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RICS APC - Residential > Valuation - Level 2 > Flashcards

Valuation - Level 2 Flashcards

1
Q

When would you choose a term and reversion approach?

A

Lease extension valuation

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2
Q

What are the bases of value?

A
  1. Market value
  2. Market rent
  3. Fair value
  4. Investment value
  5. Equitable value
  6. Liquidation value
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3
Q

What are the 5 methods of valuation and explain

A
  1. Comparative method
  2. Investment method
  3. Profits method
  4. Residual method
  5. Contractors method (e.g. depreciated replacement cost)
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4
Q

What is the yield for lease extensions and why?

A

5%

Case of Earl Cadogan Vs Sportelli - the deferment rate.

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5
Q

What is the heirarchy of evidence?

A

Demonstrates the best comparable evidence sources. Three categories. E.g. Best open market sales. Least - arbitration results.

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6
Q

How would you carry out a Depreciation Replacement Cost basis of valuation for?

A

Buildings where there is not normally a transactional market. E.g. brewery/ unique properties

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7
Q

When might you use the profits method of valuation?

A

When valuing a restaurant, hotel or pub.

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8
Q

If you were doing an investment valuation, when might you use the hardcore method?

A

When a property is being overrented.

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9
Q

When would you use the residual method of valuation and what are its main components?

A
  • Used to value property with development potential or vacant land.
    Purchase price/site acquisition value = GDV - (Construction + Fees + Profit)
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10
Q

What is fair value and when would you use it?

A

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction, between market participants at the measurement date.

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11
Q

What is a special assumption?

A

An assumption that either assumes facts that differ from the actual facts existing at the valuation

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12
Q

Give an example of a special assumption.

A

Assuming planning permission, when it is yet to be granted.

Assuming a property is vacant when it is let.

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13
Q

What is a special purchaser?

A

A particular buyer for whom an asset has a special value because advantages would arise from its ownership.

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14
Q

What is a marketing period?

A

The length of time a property to predicted to be marketed for before sale.

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15
Q

Define market value.

A

The estimated amount for which an asset or liability should exchange for on the valuation date, between a willing buyer and a willing seller in an arm’s length transaction after proper marketing.

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16
Q

When would you have regard to marriage value?

A

Additional value created by the combination of two or more assets or interests. E.g. lease extension.

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17
Q

If valuing a residential investment property, comprising of 20 flats, let on AST’s what yield would you apply?

A

DAD!!!!!!

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18
Q

When valuing a residential block of apartments, why would you have regard to its vacant possession value?

A

If selling a freehold, you assess the vacant possession value and determine the term remaining,

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19
Q

What is a protected or regulated tenancy?

A

A tenancy which started before the 15 January 1989 - governed by Rent Act 1977.

  • Tenants had strong rights in relation to rent, security of tenure and succession rights.
  • The rent must be fair and is determined by the Valuation Office.
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20
Q

What is the investment (or worth) value?

A

The value of an asset to the owner or prospective owner for individual investment objectives.

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21
Q

What is Liquidation value?

A

The likely price of an asset hen it is allowed insufficient time to sell on the open market.
Exposure to potential buyers is limited.

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22
Q

What is Equitable value?

A

The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties.

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23
Q

What is the Comparable Method and when would you use it?

A
  • Using comparable data, based on the subject property’s characteristics to assess the value.
  • Most common
  • E.g. Houses, shops
  • Provides an estimated market value.
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24
Q

What is the Contractors Method and when would you use it?

A
  • Cost method of valuation
  • E.g. airports, shipbuilding yards, public sector buildings.
  • The current cost of replacing the asset - deductions for physical deterioration.
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25
Q

What is the Investment Method and when would you use it?

A
  • Determining the market value of a freehold or leasehold property from its potential to generate an income.
  • The Future rental income, which discounted back to the present day = Net Present Value
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26
Q

What is the Profits Method and when would you use it?

A
  • When no comparable/sales data is available
  • E.g. pubs, restaurants
  • The method estimates the business’s gross profits and deducts all working expenses.
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27
Q

What is the Residual Method and when would you use it?

A
  • Used to value property with development potential or vacant land.
  • Residual sum is the value the developer can spend on the property in its undeveloped form.
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28
Q

What are the main drivers that impact value?

A
  • Age
  • Location
  • Tenure
  • Condition
  • Lease terms
  • Size
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29
Q

What is the latest valuation standards?

A

RICS Valuation - Global Standards 2020

30
Q

When was the Red Book Updated?

A

31 January 2020

31
Q

What are the different parts of the Red Book?

A
  1. Professional Standards
  2. Valuation Technical and Performance Standards (VPS)
  3. Valuation Applications (VPGA)
32
Q

What method of valuation and basis of valuation would you use for bank lending?

A

.

33
Q

What method of valuation and basis of valuation would you use for bank lending/secured lending purposes?

A

Market value

Comparable method or Depreciated replacement cost.

34
Q

Why is independence and objectivity important?

A

Ensures that a valuation is carried out to the appropriate level and standard.

35
Q

What are Automated Valuation Models (AVM)?

A

A service that can provide a value for a property using mathematical modelling combined with a database.

36
Q

What are the sections you include in a residential property valuation report?

A

.

37
Q

What are the sections you include in a residential property valuation report?

A
  1. Identification and status of valuer
  2. Identification of client
  3. Purpose of Valuation
  4. Identification of asset valued
  5. Basis of value adopted
  6. Valuation date
  7. Extent of investigation
  8. Nature and course of the information relied upon
  9. Assumptions and special assumptions
  10. Valuation approach and reasoning
  11. Date of the valuation report
  12. Comment on material uncertainty and limitations
38
Q

What is material uncertainty?

A

.

39
Q

What is loan security?

A

Security given to the lender, sometimes called collateral. The asset acts as protection for the lender.

40
Q

How would you value an asset for loan security?

A

.

41
Q

When have you previously used an AVM?

A

.

42
Q

What are the main components of a residual valuation?

A

Purchase price/site acquisition value = GDV - (Construction + Fees + Profit)

43
Q

What is GDV?

A

Gross Development Value

The potential sale price, following development to an interested party.

44
Q

What are the Red Book VPSs?

A

Mandatory

Valuation technical and performance standards

45
Q

What are the Red Book VPGAs?

A

Advisory

Valuation Practical Guidance Applications

46
Q

What is professional scepticism and when should it be used?

A

An attitude that includes a questioning mind and critical analysis of data during the valuation process.

47
Q

What 3 steps must you take before accepting an instruction?

A
  1. Competence
  2. Independence
  3. Terms of Engagement
48
Q

What are three other methods of valuation, set out in the IVS 105 Valuation Approaches and Methods?

A
  1. Income Approach - investment, residual and profit
  2. Cost Approach - cost of the asset by construction - depreciation replacement cost method
  3. Market approach - comparable
49
Q

What is Depreciated Replacement Cost method?

A

The current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation.

50
Q

What are the five steps for comparable valuation?

A
  1. Search and select comparables
  2. Assemble comps schedule
  3. Adjust comparables using the hierarchy of evidence
  4. Analysis comparables to form opinion of value
  5. Report value and prepare file note
51
Q

What is the hierarchy of evidence for comparable evidence?

A

The relative weight attached to different types of evidence
A. Open market transaction data/ direct comparables
B. General market data / databases
C. Transactional evidence from other locations

52
Q

What is the RICS guidance note for comparable valuation?

A

RICS Guidance Note - Comparable evidence in real estate valuation (1st edition) 2019

53
Q

What are the factors to consider when determining a yield to use for Investment Method?

A
  1. Quality of location
  2. Use of the property
  3. Lease terms
  4. Prospects for rental and capital growth
54
Q

What is Discounted Cash Flow?

A

Growth explicit investment method of valuation

55
Q

What is the purpose of RICS Valuation - Global Standards?

A

Mandatory

  1. helps to ensure valuations are ethical, transparent and consistent
  2. reflects standards of IVS.
56
Q

When were the RICS Valuation - Global Standards updated?

A

31 January 2020

57
Q

How would you ensure a surveyor is appropriately qualified to carry out a valuation?

A

Check on RICS website to see if they are registered.

58
Q

How would you gather appropriate comparable data?

A

Hierarchy of evidence
A. Open market transaction data/ direct comparables
B. General market data / databases
C. Transactional evidence from other locations

59
Q

What is the hierarchy of evidence?

A

Demonstrates the relative weight attached to different types of evidence

60
Q

Define a long leasehold flat

A

Lease of a residential demise held between two or more parties for longer than 21 years

61
Q

What is the lease extension process?

A
  1. Leaseholder must qualify - 2+ years / lease granted +21years
  2. Issue Section 42 Notice
  3. 2 months for landlord to issue S45 Notice
  4. parties make decision no sooner than 2 months, within 6 months. Solicitors will agree details of new lease.
62
Q

What does the Leasehold and Reform Housing and Urban Development Act 1993 Part 1 Chapter 2 allow?

A

Gives individuals tenants the right to acquire a new lease.

63
Q

What does a registered valuer determine the premium of a leasehold flat for a lease extension?

A

“1. Captialisation of Ground Rent (5%) - Remaining GR at current value.

  1. Freehold Reversionary Interest - compensated for increased time before receive VP.
  2. Marriage Value - 50% if less than 80 years remaining”
64
Q

When would a lease extension go to the FTT?

A

When parties can not agree on a premium

65
Q

What is a Reinstatement Cost Assessment?

A

Valuation to assess the total cost for rebuilding the whole property - declared value

66
Q

When carrying out out a RCA, what information do they collect whilst on site?

A
  1. Size
  2. Materials used
  3. Structure
67
Q

What is IPMS 2?

A

Internal - compared to GIA

68
Q

What is the purpose of a RCA?

A

For the insurance premium

69
Q

What are the key principles of the RICS Comparable Evidence in Real Estate Valuation 1st Ed?

A

Use of comparable evidence in valuation

  1. encourage consistency
  2. address issues of avilability
  3. consider potential sources and their relative importance
70
Q

What are the IVS?

A

International Valuation Standards

71
Q

Once a Reinstatement Cost Asessment has been carried out, how is it used?

A

The declared value is increased by 15-50% to get the sum insured and used to assess the insurance premium

RICS APC - Residential (22 decks)

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