Valuation - Level 1

Question 1

What is the Global Standard Valuations 2021 (the Red Book)?

Answer 1

Set of global valuation standards created to achieve high standards of integrity, clarity and objectivity in adopting valuation best practice

To ensure consistency, objectivity and clarity.

Question 2

What are the changes to the Red Book?

Answer 2

has been updated to reflect market changes and developments.
- Need for compliance with RBG reflecting PS1 and PS2. Relating to clears terms of where something is Red Book Compliant or not.
- VPGA 1 – need to provide reasonably possible fair value measurements for financial reporting purposes
- Sustainability and ESG – relating to inspections and reporting, secured lending, physical and transition risks.

PS1 – written means any valuation conveyed by paper, electronic or digital means

PS2 – reinforces professional scepticism when reviewing information and data

IVS 410 – valuers of development property to “apply a minimum of 2 appropriate methods to valuing development property for each project” e.g use comparable method as well as residual method

Question 3

What did you learn at the ‘Residential Valuation Techniques’ workshop?

Answer 3

I learnt about comparable technique and more about the hierarchy of evidence. This included the best way to structure an analysis paragraph of comparable in a Red Book Valuation report

Question 4

Name the five methods of valuation?

Answer 4

1. Comparable method
2. Investment method
3. Profits method
4. Residual method
5. DRC

Question 5

When might you use the profits method?

Answer 5

Value for trade related property e.g pub/hotels/petrol stations.

Question 6

Can you give me an example of a VPGA?

Answer 6

VPGA 2 – Valuing for loan security purposes

Question 7

Are there any limitations within this methodology of gathering comparable?

Answer 7

Reliance on third party information for collecting comparables, therefore must call agents to ensure accuracy

Restrictions on availability of comparables and similar comparables

Doesn’t take into account special purchasers, who would pay above MV for a particular property

Question 8

For the loan security valuation , what extra considerations for you need to make for valuations of this type?

Answer 8

1. Disclosure of any involvement identified in TOE avoiding the COI.
2. Recent transaction on property has been disclosed
3. Comment on suitability of property for mortgage purposes
4. Use of special assumption, comment on material difference between reported value and that without special assumption
   Acknowledge sustainability factors are becoming more significant influence and loan sec vals should have appropriate regard to this

Question 9

If you were valuing a property on say the investment method and you deemed the property to be under rented how would you go about valuing this property?

Answer 9

• Use term and reversion method
• For under rented properties
• Term (under rented and current rent) until lease expires @ capitalization rate (initial yield) @ 6%
• Reversion into MR valued into perp @ higher capitalization rate (reversionary yield) e.g 7%
• Higher capitalization rate because the risk is higher

Question 10

How would you define an all risks yield?

Answer 10

• Interest used in a valuation to of fully let property let at the MR reflecting all prospects and risks in the whole investment