Valuation (Methods and yields)

Question 1

3 steps before commencing a valuation

Answer 1

1. Competence
2. Independence
3. Terms of Engagement

Question 2

What Statutory Due Diligence is required?

Answer 2

• Asbestos register
• BR/Council tax
• Contamination
• Equality Act compliance
• Environmental matters
• EPC
• Flooding (EA)
• Fire safety
• Health & Safety
• Highways
• Legal title
• Planning history

Question 3

Timeline of an instruction

Answer 3

1. Receive instruction
2. Check competence and independence
3. ToE – signed
4. Gather info/due diligence/market research
5. Inspect/measure
6. Undertake valuation
7. Draft report – Peer Review
8. Finalise and sign report
9. Report to client
10. Issue invoice
11. File in good order - archive

Question 4

5 methods of Valuation (as in VPS 5)

Answer 4

1) Investment
2) Profits
3) Residual
4) Depreciated Replacement Cost (DRC)
5) Comparative

Question 5

3 methods of Valuation (IVS 105)

Answer 5

1) Income: (Investment, Profits, Residual)
2) Cost: (DRC)
3) Market: (Comparable)

Question 6

Overview of Investment Method

Answer 6

• Used when there is an income stream to value
• Rental income capitalised to produce a capital value
• Conventional method assumes growth implicit valuation approach (growth determined by market capitalisation yield)

Question 7

Types of Investment Method valuation

Answer 7

1. Conventional
   MR x YP = MV
2. Term and Reversion
   Term = Capitalise PR until LEX/RR using IY.
   Reversion = Capitalise MR using RY into perpetuity
3. Layer/Hardcore
   Capitalise passing rent in perpetuity using market yield, capitalise top slice until lease expiry. Use when overrented
4. Discounted Cash Flow
   Estimate cash flow (income less expenditure), estimate the exit value at the end of the holding period, select discount rate, discount cash flow at discount rate, value is some of completed DCF to provide the NPV