Valuation - lvl 2

Question 1

Tell me why terms of engagement are important.

Answer 1

ToEs set out full written confirmation of instructions before starting work.

They confirm competence of the valuer.

They define the extent and limitation of the instruction.

Question 1

What checks do you undertake before carrying out a valuation instruction?

Answer 1

CIT. Ensure you are compentent, have the Skills, Understanding, and Knowledge (SUK) to undertake the instruction.

Ensure you are not conflicted. Or you have your client’s informed consent to go ahead with the valuation.

Ensure you have received the signed and dated ToEs. This is for written confirmation of the instruction.

Undertake money laundering checks on your client if required.

Question 2

How do you ensure you know who your client is when undertaking a valuation instruction?

Answer 2

I would seek to identify the status of the client in accordance with VPS1 in the Red Book Global.

Question 3

Are there any additional requirements when undertaking a valuation in which the public has an interest or third parties may rely?

Answer 3

Yes there are additional requirements in accordance with PS2 in the Red Book Global.

E.g. publication, prospectus or circular.

Question 4

Talk me through an example of when you have agreed terms of engagement with a client.

Answer 4

891 Lea Bridge Road - I received an instruction from a client for a Red Book Global Compliant Valuation. I carried out pre-instruction checks and confirmed I was competent and not conflicted.

I defined the extent and limitation of the instruction and agreed a fee before issuing ToE to my client. The document which included requirements stated with VPS1 in the Red Book Global.

Question 5

What are the key elements included within the terms of engagement?

Answer 5

The key matters must be included in VPS1 in the Red Book Global.

IPVIARCFCML -
- Identification of valuer, client, other users
- Property, Purpose(, currency)
- basis of Value, Valuation date
- extent of Investigation, nature and sources of Information relied upon
- Assumptions and special assumptions
- Restrictions for use, distribution and publication
- confirmation of Compliance with Red Book Global
- Fee basis
- reference to CHP
- statement that valuation might be Monitored by the RICS
- any limitations to Liability agreed

ToEs define the competence of the valuer and include the extent and limitation of the instruction.

Question 6

What does the Red Book say about terms of engagement?

Answer 6

VPS 1 in the Red Book Global states that the terms of engagement must set out full written confirmation of instructions.

Question 7

What does the Red Book Say about inspections?

Answer 7

PS2 in the Red Book Global states valuers must take steps to verify necessary information being relied upon for the preparation of the valuation.

Question 8

What does the Red Book say about reporting requirements?

Answer 8

The key matters must be included in VPS3 in the Red Book Global.

IPVIARCVML -
- Identification of valuer, client, other users
- Purpose, Property
- bases of Value, Valuation date
- extent of Investigation, nature and sources of Information relied upon
- Assumptions and special assumptions
- Restrictions on use, distribution and publication
- confirmation of Compliance with Red Book Global
- Valuation approach and reasoning, figure and date of (valuation) report
- comment on Market uncertainty
- any limitations to Liability agreed

Question 9

What are the differences between a desktop and a full valuation report?

Answer 9

VPS 3 in the Red Book Global states valuers must take steps to verify necessary information being relied upon for the preparation of the valuation.

If instructed on a desk top valuation the valuer should should consider the following
- The nature of the restriction must be included in the ToE
- Any valuation implication must be confirmed in writing before reporting
- The valuer should consider whether the valuation is reasonable
- The restriction must be referred to in the report

Question 10

Tell me about how you ensure that information relied upon in your valuation is appropriate and reliable.

Answer 10

PS2 in the Red Book Global states valuers must take steps to verify necessary information being relied upon for the preparation of the valuation.

Question 11

68 Chingford Mount Road - was time of the essence?

Answer 11

No.

Question 12

68 Chingford Mount Road - you mention the comparable method, well me what this means.

Answer 12

This is one of five methods of valuation. The comparable method relates to compiling, verifying, and analysing market evidence.

Question 13

68 Chingford Mount Road - how many comparables did you obtain?

Answer 13

I found separately three comparables for retail and residential rental evidence.

I had reference to the RICS GN Comparable Evidence in Real Estate Valuation 1st Ed., 2019.

Question 14

68 Chingford Mount Road - are these comparables from the immediate area or further afield?

Answer 14

The comparables were near the subject property.

Question 15

68 Chingford Mount Road - What RICS document provides information on weighing the evidence?

Answer 15

The RICS GN Comparable Evidence in Real Estate Valuation 1st Ed., 2019.

I also had reference to the Handbook of Rent Review , Reynolds and Bernstein -
- Open market lettings
- Lease renewals and rent reviews
- Independent expert determinations
- Arbitrator determinations
- Court determinations under the L&T Act 1954
- Hearsay evidence
- Sale and leasebacks
- Surrender and renewals
- Inter company arrangements

Question 16

68 Chingford Mount Road - What does the RICS document providing information on weighing the evidence say?

Answer 16

The RICS GN Comparable Evidence in Real Estate Valuation 1st Ed., 2019 weighs evidence as follows -
- Cat. A - Direct evidence of the contemporary
- Cat. B - General market data for which full data may not be available(, but for which enough reliable data can be obtained to use as evidence)
- Cat C - Other sources

Question 17

68 Chingford Mount Road - with it being a takeaway does this have an impact on value?

Answer 17

The comparables I sourced were not for takeaway Use Classes. I adjusted my opinion of rental value of the shop and added 10% for the shops additional use as a takeaway.

Question 18

8 Station Road, Loughton - tell me about the rent review clause.

Answer 18

The rent review clause had 5 yearly rent reviews with the following assumptions and disregards:
Assumptions -
- the property could be let in the open market:
between a willing landlord and willing tenant,
as a whole,
with vacant possession,
without fine or premium,
for a term equal to the unexpired residue of the contractual term at the relevant review date or 5 years if longer,
on the same terms of this lease except as to the rent (no alienation and wholly restrictive use class)
- the landlord and tenant fully comply with their lease (the property is fit for occupation and use)
- if the property has been destroyed it has been fully reinstated
- no works have been carried out on the property which have diminished rental value
Disregards:
- Tenant occupation
- Goodwill attached by carrying out of business
- Improvement
For the rent review time was not of the essence
For third party determination the surveyor should be an arbitrator

Question 19

8 Station Road, Loughton - in your measurement at GIA, did you discount anything?

Answer 19

I adjusted my opinion of rental value of the flat and deducted:
- - 35% - Tenant’s management obligation
- - 10% - Position above restaurant

Question 20

8 Station Road, Loughton - how did you adjust the rent? What basis?

Answer 20

• • 35% - Tenant’s management obligation
• • 10% - Position above restaurant

Question 21

Could you have used another method rather than comparable?

Answer 21

I could have used the profits method of valuation.

I had been informed by the client that the F2 Use Class property was a non profit organisation so I was not able to use this approach.