Valuation (level 1) Flashcards
What are the five standard methods of valuation
- Comparitive method
- Residual method
- Profits methods
- Investment method
- Contractors method (depreciated replacement cost)
What is the red book?
Red Book provides the mandatory rules and best practice for valuing land and property (updated 31 January 2022) globally.
The publication details mandatory practices for RICS members undertaking valuation services. It also offers a useful reference resource for valuation users and other stakeholders.
What is the residual method of valuation?
The purpose of the residual valuation method is to work out what a developer should pay for a development site. This is done by working out the Gross development value and deducting all the associated costs in completing the new development, and deducting these accordingly (including developers profit). This leaves a surplus amount remaining which is known as the residual value. This provides the amount the developer can be expected to pay for the development site or property.
The GDV (Gross Development Value) will include site preperation, construction, sales and marketing, contingency, financing fees and developers profit.
What is the profit method of valuation
Typically used for hotels, schools, cinemas and theatres and is derived from the businesses trading potential.
What is the methodology of the camparative method of valuation?
- Search and select comparables
- confirm details and analyse headline rent to give net effective rent (RICS red book)
- Assemble comparatives on a schedule
- Adjust comparables using the hierachy of available evidence
- Analyse comparables to form opinion of value
- Report value to client and prepare file note
What is the Investment method of valuation?
- Investment method of valuation used when there is an income stream to value.
- The rental income is capitalised to produce a capital valuation
- Conventional method assumes growth implicit valuation approach
- (yield) calculated by income divided by price x 100
https://ww3.rics.org/uk/en/journals/property-journal/apc-5-valuation-methods.html
what is the definition of market value?
amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion
What is the DRC method of valuation
(Depreciated replacement cost) method of valuation and used where market evidence is limited for financial reporting purposes. Used for owner occupied properties eg. sewage works, lighthouses oil refineries schools.
Value obtained by:-
1. working out value of land in existing use
2. Add current cost of replacing the building plus discount for depreciation and obsolencence
What is the full name of the red book?
RICS Valuation - global standards (Jan 2022)
VPS 4 - Market value
The amount an asset exchanges on valuation date
between willing buyer and willing seller
in an arms length transaction
after proper marketing
Where parties had acted knowledgeably, prudently and without compulsion
VPS 4 - Market rent
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 arms length transaction
after proper marketing
where parties have acted prudently, knowledgeably and without compulsion
VPS 4 - Fair value (IFRS13)
The price that would be received to sell an asset or paid to transfer a liability in an oderly transaction between market participants at the measurement date. This basis of valuation is now required if the IRFS have been adopted by the client. Generally consistent with Market value.
VPS 4 - Investment value
The value of an asset to a particular owner, for individual investment of operational value - reflecting the value against clients own investment criteria. think Camden Lock!
