Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ANNA - RICS Spring 2024 Revision > Valuation L3 > Flashcards

Valuation L3 Flashcards

1
Q

What are the THREE steps you should undertake prior to commencing a valuation?

A

CCT:

  1. Competence - check you have the correct level of skills, understanding and knowledge
  2. Conflict of Interest - check you are able to act independently on the instruction
  3. Terms of engagement - issue to the client and receive written confirmation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why do you undertake statutory due diligence for valuations?

A

Confirm that there are no material matters which could impact on the valuation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

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

A
  1. Environmental matters (high voltage power lines, electricity sub-stations, telecoms masts etc.)
  2. Flooding
  3. Highways (check roads adopted with the local highways agency)
  4. Legal title and tenure (check boundaries, ownership, any deeds of covenant, easements, rights of way, restrictive covenants, wayleaves)
  5. Public rights of way (from an OS sheet)
  6. 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)
  7. Average £/sq ft resale values
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Describe the timeline to a typical valuation instruction?

A

Preamble:

  • Receive instruction from the client
  • Check competence
  • Check independence
  • Issue terms of engagement (inc. Scope of works, fee, PII, CHP)
  • Receive Countersigned terms

Due Diligence:

  • Gather information – leases, title, planning doc, OS plans etc.
  • Undertake statutory due diligence (listed previously)
  • Inspect and measure
  • Research market / analyse comps

Valuation & Reporting

  • Undertake the Valuation
  • Draft Report
  • Have another Surveyor review your work
  • Finalise and sign report
  • Report your valuation to the client

Completion

  • Issue invoice
  • Ensure filing in good order for audit.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the FIVE main methods of valuation?

A
  1. Comparable method
  2. Investment method
  3. Profits method
  4. Residual method
  5. Depreciated replacement cost method
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the Three Valuation Approaches and Methods According to International Valuation Standards (IVS) 105 (Published by the International Valuation Standards Council, not RICS)

A
  1. Income approach - converting current and future cash flows into a capital value
  2. Cost approach_- a reference to the cost of the asset whether by purchase or construction
  3. Market approach - using available comparable evidence
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the SIX steps used when collecting comparable evidence?

A
  1. Search and select comparables (agent’s boards, online databases)
  2. Confirm/verify information with a party directly involved in the transaction
  3. Assemble comparables in a schedule
  4. Interpret comparables using a hierarchy of evidence
  5. Analyse comparables to form an opinion of value
  6. Report value and prepare file note
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What guidance did the RICS recently release on using comparable evidence?

A

RICS guidance note Comparable evidence in real estate valuation, 2019

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is an All Risks yield?

A

Yield which encompasses all the prospects and risks attached to a particular investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a Gross yield?

A

Yield based on the net purchase price (i.e. not adjusted for purchasers’ costs)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is a Net yield?

A

Yield based on the gross purchase price (i.e adjusted for purchasers’ costs)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is an Initial yield?

A

Simple income yield for current income and current price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is a Reversionary yield?

A

Market Rent divided by current price on an investment that is under rented

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Define NPV

A

Net Present Value = sum of all the discounted cash flows of the project. Can be used to determine the viability of an investment given a certain level of desired return.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Define IRR

A

Internal rate of Return,

“The rate at which all future cash flows must be discounted to produce an NPV of 0”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

When is the Profits Method of Valuation Used and How does it Work?

A

Used to value property on the basis of a business/trading potential. Used commonly for the valuation of pubs, petrol stations, hotels, and healthcare properties. Value is determined by the profitability of the operation within the asset.

It uses the EBITDA (Earnings Before Interest Tax Depreciation and Amortization).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How Many Years of Audited Accounts would you ideally like to see for a Profits Method Valuation?

A

3 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the difference between a development appraisal and residual valuation?

A

A development appraisal assesses the viability of a project for a specific developer. It can assume site value or calculate it for a given developers profit requirements.

A residual valuation looks to the market for assumptions to appraise the value of a piece of development land. A residual valuation is a one moment in time valuation for a specific purpose.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

When should you use the depreciated replacement cost method of valuation? And how is it calculated?

A

It should be used when there is limited availability of market evidence. It is calculated:

(1) Value of land, with existing use planning permission in place.

+

(2) Cost of replacing the building, with an allowance for depreciation. (BCIS)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the three types of obsolescence?

A

Physical, Functional, Economical.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What does the Red Book say about the DRC Method of Valuation?

A

The Red Book says that the method should not be used for loan security valuations, but may be used for valuations to form part of a financial statement.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What must a valuer include when reporting a DRC valuation?

A

They must state the value for any readily identifiable alternative use if it is higher than the current use if appropriate, or if appropriate a statement that the market value would be lower on cessation of the business use.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the Red Book Called?

A

RICS Valuation Global Standards (2022)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is the reason for the RICS Valuation- Global Standards 2022 update?

A

RICS have confirmed that this is only an update to the Red Book Global 2020, rather than a full new edition.

The aim of the update is to reflect changes to the International Valuation Standards 2022, as well as to clarify certain sections of the existing Red Book Global.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are the key changes in the RICS Valuation- Global Standards 2022 update?

A
  • Emphasising the need to agree on clear and unambiguous terms of engagement.
  • The terms quasi, partial or non-Red Book should not be used in terms of engagement or reporting.
  • Requiring more detailed commentary on sustainability/resilience and environmental, social and governance (ESG) matters in VPGA 8 Valuation of Real Property Interests. engagement
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is the Structure of the Red Book (Parts 1-6)?

A

Part 1 - Introduction

Part 2 – Glossary

Part 3 – Professional Standards (PS)

Part 4 – Valuation Technical and Performance Standards (VPS)

Part 5 – Valuation Applications (VPGA)

Part 6 – The International Valuation Standards, 2020, (IVS)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Part 3 – Professional Standards (PS)

A

PS1 – Compliance with standards where a written valuation is required.

PS2 – Ethics, Competency, Objectivity, Disclosures.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

TIVBV

What are the: Part 4 – Valuation Technical and Performance Standards (VPS)

A

VPS1 – Terms of Engagement

VPS2 – Inspections, Investigations and Records

VPS3 – Valuation Reports

VPS4 – Bases of Value, Assumptions and Special Assumptions

VPS5 – Valuation Approaches and Methods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What are the: Part 5 - Valuation Practice Guidance Applications (VPGA)

A

IIB IPIP RIM

VPGA 1 Valuation for inclusion in financial statements

VPGA 2 Valuation of interests for secured lending

VPGA 3 Valuation of businesses and business interests

VPGA 4 Valuation of individual trade-related properties

VPGA 5 Valuation of plant and equipment

VPGA 6 Valuation of intangible assets

VPGA 7 Valuation of personal property, including arts and antiques

VPGA 8 Valuation of real property interests

VPGA 9 Identification of portfolios, collections and groups of properties

VPGA 10 Matters that may give rise to material valuation uncertainty

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Part 6 – The International Valuation Standards, 2020, (IVS)

A

General Standards – terms of engagement, approaches to/methods of valuation, reporting

Asset Standards – specific asset requirements, such as real property and development property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What are the 2 Red Book “Professional Standards” (PS)?

A

(1) PS1 – Compliance with standards where a written valuation is required.
(2) PS2 – Ethics, Competency, Objectivity, Disclosures.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is the Application of PS1?

A

PS1 details when a valuation needs to be red book compliant. Makes IPMS uptake and International ethical standards mandatory.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What are the FIVE situations in which a valuation does NOT have to be Red Book Compliant? According to RICS Valuation Global Standard 2022?

A

If supplied in written form, all valuation advice given by members is subject to at least some of the requirements of the Red Book Global Standards – there are no exemptions

(1) When providing an Agency or Brokerage Service (During an Instruction, in an Expectation of Instruction, or Evaluating a Bid)
(2) When Acting as An Expert Witness (Because they will have to follow the specific procedures of the Court)
(3) Performing a Statutory Function (Tax Return for example)
(4) Providing Valuation to a Client for Internal Purposes (Situation in which the valuation will be without liability outside the client)
(5) When valuation is for Negotiation or Litigation purposes (As written valuation advice may extend to matters beyond value such as tactics etc.)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What Five things that PS2 of the Red Book make Mandatory (PS2 = Ethics, Competency, Objectivity and Disclosures)

A
  1. All members are bound by the RICS Rules of Conduct
  2. Members and firms must ensure that services are provided by competent individuals who have the necessary expertise.
  3. Maintaining strict separation between advisers
  4. Members must follow the mandatory requirements in Conflicts of interest, RICS professional statemen
  5. Members must understand their client’s goals and ensure they are competent at the point of agreeing the terms of engagement. [Standards for Terms of Engagement are set out in VPS1].
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Where in the Red Book does it Talk About Rotation policy, and What is this?

A

Rotation Policy is talked about in PS2 of the Red Book, it refers to a policy of rotating the valuing firm or valuing member, in order to maintain objectivity.

RICS considers it good practice, albeit not mandatory, to rotate valuers at intervals not exceeding seven years.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What are the 5 Valuation and Technical Performance Standards (VPS)?

A

VPS1 – Terms of Engagement

VPS2 – Inspections, Investigations and Records

VPS3 – Valuation Reports

VPS4 – Bases of Value, Assumptions and Special Assumptions

VPS5 – Valuation Approaches and Methods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

SCARFPIN BIB IIVV

According to VPS1 What are the Minimum Requirements to be Confirmed in Writing Prior to a Red Book (2017) Valuation Commencing?

A

(a) Identification and status of the valuer
(b) Identification of the client
(c) Identification of any other intended users
(d) Identification of the asset being valued
(e) Valuation currency
(f) Purpose of the valuation
(g) Basis of value adopted
(h) Valuation date
(i) Scope of work
(j) Nature and source(s) of information upon which the valuer will rely
(k) All assumptions and special assumptions to be made
(l) Format of the report
(m) Restrictions on use, distribution and publication of the report
(n) Confirmation that the valuation will be undertaken in accordance with the IVS
(o) The basis on which the fee will be calculated
(p) Where the firm is registered for regulation by RICS, reference to the firm’s complaints handling procedure, with a copy available on request
(q) A statement that compliance with these standards may be subject to monitoring under RICS’ conduct and disciplinary regulations
(r) A statement setting out any limitations on liability that have been agreed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What is VPS2 of the Red Book about?

A

Inspections, Investigations and Records.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

According to VPS2 of the Red Book, what is the Main Purpose in Inspection and Investigation?

A

Verification of the adequacy of the information:

“The valuer must take reasonable steps to verify the information relied on in the preparation of the valuation and, if not already agreed, clarify with the client any necessary assumptions that will be relied on”.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Are Desk-top Valuations (i.e. without inspection) Red Book Compliant?

A

Yes, these can be considered a Red Book compliant valuation (unless for reasons set out in PS1), however, VPS2 of the Red Book sets out the following steps which should be taken by a valuer in this situation of restricted information:

  1. The client has confirmed that no material changes to the physical attributes of the property.
  2. If this has been confirmed a revaluation without re-inspection may be undertaken. The terms of engagement must state that this assumption has been made.
  3. The Surveyor should consider whether it is reasonable to inspect for the purposes of the valuation.
  4. A desktop valuation can be undertaken even though an inspection is needed if providing the client confirms in writing that it is required solely for i_nternal management purposes only_ and that the client accepts responsibility for the associated risk.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Can you undertake a Re-Valuation of a property without Re-Inspection?

A

In accordance with VPS2 of the Red Book, you can re-value a property without re-inspection providing you as the valuer are satisfied there has been no material change that will impact the property’s value. This should be stated in the Terms of Engagement.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

What Does VPS2 say about Record Keeping?

A

Comprehensive records of investigations and inspections must be kept in a business format.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

What does VPS3 of the Red Book (2022) say?

A

It applies International Valuation Standard (IVS) 103 Reporting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

VICARIANCE ACID PB

What does VPS3 say that a Valuation Report should Contain? (This mimics VPS1 on the Terms of Engagement).

A
  • Valuation approach and reasoning
  • Identification and status of the valuer
  • Confirmation that the valuation has been undertaken in accordance with the IVS
  • Assumptions and special assumptions
  • Restrictions on use, distribution and publication of the report
  • Identification of the client and any other intended users
  • Amount of the valuation or valuations
  • Nature and source(s) of the information relied upon
  • Confirmation that the valuation has been undertaken in accordance with the IVS
  • Extent of investigation
  • Amount of the valuation or valuations
  • Confirmation that the valuation has been undertaken in accordance with the IVS
  • Identification of the asset(s) or liability(ies) valued
  • Date of the valuation report
  • Purpose of the valuation
  • Basis(es) of value adopted
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Does a Valuer have to sign a Valuation Report?

A

Yes according to VPS3 of the Red Book, a valuer must sign a valuation report and make clear that they are objectively able to value the property. The RICS does not allow a firm to sign a valuation, it is signed off by an individual.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

What must you do and Consider when Providing Preliminary (or Draft) Valuation Advice?

A

According to VPS3 of the Red Book, when providing preliminary (or draft) advice you must:

  • Mark the report draft
  • It is not to be shared and is for internal purposes only – There is no reliance.
  • It can be discussed with the client but the valuer must not be influenced by the Client.
  • Any changes to the final report or additional information considered must be included as a note in the final report.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

What is the Red Book Definition of Market Value (as in IVS04)?

A

“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

What is the Red Book Definition of Investment Value (as in IVS04)?

A

“The value of an asset to a particular owner or prospective owner for individual investment or operational objectives”.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

What is the Red Book Definition of Fair Value (as in IFRS 13)?

A

“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”.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

What does VPS4 of the Red Book say about Special Assumptions?

A

“A special assumption is made by the valuer where an assumption either assumes facts that differ from those existing at the valuation date or that would not be made by a typical market participant in a transaction on that valuation date”.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

What is an assumption?

A

An assumption is made where it is reasonable for the valuer to accept that something is true without the need for specific investigation or verification.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

When must Special Assumptions and Marketing Constraints be Agreed upon?

A

Special assumptions and marketing constraints must be agreed upon with the client prior to undertaking the valuation and the Global Red Book states that marketing constraints should be detailed in the terms of engagement.

53
Q

What does VPS 5 of the RICS Valuation Global Standards (2022) refer to?

A

Valuation Approaches and Methods. Following “IVS 105 Valuation Approaches and Methods”.

Three Approaches to Valuation:

(1) Market Approach (Compare)
(2) Income Approach (Capitalise)
(3) Cost Approach (Sum Cost)

54
Q

What Does VPGA Stand For? And How Many VPGAs are there in the Red Book?

A

Valuation Practice Guidance – Applications (VPGAs). There are 10 VPGAs in the Global Red Book (2022), and there are 18 in the UK National Supplement (2018)

55
Q

What’s VPGA1 reference to and what does the Red Book say about it?

A

VPGA1 gives guidance on valuation for inclusion in financial accounts. Noting the IFRS will adopt Fair Value for financial accounts.

56
Q

What Does VPGA 2 of the Red Book Cover?

A

Guidance surrounding valuation for the purpose of secured lending.

57
Q

According to VPGA 2 of the Red Book, when valuing for Secured Lending Purposes, for what period of time is “previous involvement” defined as being within?

A

According to VPGA 2 of the Red Book, Previous Involvement is defined as involvement within the last 2 years.

58
Q

What are Some of the Examples Listed in VPGA 2 of the Red Book of situations where an instruction should be declined on the basis of Previous Involvement?

A
  • Having a longstanding professional relationship.
  • When the valuer will gain a fee from introducing the transaction to the lender.
  • If there is a financial interest in the property holding, or prospective borrower.
  • When the valuer is retained to act in the disposal or letting of the completed development on the subject property.
59
Q

If the Valuer and Client Make Arrangements to Manage a Potential Conflict of Interest, where should these Arrangements be Recorded?

A

These should be recorded in the Terms of Engagement and in the Valuation Report

60
Q

Can you give some examples of Special Assumptions that may arise in loan Security Valuations, as highlighted in VPGA 2 of the Red Book?

A

(1) Vacant Possession
(2) Granted Planning Permission (if not had any)
(3) Special Purchaser (could be the borrower)

61
Q

In Addition to those Points Listed in VPS3 (Valuation Reports), what has to be Included in a Valuation Report for Secured Lending Purposes According to VPGA 2 of the Red Book?

A
  • Disclosure of Involvement.
  • Valuation Method Adopted.
  • If there is a Recent transaction of the Property, how much reliance there is on that value?
  • Comment on the suitability for Secured Lending Purposes.
  • Comment on any factor affecting value.
  • Demand for alternative uses.
  • Disrepair (Deleterious materials etc.)
  • Environmental issues (Flood risk etc.)
  • Market Commentary.
  • Current marketing period required.
  • Details of comparable transactions relied upon.
62
Q

What does VPGA 10 of the Global Red Book cover?

A

It concerns matters that may give rise to valuation material uncertainty. COVID. GFC.

63
Q

What is the Purpose of the UK National Supplement? (RICS Valuation – Global Standards, 2023 (UK National Supplement)). How Many VPGAs are there in the UK National Supplement of the Red Book?

A

It is not a substitute, it “augments” the Red Book. It contains 18 VPGAs.

64
Q

Are Valuations for Secured Lending Purposes Regulated Purpose Valuations?

A

No these are not regulated purpose valuations as they are not relied upon by a third party.

65
Q

What does it mean to be subject to “Valuation Monitoring”?

A

Valuations for Regulated Purposes are subject to valuation monitoring by the RICS. This means:

  • Inspections by the RICS’s professional regulation team take place
  • Annual declaration from the member valuing detailing the length of time that they have been valuing for that client.
  • Whether that client accounts for more or less than 5% of their income.
  • Is there a rotation policy in place? RICS recommends 7 years.
66
Q

If your firm introduces the property or receives an acquisition fee for the purchase of the property, According to VPS3 of the UK National Supplement (2023), how many months have to pass before you can value it for regulated purposes?

A

12 months.

67
Q

What do you have to consider when Valuing for a Charity in the UK?

A

You must follow the requirements of the 2011 Charities Act. Guidance from the RICS is provided in VPGA 8 of the UK National Supplement 2017.

A surveyor would comment as to whether it would be in the best interests of the charity to buy/sell.

68
Q

What is a Ransom Strip and How Might the Valuation of a Ransom Strip be Approached?

A

A ransom strip is a piece of land that enables access to a development site . Typical valuation could be 15% to 50% of the development value unlocked (i.e. the uplift).

69
Q

After How many Years Does a Right to Light arise?

A

After 20 years of enjoying uninterrupted natural light.

70
Q

What are the 3 Aims of the RICS Valuer Registration Scheme?

A

1) Improve the quality of Valuations and professional standards.
2) Meet the RICS’s requirements to self-regulate.
3) To protect and raise the status of the valuation profession.

71
Q

When did the RICS Valuer Registration Scheme start and who is it for?

A

The scheme was started in 2011, for valuers who regularly undertake red book valuations.

72
Q

Please can you tell me about the RICS response to the Material Uncertainty clause in regard to COVID-19?

A

(1) The Material Uncertainty Clause is detailed in VPGA 10 of the Global Valuation Standards (“The Red Book”)
(2) The RICS setup the Material Valuation Uncertainty Leaders Forum which is made up of a group of expert valuers covering a range of asset classes and specialisms.
(3) The Leaders Forum provides regular advice updates via the RICS website.
(4) As of September 2020, the advice is a general lifting of material valuation uncertainty on all UK real estate, excluding some specialist trading assets – e.g. some leisure and hospitality assets.
(5) The RICS also makes clear that the inclusion of the material uncertainty clause is at the discretion of the valuer on a case-by-case basis.

73
Q

What are the three types of obsolescence?

A

Functional, economic, and physical.

74
Q

What are Acquisition/Disposal Costs?

A

The costs associated with the acquisition or disposal of property, usually including legal and agent fees, as well as any purchases or sales tax.

75
Q

What is a Cash Flow?

A

A cash flow is the movement of money by way of income, expenditure and capital receipts and payments during the development.

76
Q

What is Interest Rate?

A

The rate of finance applied in a development appraisal. This can vary within a project for different levels of senior and mezzanine finance

77
Q

What is IRR?

A

Internal Rate of Return -

The rate of interest at which all future project cash flows will be discounted on order that the net present value of those cashflows, including the initial investment, be equal to zero.

IRR can be assessed on both gross and net of Fiannce.

78
Q

What is a Discounted Cash Flow?

A

A method of valuation explicitly setting out the inflows and outflows of an investment / development.

79
Q

What are Developer Contributions?

A

Obligations often tried to the grant of development permissions providing a benefit to the community, either generally or in a particular locality. They are often mandatory requirements that have to be provided in order to undertake a development.

80
Q

What is a Development Appraisal?

A

A financial appraisal of a development.

This is normally used to calculate either the residual site value or the residual development profit , but it can be used to calculate other outputs.

81
Q

What is Development Profit?

A

The amount by which (on completion or partial completion of a development), the estimated income of a development exceeds the total outlay. This can be expressed in various forms such as:

Profit on Costs
Profit on GDV

82
Q

What is GDV?

A

Gross Development Value -

The aggregate market value of the proposed development, assessed on the special assumption that the development is complete on the date of valuation in the market conditions prevailing on that date.

Where an income capitalisation approach
is used to estimate the GDV, normal assumptions should be made within the market sector concerning the treatment of purchaser’s costs.

The GDV should represent the expected contract price.

83
Q

What is Development Risk?

A

The risk associated with the implementation and completion of a development, including post-construction letting and sales.

84
Q

What is Development Yield?

A

The rental income divided by the actual cost incurred in realising the development. This can be based on either current or future estimates of the rental value of the completed development.

85
Q

What is Initial Development Yield?

A

The development yield calculated over the entire project. It is defined as the stabilised income divided by the total construction costs (excluding interests and fees).

86
Q

What is a Discount Rate?

A

The rate of intertest selected when calculating the present value of some future cost of benefit.

87
Q

What is Gross External Area?

A

The aggregate external area of a building
or footprint, taking each floor into account,
measured with reference to the appropriate
code of measuring practice.

88
Q

What is Gross Internal Area?

A

Measurement of a building on the same
basis as gross external area – but excluding
external wall thicknesses. Net sales area
is the gross internal area of a residential
dwelling subject to certain inclusions and
exclusions.

89
Q

What is Holding Cost?

A

The costs involved in owning a site or property before been sold on for example empty rates

90
Q

What is Hope Value?

A

An element of market value in excess of the
existing use value, reflecting the prospect
of some more valuable future use.

91
Q

What is Net Cash Flows?

A

The cash flow generated by the project. These can be assessed both gross and net of taxes and both gross and net of Fiannce.

92
Q

What is Net Present Value?

A

The sum of the discounted values of a net cash flow including all inflows and outflows, where each receipt/payment is discounted to its present value at a specified discount rate. Where the NPV is Zero, the discount rate is also the internal rate of return.

93
Q

What is the NPV method?

A

A method used in discounted cash flow analysis to find the sum of money representing the difference between the present value of all inflows and all outflows of cash associated with the project by discounting each at specified discount rate.

94
Q

What is an Opportunity Cost?

A

The return or benefit foregone by pursuing an alternative action.

95
Q

What is Optionality?

A

Often referred to as a real option being the right but not the obligation to pursue a particular course of action, i.e sell, hold/retain or develop a property.

96
Q

What is an Outturn Model?

A

A development appraisal that has been
adapted to project various inputs, usually
both in respect of values and costs

97
Q

What is Profit on Cost?

A

The profit of the project expressed as a percentage of the total development costs.

98
Q

What is Profit on Value?

A

The profit of the project expressed as a percentage of the project’s net development value.

99
Q

What is the Residual Method of Valuation?

A

A valuation/appraisal of a development based on a deduction of the costs of development from the anticipated proceeds. The residual is normally either development profit or land value.

100
Q

What is Residual Land Value?

A

The amount remaining once the gross development costs of a project is deducted from its gross development value (GDV) and an appropriate return has been deducted.

101
Q

What is Return (on Capital)?

A

The ratio of annual net income to capital delivered from analysis of a transaction and expressed as a percentage.

102
Q

What is Risk Adjusted Return?

A

The discount rate as varied to reflect the
perceived risk of the development.

103
Q

What is Sensitivity Analysis?

A

A series of calculations resulting from the residual appraisal involving one or more variables (rent, sales values, build costs) that are varied to show the differing results.

104
Q

What is Stabilised Income?

A

The sum of the rental income, additional
rent revenue and turnover rent. It is assessed for one year from the earliest lease start date.

105
Q

What is Target Profit?

A

The level of acceptable profit considering
the risk of the particular project normally
expressed as an individual sum

106
Q

What is Target/Required Return?

A

The level of commercially-acceptable return considering the risk of the particular project expressed as a periodic rate of return.

107
Q

What is Tender Price Index?

A

Index relating to the level of prices likely to be quoted at a given time by contractors tendering for building work.

108
Q

What is Value in Alternative Use?

A

The market value, or any other appropriate basis, with the special assumption of an alternative use to the existing use or permitted highest and best use.

109
Q

What is a Value in Existing Use?

A

The market value, or any other appropriate basis, assuming the property continues in its existing use with no expectation of that use changing in the foreseeable future.

110
Q

What is Weighted average cost of capital?

A

The minimum return a company should
earn in respect of an asset by reference to
relative weight of equity and debt within its
capital structure. This may be stated by the
client.

111
Q

What is a Yield?

A

Yield can be applied to different commercial elements of a project, for example, office, retail, leisure. It is usually calculated as a year’s rental income as a percentage of the value of the property. Depending on jurisdiction, variations include capitalisation or cap-rate, all-risk yield, equivalent yield, income yield and initial yield.

112
Q

How did you determine you were competent before valuing a site?

A

I work within the team of development land of that location with good access to resources and the knowledge and understanding under supervision to undertake the work.

113
Q

How did you decide what method of valuation to use on the building in Cambridgeshire?

A

I used the residual method to calculate the land value of the site as I was calculating the land value of a development site. I also used the comparable method to ensure my valuation was in line with the current market conditions.

114
Q

Why should you be careful when looking at guide/ asking prices on comparable evidence?

A

Asking prices do not provide reliable evidence of value and should be treated with caution
because they often differ substantially from the agreed final transaction price.

115
Q

How would you go about conducting a residual appraisal?

A

I would apply the residual method. First I would assess the development potential of the land, i.e. highest value use. Then I would calculate the value of the finished scheme, i.e. gross development value (GDV) based on market comparable evidence. All development costs would then be deducted from GDV, including developer’s profit and finance costs.

116
Q

Why can is a sensitivity analysis important when undertaking residual/ development appraisals?

A

The value of the land, can be very sensitive to the inputs used. This means that sensitivity analysis can be used to advise clients on the impact on the output of minor changes to the input. This is especially important in a turbulent market.

117
Q

What are some limitations of BCIS?

A

Conscious of a sample size shown for BCIS when indexing to a location. It is important to have SUFFICIENT sample size to ensure levels are accurate. I am aware a number of PLCs do not report to BCIS so when assessing larger development sites, I may choose to use a LQ BCIS cost but this is site specific.

118
Q

What are the main drivers that have an impact on
value for residential development sites?

A
  • Build Costs
    -Resale Values
    -Interest Rates (cost of borrowing)
119
Q

What are the main points included in Terms of Engagement for a valuation?

A

-Valuers name and status
-Client
-Identification of any other intended user
-Site being valued
-Valuation currency
-Purpose of valuation
-Basis of Value Adopted
-Valuation Date
-Nature and Extent to works (including any limitations)
-Nature and Source of Information relied upon
-All assumptions and Special assumptions to be made
-Format of the report
-Restrictions on use, distribution and publication of the report
-Confirmation valuation will be undertaken in accordance with IVS
-Basis on which the fee will be calculated
-Where the firm is registered for regulation by RICS, reference to the firm’s complaints
handling procedure, with a copy available on request
-A statement that compliance with these standards may be subject to monitoring under RICS’ conduct and disciplinary regulations
-A statement setting out any limitations on liability that have been agreed

120
Q

What are the main headings in a Red Book Valuation?

A

-Identification and status of the valuer
-Identification of the client and any other intended users
-Purpose of the valuation
-Identification of the asset to be valued
-Basis of value adopted
-Valuation Date
-Extent of investigation
-Nature and source of the information relied upon
-Assumptions and Special assumptions
-Restrictions on use, distribution and publication of the report
-Confirmation that the valuation has been undertaken in accordance with the IVS
-Valuation approach and reasoning
-Amount of Valuation
-Date of the valuation report
-Commentary on any material uncertainty in relation to the valuation where it is essential to ensure clarity on the part of the valuation user
-A statement setting out any limitations on liability that have been agreed

121
Q

What is hope value?

A

Hope value is addition value to a site due to its potential to have an increased value. For example, the site at Sandy had hope value above agricultural land value due to its likelihood to be developed into a residential development site in the future.

122
Q

What is marriage value?

A

Marriage value is an additional element of value created by the combination of two or more assets or interests where the combined value is more than the sum of the separate values. For example, a piece of land may be worth more when partnered with the neighbouring land which provides access and opens up the opportunity for development.

123
Q

In what circumstances would it be reasonable as a valuer to not undertake an inspection?

A

When inspection introduces an unacceptable degree of risk.

124
Q

What is mandatory in the Red Book and what is guidance?

A

Must and Should - there are strict guidance and best practice

125
Q

Detail the levels of the hierarchy of evidence in a comparable valuation.

A

Category A – direct comparable
This category relates to all types of relevant transactional comparable evidence

Category B – general market data
This category relates to data that can provide guidance rather than a direct indication of
value

Category C – other sources
There is also a wide range of data that might provide broad indications of value

126
Q

How did you calculate the Build cost using BCIS?

A

I put in the relevant factors including location and date. I analyse the data from the type of housing and size of development.

127
Q

What is an internal valuer?

A
  • Employed by a company to value the assets
  • Valuation for internal purposes only
  • No third party reliance
128
Q

What is an external valuer?

A

Has no material links with the asset to be valued or the client

ANNA - RICS Spring 2024 Revision (29 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions