Valuation Level 1 Flashcards
What is the significance of RICS Valuation - Global Standards: UK National Supplement?
- Provides requirements for valuations in the UK.
- Contains 18 UK VPGAs
- UK VPGA 1 Valuation for financial reporting
- UK VPGA 10 - Valuation for commercial secured lending purposes - Advice is not mandatory for guidance
What are the contents of the UK National Supplement?
- Introduction
- Part 1 – UK Professional Standards (UK PS) mandatory
- Part 2 – UK Valuation Technical and Performance Standards (UK VPSs) – Mandatory
- Part 3 – UK Valuation Practice and Guidance Applications (UK VPGAs) – Mandatory
Can you name some key changes of the UK National Supplement?
UK VPS 3 – regulated purpose valuations: supplementary governance required
UK VPGA 8 – Valuation for charity assets
UK VPGA 10 – Valuation of commercial secured lending
- Incorporates new ESG principles
What is included in the UK VPS 3?
Valuer mandatory rotation
- Max period of 10 years before the rotation of a valuation firm
- A max. single engagement period of 5 years
3 . A max. period of 5 years before the rotation of an individual responsible valuer
- A min. 3 year break after rotating off an engagement
What are the key changes from the 2018 UK National Supplement?
- Changes in the market
- Implementation of the recommendations of Peter Grays review in 2021
What were the recommendations of the Review of Investment Valuations
- Independence
- Conflicts of parties
- Creating formal valuation compliance officer
Why were their changes of the UK National Supplement?
To reduce the risk of conflicts of interests in the commissioning of valuation reports in the public interest
What else does VPS 3 cover in the new UK National Supplement?
Valuations relied on by third party parties who have not commissioned the valuation and they are subject to valuation monitoring
Valuations for FIVE purposes:
1. Financial reporting (company accounts)
2. Stock exchange listings
3. Takeovers and mergers
4. Collective investment schemes
5. Unregulated property unit trusts
Secured lending valuations are NOT regulated purpose valuations as they are not relied upon by third party or public interest
Can you name some recommendations of The RICS Independent review of Real estate Investment Valuations 2021?
13 recommendations, some examples include:
- Valuer rotation
- Commissioning and receiving of valuation reports
- A new valuation assurance committee
- Separation of valuation from advisory services within firms
Investment Method
- Used when there is an income stream, rental income is capitalised to produce a capital value.
- Conventional method assumes growth implicit where implied growth rate is derived from the market capitalisation rate (yield).
Comparable Method
- Gather comparables and confirm details.
- Adjust headline rent to ‘net effective rent’ if appropriate.
- Assemble in a schedule adjust using ‘Hierarchy of Evidence’.
- Analyse to form an opinion of value and report the value.
RICS Professional Standard: ‘Comparable Evidence in Real Estate Valuation’ 2019 (Reissued as Professional Standard April 2023)
Cat A – direct comparables, accurate, recent, asking prices (analysis)
Cat B – general market data to give guidance, historic and reports
Cat C – other asset classes, locations, background data interest rates
Term and reversion
Used for reversionary investments, term capitalised until rent review then into perp at new yield.
Layer and Hardcore
Layer/hardcore – Used for overrented investments, horizontally split, different yields used due to risk of higher income.
Profits method
Trade related – uses (3 years of audited accounts)
* Income – costs = gross profit – less expenses & operator’s
remuneration = Fair Maintainable Operating Profit (FMOP).
* Expressed as EBITDA (earnings before interest, taxation, depreciation and amortisation.
Capitalised at yield.
