Valuation - Level 3

Question 1

Tell me about your Bromley Valuation?

Answer 1

• I was instructed by HMRC to appraise the retuned value of a mixed-use property for Capital Gains Tax purposes in Bromley
• The instruction was to value the ground floor shop as well as the flats above which were let on Assured Shorthold Tenancies
• For the retail element, I used the term and reversion method as the subject rent was under rented
• I utilised EGI and CoStar to find comparable rents and yield evidence to capitalise into perpetuity.
• I then used the comparable method for the residential flats above
• I then advised HMRC of the approporaite value

Question 2

Bromley – how did you determine the retail element was under-rented?

Answer 2

When looking at the comparable market rents - I noticed the subject rent was lower than the market rent of the comparables.

Question 3

What is term and reversion?

Answer 3

Term and reversion is the method used to value under rented properties

Question 4

Talk me through your term and reversions.

Answer 4

As the property was under rented i undertook the Term and Reversion Method.
For the term i took the passing rent and capitalised it to the Market yield
For the reversion i took the market rent and capitalised it in to perpetuity at an higher yield to reflect the risk.

Question 5

What type of yields did you use?

Answer 5

Gross Yield

Question 6

How did you adjust the yields and why?

Answer 6

At the valuation date considerations needed to take place. It was during the covid pandemic which would have impacted the market due to the numerous restrictions and trading problems. Yield would have risen due to the lockdown and main retailers having restrictions.

Question 7

What was the construction of the property?

Answer 7

Mid terraced building arranged over ground floor, first and second beneath a pitched roof with what appears to be a clay tile covering. The building is a traditional cosntruction being principally of brickwork with part rendered elevations

Question 8

Bromley - How did you value the retail element?

Answer 8

My first step was to look at comparable rents to see if the passing rent was market rent.

Once i did this i was able to decide with method to use.

I used the term and reversion method as the passing rent was lower than the Market rent.

Question 9

Bromley - Did you zone the property – if so, how and why?

Question 10

Bromley - Explain your advice on the rental evidence for the shop.

Answer 10

Based on the facts the passing rent was lower than the market rent

Question 11

Bromley - How did you analyse this?

Question 12

Bromley - Explain your T&R calculation to me.

Answer 12

As the property was under rented i undertook the Term and Reversion Method.
For the term i took the passing rent and capitalised it to the Market yield
For the reversion i took the market rent and capitalised it to perpetuity at an higher yield to reflect the risk.

Question 13

Bromley - How did you decide what yield to use?

Answer 13

Market evidence

Question 13

Bromley - How did you value the flats?

Answer 13

Comparable method as i had comparable of flats above shops

Question 14

Bromley - Why did you use the comparable method?

Answer 14

i was able to find comparables above shops

Question 15

Bromley - Why did you not value the property as a whole mixed use property?

Answer 15

Based on the fact the flats were let out on a periodic basis i valued them seperately

Question 16

Bromley - What did you advise in relation to the MV and CGT?

Answer 16

Based on CGT -TCGA 1992 we can consider special purchasers, flooding in the market

Question 17

Bromley - How was the tax calculated based on your valuation?

Answer 17

I provided a higher value which meant HMRC was able to charge more in tax

Question 18

Oxford - What is DWP?

Answer 18

• Department of working Pensions

Question 19

Oxford - What legislation relates to DWP?

Answer 19

• Trusts of Land and Appointment of Trustees Act 1996, Schedule 15.

Question 20

Oxford - How did your valuation using comparable compare with the investment valuation?

Answer 20

The comparable and investment method gave me a very similar value

Question 21

Oxford - how did you advise given the DWP purpose of the valuation?

Answer 21

• I advised the client that the appropriate value was considerably higher than the returned value based on the condition of the property and the passing rent.

Question 22

Oxford - Explain one of these methods in detail to me.

Answer 22

• Based on the Comparable Evidnce in Real Estate Valuation 2019
• The 6 steps of the comparable evidence are:
  o Search and select comaprables
  o Confirm/verify details and analyse headline rent to give a net effective rent as approporiate
  o Assemble comparables in a schedule
  o Adjust comparables using hierarchy of evidence
  o Analyse comparables to form an opinion
  o Report value and prepare file note

Question 23

Oxford - How did you use two methods to value the property?

Answer 23

• I used the comparable method to look at direct and similar sales in the locality
• I then looked at the investment method by looking at market rent and adopting a 4.5% yield

Question 24

Reading - Why 50% share?

Answer 24

• Because they only owned 50% share therefore was valuing the 50% as stated in the instruction.

Question 24

Reading - How did you value the 50% share?

Answer 24

• I looked at the market value of the 100% share then applied the 50% to it

Question 24

Reading - Tell me about the Case in reading?

Answer 24

I carried out a Red Book report as per the requirements of Reading Council to provide a valuation for a 50% share of a house of which they wished to dispose. I undertook the Terms of Engagement in accordance with VPS 1. Following this I inspected the property in line with VPS 2. Post inspection, I gathered comparable evidence using Rightmove and my employer’s internal database to find transactions. I then prepared the report in line with VPS 3 and the report was then sent to a registered valuer to review and sign off. The report was then sent to Reading Council outlining the 50% value.

Question 25

Reading - did you apply any discount for being a half share?

Answer 25

No

Question 26

Reading - why did you not apply a discount?

Answer 26

as it was a red book market valuation for a 50% share and not for capital taxation reasons.