Valuation (level 2) Flashcards
What are 5 valuation methods:
- comparable
- investment- DCF
- contractors method/depreciated replacement cost
- Profit method- pubs/petrol stations
- residual method
How would I deal with a over-rented property
i would use the layer and hardcore investment method
can you explain when you would use Depreciated replacement cost
It may be used to value unique properties where there are limited comparables and also used for rating valuations of specialist properties.
- used for owner occupier properties
- accounts purposes for specialist props
- rating valuations of specialist props
What three things should I consider before a valuation
- Competence
- Conflict of interest
- Terms of engagement
What are the different steps involved in a valuation
- receive instruction
- check competence
- check for conflict
- issue terms of Engagement
- receive signed terms of engagement
- carry out research- title docs, leases, planning info and check for anything that may effect value
- inspect and measure property
- carry out valuation
- draft report
- get report check by other surveyor
- issue report to client
- issue invoice
- ensure your records are all up to date
Why should you carry out statutory due-diligence
To ensure there is nothing that effects the value of the asset you are valuing 1.check for site history 2.check asbestos register 3.check contamination 4.Flooding 5.EPC 6.Fire safety compliance 7 title - check boundary
When would you use the investment method
When there is an income stream
How is the investment method calculated
the rental income is capitalised to produce a capital value
What are the different types of investment method calculation
- conventional investment method- used when the passing rent is assumed to be the market rent (market rent *YP= market value)
- term and reversion- used when the passing rent is less than the market rent.
- Layer and hardcore method- used when the passing rent is more than the market rent.
What is a yield?
A measure of investment return
How would i calculate the yield ?
Income/Price (capital value) *100
How do I calculate YP
YP=100/yield
what should you consider when selecting a yield from comparable evidence
This should be considered carefully. RISK is a major factor when considering the yield in relationship to: quality of location quality of covenant use of property lease terms liquidity etc
What would I use an all risk yield for?
use in the valuation of a property let at market rent, reflecting all appropriate risks attached to that particular investment
Explain what a DCF is
A discounted cash flow is a form of investment method valuation. It is used value assets where cashflows are explicitly stated over a finite period of investment.
unlike other investment methods the explicitly identifies growth patterns instead of incorporating this in the ARY
How is a DCF calculated
- estimate cash flow less expenditure
- estimate any exit fee at the end of the investment period
- select discount rate
- apply discount rate to cash flow
- value the cashflow to arrive at NPV
When would you use the profit method
Profit method is used for properties where their value lies in how much profit they make as appose to the building itself and location. This would be things like pubs, petrol stations, nurseries and hotels
How would you carry out a profit method calculation
annual turnover- less cost and expenses = gross profit
gross profit- less reasonable work expenses = adjusted net profit
further calculated need to work out EBITDA
then capitalise at appropriate yield to reach market value
cross check with sale evidence if possible
What is EBITDA
Earning before inflation, taxation, deprecation and amortisation
When would you use a residual valuation
When valuing a specific property holding to find market value based on a set of market conditions/inputs
How is residual value calculated
the GDV- less development costs- developers profit= residual value
What sort of development costs might you have in a residual valuations
- demolition cost
- build costs
- proffesional fees
- contingency
- S75 fees
- marketing costs
- developers profit
What are the two main types of finance
- Dept finance- borrowing from a bank or loan company
2. equity finance- selling shares in the business
What are the three main reasons a developer might borrow money
- site purchase cost- straight line calculation
- construction costs- s-line calculation
- holding costs- straight line calculation
Explain the Hierarchy of evidence
- comparables/ open market lettings
- lease renewals
- rent reviews
- third party determination- expert determination and arbitration
- Sale and leaseback
- Inter-company transactions
How would I carry out a comparative valuation
- search and find comparables
- confirm details and analysis headline rent to get net effective rent
- assemble comparables in schedule
- give consideration to hierarchy of evidence
- form opinion of value
- report value
Luss estates example- what were you valuing in each instance
- Luss WWTW- uplift in value released by the granting of the rights
- Helensburgh WTW-valuation of the land . element of special purchaser
- luss wtw and sr- valuation of asset and land
- helensburgh res 3- land
- tarbet assess right- for luss only not transferable
Langloan example- in terms of valuation how did I go about determining if there was any marriage value
I carried out 2 residual valuations. One with SW’s title area only and one with the combined title area. This should that the residual value for SW half at about 50k-60k and for full site £160k.
for two reason- each title area could probably only fit a spacious 1 unit on. whereas the combine land could comfortably fit 3.
SW side has higher site prep costs due to tank.
Alt Mur Hydro example- How did I establish the rate of return? what percentages did I use?
this was established from comparables that Calum provided of other similar schemes- we used 6.5%
Am I aware of the current rates and yields?
what sort of yeild are we looking at in the edinburgh area in terms of the prime and secondary
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