Valuation - Methods Flashcards
Name the 5 conventional Methods of Valuation.
Comparable
Investment
Residual
Profits/Accounts
Depreciated Replacement Cost/Contractors
Name three situations that can adversely affect the certainty of valuations ?
When there is an unusual property (in design or location) e.g. very nice office building in middle of an undesirable estate
When there is market volatility e.g. mid-covid pandemic where there is high level of uncertainty / disrupted market
Where we have not carried out usual inspections e.g. not inspected interior of the property and not got the lease to hand
Comparable with the subject property if there are similarities in terms of:
Physical characteristics
Location
Use
Tenure (& lease terms if appropriate)
Timescale
What are contemporary valuation techniques?
Discounted Cash Flow - rose to prominence in 80s
How many comparables are needed to produce a valuation?
- As many as possible
- Enough to provide sufficient information to help establish trends
- Some prices distorted i.e when the property hasn’t been subject to proper marketing
Types of comparable evidence.
- Non-transactional evidence - market reports
- Transactional evidence
What is the longest time period before a valuation date that a transaction could be accepted as being comparable?
This is dependent on number of comparables available but essentially the time it takes for a transaction to become out of date depending on market conditions
Any comparables post lockdown – 2021 onwards
What do you understand by the expression weighting of comparable evidence?
Attaching the greatest weight to those transactions that are most similar to the subject property, for example more recent transactions and those similar in condition.
What is Hierarchy of Evidence?
Ranking evidence by transaction type
Open market lettings
Lease renewals
Rent reviews
Independent expert determination
Arbitrators awards.
What is interpolation of comparable evidence
Calculating or plotting on a graph, a value that lies between two extreme points. This is considered permissible.
What is extrapolation of comparable evidence?
Calculating or plotting on a graph, a value outside of two extreme points. This is considered dangerous.
You have a graph with a top value and a bottom value, and your value falls outside of these two points. Say you have a high street shop, and 4 different business have had to move out, and each time the rent reviews have stayed static as they are upward-only but market value has gone down.
Therefore, you’d need to extrapolate your comparable evidence, as you would need to work outside the known data. This is considered statistically dangerous.
What is Zoning?
- Zoning is used to establish the rental value of shops.
- It is a comparable technique that allows us to calculate the rental value of units that may have the same size but different to depth frontages
What is a standard Zone depth?
Typically, 6.1m (20ft) but differs in prime retail such as oxford street (9.1m).
The zones are halved back:
Zone A being X
Zone B being X/2
Zone C being X/4
Remainder being X/8
X/10 – usually used for 1st floors, basements etc.
How would you assess the market rent of a ground floor unit with a return frontage?
A percentage uplift for the depth of return (usually 5%) depending on pedestrian flow
All of the unit becomes Zone A if all frontages have the same pedestrian flow, (could have reduction for excessive Zone A)
A % reduction is made for lack of internal space for shelving and displays racks
How would assess the market rent of a ground floor with frontages on two roads (through Unit)?
In halving back from both frontages at the same or different zone A rates (different zone A rates are more likely as there is likely to be different footfall on each road).