Valuation - Level 1 Flashcards
1
Q
What is the full name of the Red Book?
A
- RICS Valuation – Global Standards 2022
- Known as the red book
2
Q
What is the purpose of the Red Book?
A
- SICOB
- (S) To set out global standards
- (I) To achieve high standards of integrity
- (C) clarity and
- (O) objectivity
- (B) to adopt best practice in valuations
3
Q
What is the purpose of carrying out a valuation?
A
- SIFSS
- Statutory
- Internal
- Financial
- Secured lending
- Sales/acquisitions
4
Q
Are there exceptions to the red book?
A
- Acting as an expert witness
- Agency/brokerage purposes
- Statutory purposes
- Internal purposes
- Negotiation/litigation
5
Q
Can you tell me the 5 methods of valuation?
A
- Comparable
- Investment
- Residual
- Profits
- Depreciated Replacement Cost
6
Q
Discuss the conventional method of investment – Discounted Cash Flow
A
- Assumes growth implicit
- Yield is derived from comparable evidence
- Capital value = rent x yield purchase
7
Q
What are the bases of valuation?
A
- FIMM
- Fair Value
- Investment value
- Market Value
- Market rent
8
Q
What is fair value?
A
- The price that would be received to sell an asset, or transferred for a liability, in an orderly transaction between market participants at the measurement date
- Used if the international financial reporting standards have been adopted
9
Q
What is investment value?
A
- The value of an asset to a particular owner, or prospective owner for individual investment or operational objectives
10
Q
What is the definition of market rent/value?
A
- Estimate value a property will let/sell for
- On the open market
- At an arm length transaction
- Between a willing LL and willing tenant / buyer and seller
- After proper marketing
- Where both parties have acted knowledgably, prudently and without compulsion
11
Q
What are the 3 valuation approaches?
A
- Income – converting current and future cash flows into to capital value (investment, residual and profit)
- Cost – the cost of the asset whether by purchase or construction (DRC)
- Market approach – using Comparable evidence (comparable)
12
Q
What is included in the terms of engagement?
A
- Name of company
- Name of client
- Valuers name
- Purpose of valuation
- Property details
- Assumptions or special assumptions
- Basis of value
- Method of valuation used
- Calculation
- Currency
13
Q
What is included in the valuation files?
A
- Conflict of interest (COI) check
- Terms of engagement
- Inspection notes etc
- Planning, rating and environmental searches
- Comparable and analysis
- Valuation calculations with rationale
- Report
14
Q
Sources of comparable evidence
A
- Direct Transactional Evidence
- Publicly available info
- Database info
- Asking price– better for guidance
15
Q
What to do when there is a lack of comparable data?
A
- In reference to the RICS guidance note effective from 2019, widen you your search to include transactions in similar style locations.
- It is important to emphasise that the valuers experience, judgement and market knowledge comes more important.
16
Q
What do you understand of hierarchy of evidence?
A
- Attaching the greatest weight to the transaction type. In order below:
o New Letting
o Lease Renewal
o RR
o Independent expert
o Arbitration
17
Q
What is an assumption and a special assumption?
A
- An assumption is something that the valuer believes to be true without carrying out their own investigations, eg the building is structurally sound
- A special assumption is something that may not be true at the time of the valuation but soon to be in place, eg planning permission will be granted