include:
    o Valuer & Client
    o Purpose of valuation
    o Valuation date
    o Information used
    o Valuation approach & reason
    o Date of valuation report
144
Q

Timeline of a valuation instruction:

A

My research has identified a 16 step process
* Step 1 – 5 is receive instruction, check competence, independence, issue TOE, Receive TOE
* Steps 6-10 relate to gathering evidence, market research and undertaking the valuation,
* Steps 11-16 relate to reporting, checking the valuation with another surveyor and invoicing.

145
Q

How would you value a retail unit?

A
  • I valued it using total sq.ft and comparable evidence for rent and yield.
  • I capitalized the rent to determine the Capitalised value of the unit.
  • I understand the basic principles of retail zoning valuation
  • Zoning is based on the principle that the retail frontage is worth more than the ancillary areas
  • Zone A and Zone B both have depts of 20ft (6.1m). Zone C is the remainder.
  • Each zone is worth half of the zone before.
146
Q

Profits method do you understand the term EBITDA?

A
  • EBITDA
  • Earnings Before Interest, Tax, Depreciations, Amorisation
  • Capitalised at appropriate yield to achieve Market Value
147
Q

Residual Valuation:

A
  • Total Cost
    o Construction: use client information, quantity surveyor, BCIS
    o Contingency: 3% depending on risk and market volatility
    o Professional Fees: Usually 10-15% of total constriction costs
    o Marketing costs 1-2% of GDV
    o Developers Profit 10-15%
148
Q

Red Book is mandatory unless for 5 exceptions including:

A
  • Negotiation & Litigation
  • Valuation for a client is purely for internal purposes
  • Provided as giving evidence as witness
149
Q
A

APC Session 1 - 2024 (19 decks)

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