Valuation SOE Flashcards
RETAIL CHELSEA
What SWOT analysis did you present?
Strong retail location that has out performed a lot of the retail market
Minimal vacancies in the area
Property is over-rented
Fall in the retail market
RETAIL CHELSEA
Why did you use a SWOT analysis?
To provide advice to my client on the internal and external factors that could impact their property
RETAIL CHELSEA
Why was the property valued on Fair Value?
Because this valuation was in line with the International Financial Reporting Standards
RETAIL CHELSEA
Define Fair Value
Adopted for valuations for inclusions in financial accounts. It is the fair price of a property if it was sold in an arms-length transaction in the market at the valuation date.
Largely consistent with Market value.
RETAIL CHELSEA
Define Market Value
The estimated amount for which an asset should exchange on the valuation date, between a willing buyer and willing purchaser in an arms length transaction, after proper marketing, where the parties had each acted knowledgeably, prudently and without compulsion.
RETAIL CHELSEA
Why did you adopt Zoning?
I adopted the zoning technique because this was a retail property
RETAIL CHELSEA
Why is zoning important?
Because it attributes value to the most valuable part of the property and discounts the less valuable areas of the property the further back from the shop front you go.
It provides a good method of comparison.
RETAIL CHELSEA
How did you go about zoning the property?
I first printed off the floor plans in the office and made a plan of how to zone the property. This helped me to familiarise myself with the layout of the property and looks at the frontage.
When on site I confirmed if the floor plans matched the property, at this property they did.
I adopted 30ft zones and used my disto to measure the property.
I half backed and had Zone A, Zone B and a short Zone C at the rear of the property. I adopted A/10 for the store and staff areas.
RETAIL CHELSEA
What valuation technique did you adopt?
Investment method as the property was income producing.
RETAIL CHELSEA
What was the appropriate multiplier?
I adopted the hardcore layer technique and applied an initial yield, derived from comparable evidence.
RETAIL CHELSEA
How did you use the hardcore layer method?
I divided the income flow horizontally.
The bottom slice was the market rent
The top slice was the rent passing less the market rent to the next lease event.
I selected two yields derived from comparable evidence, the yield applied to the top slice was slightly higher to reflect the additional risk
RETAIL CHELSEA
Was the property over or under rented?
Over rented
RETAIL CHELSEA
Talk me through this instruction
This instruction was completed for financial reporting purposes, I therefore selected fair value as my basis for value.
I prepared the terms of engagement and completed a conflicts of interest check ahead of starting the instruction.
I reviewed the lease information provided by the client and carried out due diligence checks before attending the inspection.
I inspected the property and measured on NIA and adopted the zoning technique.
As the property was income producing, I selected the investment method and used the hardcore layer method to capitalise the current and suture income streams. I derived the yield from the comparable evidence I selected.
What did you include in the Terms of Engagement?
Name and address of the property
Name of the client
Conformation that the valuer was competent
Basis of value
Purpose of the valuation
Timescales
Conformation of no conflicts of interest
Assumptions or special assumptions
Format of report
Compliance with the Red Book
Details of where the complaints handling procedure can be found
What due diligence enquires did you make?
Planning
EPC
Flood risk
Covenant strength
Map view of the property
INDUSTRIAL OXFORD
What was the condition of the property?
The property was a secondary industrial estate in a fair condition. There was no significant defects, however there was signs of weathering to the external cladding.
INDUSTRIAL OXFORD
What was the construction of the property?
A terrace of three light industrial units built in the 1980s. The building were of brick and blockwork construction with concrete flooring and pitched tile roof supported on a steel frame.
INDUSTRIAL OXFORD
What physical factors impacted the value?
Only 1 car parking space per unit
The construction
Small units with warehouse accommodation on the ground and a small mezzanine for office space above.
INDUSTRIAL OXFORD
What adjustments did you make for the construction of the property?
I analysed similar comparable evidence and located evidence from other terraces of light industrial units in the area.
Two of the units had recent lease renewals which provided good rental evidence
INDUSTRIAL OXFORD
Why did you select the investment method?
Because the property was income producing
INDUSTRIAL OXFORD
Was the property under or over rented?
The property was under rented
INDUSTRIAL OXFORD
Why are local occupiers weak covenants?
A local occupier is often seen as a weak covenant because they are not recognised business and do not have large profits
INDUSTRIAL OXFORD
If the occupiers are weak covenants, why did you advise that the property was suitable for the loan?
Local occupiers are common in the industrial market and is seen as low risk for these types of properties. The property is well let and does not have a history of significant void periods.
There was limited stock in the Oxford market
The industrial market was also performing well at the valuation date.
INDUSTRIAL OXFORD
How did you tailor your advice to ensure it was complaint with the Red Book for a loan security valuation?
I completed the valuation in accordance with VPGA 2.
I advised on the suitability for the loan
The sustainability factors
Comment on environmental condtions,
Enhanced conflicts checks
INDUSTRIAL OXFORD
What were the enhanced conflicts checks?
Any previous, current or anticipated involvement, with the prospective borrower of the property.
Previous involvement is defined as within the last two years but can be longer.
INDUSTRIAL OXFORD
Talk me through this example
I received the instruction from the bank to carry out the valuation on the basis of Market Rent and Market Value.
I undertook a conflicts of interest check. Once I recieved signed terms of engagement, I undertook due diligence enquires and reviewed the tenancy information.
I inspected and measured the property. I analysed comparable letting evidence and evidence from within the property to form an opinion of market rent. I adopted the investment method as the property was income producing.
When advising the client, I advised them that the tenants were local occcupiers who may be seen as weak covenants in the investment market. Despite this, I advised that the property would be suitable for the loan owing to the strong income stream and lack of supply in the market.
RETAIL STEVENAGE
What is the difference between Fair and Market value?
The RICS’ view is that these two basis of value are generally consistent.
Fair value would be adopted when valuing a property for financial reporting in line with IFRS 13.
RETAIL STEVENAGE
What is a Zone A rent?
A zone A is applied to the zone of the property that is at the front of the store. It is measured from the shop frontage back and a 30ft zone is adopted.
RETAIL STEVENAGE
How did you analyse the zone A rents?
I utiliesed the comparable method to analyse to the comparable zone A rents in the market. I discussed trends with local agents
RETAIL STEVENAGE
Why did you select the investment method?
Because the property was income producing.
RETAIL STEVENAGE
What was the appropriate yield?
I used an equivalent yield
The property was over rented so I adopted the hardcore layer method
OFFICE FITZROVIA
Was the property over or under rented?
Under rented
OFFICE FITZROVIA
How did you do the term and reversion?
I capitalised the passing rent at an initial yield to the next lease event.
On reversion, I capitalised the market rent using a reversionary yield into perpetuity.
