Valuation (Submission) Flashcards
Steps to take prior to commencing a valuation instruction?
- Check competence? Using SUK (Skills, Understanding and Knowledge)
- Check for any COI
- ToE
What is the definition of a valuer? Difference between internal and external valuers?
Someone who estimates the price that a property would achieve on the open market.
Internal valuer = undertakes valuations for their employer
External valuer = valuation for a third party
What are different reasons why a valuation might be required?
- In order to value someone’s estate for IHT purposes.
- Probate reasons
- Independent expert
- Internal valuation of assets
What are the 5 methods of valuation?
- Comparable
- Residual
- Investment
- Profits
- Depreciated Replacement Cost/ Cost based method
What was the £psf of the comparable evidence looked at Langley and what value did you apply for your units?
£425/sqft on the Ground, First, Second and Third floors. Fourth floor was slightly higher £432.
I applied a 10% premium on our values as close to the station and would have outside space.
What was the % growth in the flat prices in langley within the time period?
Pretty limited growth in the period, of around 5%. However after speaking to local agents, I estimated a 10% premium for the proposed flats location close to Langley station and 5% increase for the provision of proposed balcanies on each flat.
Why is the Red Book needed, what is the latest updated and how often updated?
MANDATORY INTERNATIONAL STANDARDS that allow for consistency and transparency in valuations. Promotes high standards of valuation delivery worldwide.
Latest updated = Valuation Global Standards 2021.
Updated every 2-3 years.
MOCK QUESTION
What is the format of the Red Book Global?
- Introduction
- Glossary
- Professional Standards PS (e.g. understanding when a valuation has to be Red Book compliant)
- Valuation technical and performance standards VPS
- Valuation applications (VPGA) (Guidance)
- The International Valuation Standards (IVS)
Within the Red Book, what Valuation Technical and Performance standards (VPS’s) are you aware of?
Valuation Performance Standards are mandatory. These are:
VPS 1 = Terms of Engagement
VPS 2 = Inspection
VPS 3 = Contents of the report
VPS 4 = Basis of Value
VPS 5 = Valuation methods
When can a valuation not be Red Book compliant?
- When advice is provided solely for negotiations.
- Providing valuations to a client for internal purposes.
- In agency in prior to recieving an instruction to dispose of a property.
- Valuation prior to giving evidence as an expert witness.
Can you depart from the Red Book standards + example?
Yes it must be stated in writing in the terms of engagement and the reasons for it. Client must agree in writing.
E.g. if providing advice for a vendors personal family dispute.
What does the Red Book say about Terms of Engagement? & what does it require to be included?
- If a firms process means they can’t comply with an aspect of the global standards of valuation it must be identified in the TOE.
- Identification + status of the valuer
Idenfification of the client
Identification of the asset being valued
Purpose of the valuation
Basis of Value
Valuation date
Assumptions
Fee basis
Confirmation of Red Book Global compliance
What were the main changes to the RICS Valuation - Global Standards 2021 (“Red Book Global”)?
Valuations require more commentary on the relevance of ESG and sustainability factors which should then form an integral part of the valuation approach and reasoning.
Why are registered valuers required?
Ensures quality assurance and helps to ensure consistent standards of ‘Red Book’ valuations. They apply through the RICS
Are there any material uncertainty clauses you would include in a report today? ***
Regarding the invasion of Ukraine by the Russian military in late February 2022, there was an immediate impact on the global economy due, in part, to sanctions imposed on Russia, rising oil and gas prices and the restriction of exported goods from Ukraine and Russia.
Whilst the residential property markets continue to perform well, valuations would be prepared against the backdrop of a very challenging economic outlook.
What is Market Value?
The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
What is an arms length transaction?
act in their own self-interest and are not subject to pressure from the other party.
What are the assumptions made when determining Market Value?
Some of these are:
1. Property is sold by a willing seller and willing buyer in the open market at an arms length basis.
2. That VP is available.
3. That there are no restrictions affecting the property.
What is Market Rent?
The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and 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.
What is an Investment Value?
The value of an asset to the owner or a prospective owner for individual investment.
What did the Wooburn Green comparable valuation report include?
This included:
- Appointment/ client (Dispute Resolution Service)
- Status of the valuer
- Valuation Date (date of the report).
- Basis of Value
- Procedure (such what had been received by the parties, clarifying appointment as an independant expert not an Arbitrator and inspection procedure).
- Property Description
- Market Comments (including comments about the absence of market evidence to reflect inprecedented COVID-19 market)
- Valuation approach (including comparable table & the fact we made a deduction to reflect the property condition but a saving because of the SDLT holiday)
- Value determination
How did you come to your valuation in Wooburn Green?
- Search and selected suitable comps
- Confirm/ verified details with agents
- Assembled comps in a table
- Adjust comps using the hierarchy of evidence
- Analysised the comps to form my opinion, this resulted in me making a deduction to reflect the condition of the property
- Reported value
What did you look out for in your inspection of Wooburn Green?
- Signs of defects e.g. cracks in walls, damp
- Condition of the services.
- Layout flexibility for potential refurbishment.
What effected your opinion of Market Value for the property?
- Deduction to reflect the condition of the property.
- Added back a sum to reflect the potential saving from the SDLT holiday.
What is a yield?
The measure of invested return and is measured as a percentage. It is determined using comparables. It reflects the risk of an investment. Higher yield = higher risk.
Can you name some of the risks are reflected in a yield?
- Tenant risk: Covenant strength, Void, Lease terms, Service change, Transaction cost
- Building risk: Undesirability, Planning risks, Climate Change, Flooding
- Capital market risk: Financial Movement, The economy, Liquidity, Inflation