Valuation - Level 1 Flashcards
What is the significance of the RICS Valuation – Global Standards (2024) (the “Red Book”)?
It provides a globally recognised framework for ensuring consistency, accuracy and transparency in valuations
It promotes best practices across valuation reporting, ensuring the highest standards.
What are the main changes to the Red Book?
Emphasis on the use of AI in valuations and new content on the use of valuation models, methods and risk assessments
* Requires valuers to record relevant ESG data
* Alignment with the new International Valuation Standards (2025)
What is PS 1 in relation to valuation work?
PS 1 is compliance with standards where a written valuation is provided
It requires that all valuations, unless exempt, must comply with the Red Book standards.
What is the purpose of the UK National Supplement (2023)?
It complements the RICS Valuation – Global Standards by providing additional guidance specific to the UK market
It supports UK valuations by addressing UK-specific legal requirements and ensuring compliance with UK regulations.
Why is it important for a valuer to act objectively during a valuation?
To ensure the valuation is unbiased and free from external influences
* To maintain professional integrity and credibility
* To provide a fair and accurate assessment of the property’s value
What are the five methods of valuation?
- Comparative Method
- Investment Method
- Profits Method
- Residual Method
- Contractors Method (Depreciated Replacement Cost)
What is the Comparative Method used for?
Used when there are sufficient comparables of similar properties, such as retail valuations.
What is the Investment Method used for?
Used when valuing income-producing properties, such as office valuations.
What is the Profits Method used for?
Used where the value is based on the profit-generating potential, such as pubs or hotels.
What is the Residual Method used for?
Used where the value is based on the potential sale minus development costs, such as development projects.
What is the Contractors Method used for?
Used when comparables are unavailable, such as for specialised assets like schools, lighthouses or hospitals.
What are the key steps to ensure a valuation report complies with Red Book standards?
- Determine competence and run a conflict-of-interest check
- Issue a written ToE with the client
- Conduct a site inspection
- Gather relevant market data
- Apply the most appropriate valuation method
Why is Professional Indemnity Insurance important for valuers?
It provides financial protection against claims of negligence or errors
It typically covers legal costs and compensation for losses resulting from negligent acts.
What is the hierarchy of evidence in selecting comparables?
Prioritises completed transactions (Category A) as the most reliable, followed by market data from agents and databases (Category B), and broader market indicators (Category C).
When evidence is limited, how do you prioritise it?
Rely on Category A evidence when available and supplement it with market data and expert opinion.
What is the contractor’s method and when is it used?
Used as the method of last resort when comparables are unavailable, typically applied to hospitals or schools.
How do you calculate the contractor’s method?
Land Cost + Build Cost - Depreciating Cost
How do you use the Comparative Method to value an office property?
- Gather evidence of recent transactions
- Confirm and verify details with local agents
- Adjust comparables using a hierarchy of evidence
- Analyse comparables to form an opinion of value
- Report value
What is Argus Enterprise Valuation Software used for?
Creating investment models, particularly for income-generating properties like office units.
What are the limitations of using software like Argus in valuations?
Outputs depend on the quality of data inputs, can reduce accuracy due to human error, and require specialist training.
How do you deal with conflicts of interest in valuations?
Disclose any conflicts of interest to the client before starting the valuation.
How is the Discounted Cash Flow (DCF) technique used in valuations?
Used to value investment properties by projecting future cash flows and discounting them back to their Present Value.
What does the discount rate in DCF reflect?
Risk and return expectations.
