Valuation Q&A Unedited Flashcards
What is an ‘indicative valuation’, and how would you comment on its reliability?
Preliminary estimate of an asset/ company’s value, often utilised as a starting point for further analysis or negotiations. The limited reliability should be clearly stated. ‘Values’ are often presented in a range.
You refer to PS1 of the Red Book – what is your understanding of this section? Is it mandatory?
PS1 Compliance with standards where a written valuation is provided. Mandatory notwithstanding the exceptions to VPSs covered in PS1 s5 - ALIES.
Can you tell me about the kind of assumption you made in this valuation?
I am assuming here – special assumption that scheme was established and operating with granted permissions at the date of your valuation? ‘Special’ as not materially true at date of valuation.
What type of yield/s did you utilise in this valuation? How was it determined?
What is a ‘DCF’?
A valuation method that estimates the value of an investment using its expected future cashflows.
Why did you select a DCF?
Assuming because of phasing or complicated / nonstandard lease?
Can you tell me about the relevant inputs for your DCF?
Eg cashflow, purchase price, cap ex, op ex, etc.
What assumption did you make in regard to the end of the three year period?
Ie, was there an exit value, is this being operated in to perpetuity, etc.
What yield types did you utilise, and how did you determine them?
Discount rate utilised for years modelled, ARY for any years in to perpetuity. ARY reflects fully let property reflecting all prospects and risk attached to particular investment, common in trad values. Discount rate does not reflect the additional factors in the ARY as these are explicit in the model. Discount rate is informed by the market, and decision is made from comp evidence, specific investor requirements, market sentiment, etc.
Is there any RICS guidance you utilised in this valuation specific to the DCF?
RICS Practice Information, Discounted Cash Flow valuations.
Can you tell me about the difference between ‘Market Value’ and ‘Fair Value’ (as defined in the RB)?
Main difference – FV does make stipulation of willing buyer and willing seller.
Can you talk me through the profits method of valuation?
Annual turnover less costs / purchases = gross profit, less reasonable working expenses = unadjusted net profit, less operator’s remuneration = adjusted net profit / Fair Maintainable Operating Profit (FMOP), capitalised at appropriate ARY to achieve MV. Cross check with comparable where possible.
How did you determine your FMOP?
What a reasonable and competent operator in the market might expect to generate.
What evidence did you assess to outline the ‘typical marketing periods’?
Was this an in house resource? Did you consult internal experts? Do you have awareness owing to X years experience?
Can you tell me about the case law for margin of error in valuations?
K/S Lincoln and Others v CB Richard Ellis (2010). Valuation of four hotels in 2005. Judge ruled 5% for standard residential, 10% for one off commercial, 15% for exceptional features.
I am not familiar with the term ‘best market value’, could you explain this to me?
What type of property were you valuing?
How did you assess your comparable evidence?
In accordance with RICS ‘Hierarchy of evidence’. Assembled comps in a schedule, with most preferable evidence given greatest consideration in determining the weighting. Adjustments made as required to account for the characteristics of the subject.
Did you refer to any RICS guidance for this?
Former guidance note now Professional Standard: Comparable evidence in real estate valuation, 1st ed, 2019.
What is the RB definition of MR?
The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
How did you adjust your MR to arrive at ‘best market value’?
Expecting a commentary on the quality of the comps and decisions made to arrive at opinion of value – eg uplifting if subject preferable, discounting if subject inferior, etc, which characteristics determined your opinion?
What was the purpose of this valuation?
What was the process of your inspection?
Why did you select ‘auction’ results as your comparable evidence? How do you weigh this against other evidence types?
Beneficial to note that the ‘auction’ element may have an impact on how reliable the attainment was – can you comment on whether you typically expect transactions to occur through this method in the market?
You refer to VPGA 15, what type of valuation would this be relevant to?
Valuations for CGT, IHT, SDLT, ATED and Residential Property Developer Tax.
What assumptions does VPGA 15 make in regards to MV which differs from the RB definition of MV?
For IHT – the price shall not be assumed to be reduced on the ground that the whole of the property is to be placed on the market at one and the same time. Also emphasis preliminary arrangements made as at val date, reflects special purchaser, for purposes of sale vendor will divide property into whichever natural lots would achieve best overall price, adequate marketing, etc.
Tell me about your understanding of ‘Valuer Registration’?
Scheme introduced by RICS, regular monitoring for all valuers carrying out RB valuations.
What are the aims of the Valuer registration scheme?
Three main ones: 1. To improve the quality of valuation and ensure the highest possible professional standards. 2. To meet the RICS’ requirement to self-regulate effectively. 3. To protect and raise the status of the valuation profession as the leading expertise in valuation.
What should clients be able to expect from RICS valuations?
Openness and transparency, RICS and IVS protection, expertise and clear reporting, world class regulations.
Once you receive accept a valuation instruction, what is your process in carrying out an inspection?
Here I am looking for your desktop due diligence – including a health and safety assessment prior to undertaking the inspection.
Why did you carry out your due diligence after your inspection?
Linking in to above, I would note general expectation is you would have researched property in advance. Stress you had done H&S prior and you were further determining valuation factors.
How did you record your measurements?
House, so I am assuming GIA. If GEA or other they may ask for your reasoning. Assuming you used a disto- if so how do you confirm accuracy? Assuming you either had a floorplan or drew your own, etc.
What are the main purposes for undertaking an inspection?
Valuation, Agency, Property Management.
You note that you undertook this valuation for loan security purposes, so why did you provide your client with detailed commentary on prospects?
What are the 5 methods of valuation?
Comparable, investment, profits, residual, DRC/ Contractors Method.
What are the bases of value and where are they defined?
Market, income, cost. Now VPS 2.
Can you tell me about any recent changes to the Red Book?
Simplified guidance for users, updates to mandatory commentary on ESG, new structure to VPS’, rotation policy.
You refer to valuation circumstances which may be exempt from the Red Book, what are these?
ALIES.
What is the definition of Market Value?
The anticipated amount that an asset or liability should be expected to exchange at the valuation date between a willing buyer and a willing seller, in an arm’s length transaction, after proper marketing, with both parties acting knowledgeably, prudently, and without compulsion.
