Valuation Questions

Question 1

What are the five methods of Valuation?

Answer 1

• Comparable method
• Investment method
• Residual method
• Profit’s method
• Depreciated replacement cost method

Question 2

What is a loan security valuation?

Answer 2

To establish whether the amount of loan can be secured against the value of a property

Question 3

What are regulatory valuations?

Answer 3

For taxation, insurance, or financial reporting

Question 4

Talk me through the valuation of twenty two townhouses at Elephant Park?

Answer 4

1. Adopted the comparable method
2. Used Molior London and local agents advice to collect sales evidence
3. Adjusted comparable evidence in line with the hierarchy of evidence
4. Formed my opinion of market value
5. Reported to the client

Question 5

What size are the townhouses?

Answer 5

1,184 - 1,658 sqft

Question 6

What specification are the townhouses?

Answer 6

• 3 beds
• 2 bathrooms
• Juliet balconies
• Private terraces
• Code of Sustainable Homes (Level 4)

Question 7

What year were the townhouses complete?

Answer 7

Phase 1 RMA approval in 2014
PC achieved in Q4 2017

Question 8

What is the market value of the townhouses?

Answer 8

• 1,184 sqft = £990,000 (£886 psqft) (x13) (x6) = £18,810,000
• 1,432 sqft = £1,090,000 (£761 psqft) (x2) = £2,180,000
• 1,658 sqft = £1,240,000 (£747 psqft) (x1) = £1,240,000

Individually between £990k - £1.2m
Overall = £22,230,000

Question 9

Talk me through the residual valuation of an open market sales plot in Elephant Park?

Answer 9

1. Analysis of comparable sales evidence to inform GDV
2. Worked with quantity surveyor to determine the construction costs
3. Adopted market assumptions to calculate other development costs
4. Deducted all costs, including developer’s profit (based on client’s preferred profit margin), from GDV, to determine residual value
5. Reported to client

Question 10

What were the OMS assumptions?

Answer 10

Studio - £515k
1 bed - £630k
2 bed - 766k
3 bed - 943k

Question 11

What was the total GDV?

Answer 11

£220m

Question 12

What were the total costs?

Answer 12

£161m

Question 13

What was the developer’s profit?

Answer 13

£24m
15% MOC

Question 14

What was the residual land value?

Answer 14

£34m

Question 15

What RICS guidance should I adhere to when undertaking a Redbook Valuation?

Question 16

What is the basis of value?

Question 17

What is the definition of investment value?

Question 18

What is the definition of fair value?

Question 19

When would you use fair value?

Question 20

When would you use investment value?

Question 21

What does IV 105 set out?

Question 22

What lease terms may have a detrimental impact on value?

Question 23

Why is covenant strength important?

Question 24

What would be the risk of a weak covenant?

Question 25

How would you undertake a valuation of VPGA 7 assets?

Question 26

When would you use a depreciated replacement cost valuation?

Question 27

What is the investment method?

Question 28

What is a cap rate?

Question 29

When would you apply a rental premium or discount?

Question 30

When would you use the different basis of value?

Answer 30

Market Value & Fair Value are the same number, but Market Value is for Loan Security, whereas Fair Value is for Accounting Purposes Market Value and Investment Value are different numbers, Market Value is what it is valued by the market, but Investment Value is what an investor would actually pay for it