Valuation - Submission Examples Flashcards
(Islington example)
Was this a Red Book Valuation?
No
It was for agency purposes as the client was considering whether to sell the building.
What are the exemptions from a Red Book valuation?
(ALIES)
Agency Purposes
Litigation
Internal Purposes
Expert Witness
Statutory Purposes
(Islington example)
Why did you use the Comparative Method to value the property?
I used the comparative method of valuation because the property was owner-occupied (hence no income stream to value).
However, I used the investment method to cross-check my valuation.
(Islington example)
How did you value it when you cross-checked it?
I used the investment method to cross-check, capitalising at an EQUIVALENT YIELD.
I did this because there is no passing rent (so the Net Initial Yield was irrelevant in this scenario).
(Islington example)
Please can you describe the property to me?
1980s construction
15,000 sq ft
Lower Ground to 4th floor
Grade B specification
1 minute walk from Angel tube station
(Islington example)
What was the appropriate price per sq ft you applied
£500 per sq ft
(Gave a Market Value of £7.5m)
(Islington example)
How did you value it using the Comparative Method?
- I sourced my comparables.
- VERIFIED the details by speakng to relevant agents. This allowed me to devalue the headline rent to get the Net Effective Rent.
- I then created a schedule of comparables.
- Adjusted the comparables in relation to the Hierarchy of Evidence.
- Analysed to form opinion of Market Rent (MR) and Market Value (MV).
- I then stood back & looked. Reported the value and saved on file.
(Islington example)
What RICS Guidance did you adhere to during this valuation?
RICS Professional Standard: “Comparable Evidence in Real Estate Valuation (2019)” - now a Professional Standard in 2023.
It specifically outlines the Hierarchy of Evidence.
You talk about the Hierarchy of Evidence – are you aware of the RICS Guidance on Category A, B and C Evidence?
This is a framework for comparbles based on weighting:
Category A = DIRECT COMPARABLES
- Data from the subject property itself (the best)
- Completed transactions from near-identical properties.
- Contemporary, full and accurate information.
Category B = GENERAL MARKET DATA.
- Published sources / commercial databsases (e.g. CoStar).
- Historic Evidence
- Supply & Demand data
Category C = OTHER SOURCES
- Wider market data (interest rates, stocks & shares)
- MSCI
(Islington example)
How did you ascertain the void, rent free and costs?
I spoke to office agency colleagues and local agents who specialise in this location.
I also considered comparable evidence.
(Islington example)
When you are analysing your comparables - what is the hierarchy you give to rental evidence?
- New Letting (Open Market Letting)
- Lease Renewal
- Rent Review
(Open market letting is not bound by the wording in the lease).
(Islington example)
What would you have done if there was a lack of comparable evidence?
Look to use an alternative valuation method which is less reliant on comparable evidence (I cross-checked using the investment method).
Have to rely on historical data and ‘quoting prices’
Look down the Hierarchy of Evidence and consider Category B / C evidence.
Always consider market sentiment at the time where there is a lack of comparable evidence.
Also consider VPGA 10 “Matters that give rise to Material Uncertainty”
(Camden example)
You also valued another multi-tenanted office building in Camden, and you did an approach per tenancy as I understand it, i.e. you valued it per floor.
What was the basis of valuation you used for that please?
FAIR VALUE (because it was for financial accounting purposes).
The International Financial Reporting Standards (IFRS 13) had been adopted by the client.
(Camden example)
What method of valuation did you use to value the property?
As the property was let & income producing, I used the investment method to determine Fair Value.
(Camden example)
How did you value the property in Camden?
Recieved instructions from the client.
Assessed competence, carried out CoI check, ensured ToE were signed and returned.
Then I REVIEWED THE TITLE DOCUMENTS (leases/lease packet, title documents, planning information, OS plans).
Undertook statutory due diligence checks (to check there were no material matters which could adversely impact on value).
Then I inspected & measured the property.
As the property was let & income producing, I used the investment method of valuation.
I applied split yields to reflect the risk profile of the current tenants.
The 1st floor tenant had 7 years unexpired on their lease and a Dun & Bradstreet check showed they were of good quality covenant. (applied yield of 6%).
The Ground floor tenant had 1 year remaining on the lease and the D&B check was more risky. (I applied a higher yield of 7% to reflect the risk).
I then provided my supervisor with a summary form to review.
(Camden example)
What are the limitations to Dun & Bradstreet reports?
They are historic and look at past performance.
A company may look profitable but profits steadily decreasing year on year.
(Camden example)
How would you value the property in a year’s time - once the Ground floor tenant vacates?
I would use an EQUIVALENT YIELD to factor in the void period.
(Camden example)
When would you use an equivalent yield in valuation?
An average weighted yield when a reversionary property is valued using an initial and reversionary yield.
You would use it when there is short income or there is a void period, meaning a net initial yield would be irrelevant in this situation.
(Camden example)
What yields did you apply?
The property was rack-rented (let at the current market) so I applied a Net Initial Yield of:
6% to the 1st floor tenant.
7% to the Ground floor tenant to reflect the additional risk.
(Camden example)
What type of yield did you use for this example and why?
I used Net Initial Yield.
This is because the property was rack rented (equivalent yield & NIY the same).
(Camden example)
Describe the property to me?
1980s construction
Two-storey office building in a quiet street.
4,000 sq ft total.
Grade B specification
1 minute walk from Camden tube station
(Camden example)
What part of the Red Book Global applied to this valuation?
The property was for Accounts Purposes (VPGA 1).
Basis of Value was Fair Value (VPS 4) as International Financial Reporting Standrds (IFRS 13) were adopted by the client.
(Camden example)
What is the definition of Market Value?
Market Value is the estimated amount which a property should EXCHANGE:
- On the Valuation date
- Between a willing buyer & a willing seller
- In an arm’s length transaction
- After property marketing
Where the parties have acted prudently, knowledgeably and without compulsion.
(Camden example)
What is the definition of Fair Value?
Fair Value is the price that would be recieved to sell an asset in an orderly transaction between market participants at the MEASUREMENT DATE.
(The RICS’ view is that this definition is generally consistent with the definition of Market Value).
