Valuation - Submission Examples Flashcards
Was this a Red Book Valuation?
Yes most of the valuations I participated in were in accordance with the Red Book.
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?
Two converted Georgian Townhouses
11,000 sq ft
Lower Ground to 3th floor
Grade B specification
5 minute walk from Piccadilly Circus
Part owner occupied, part investment. Tenant on the lower ground and ground floor.
(West End example)
What was the appropriate price per sq ft you applied
£1,417 per sq ft
(Gave a Fair Value of £15m)
(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.
(West End 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.
AND
UK VPS 3 - Financial reporting.
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
(West End 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 and were dealing with the letting of the vacant thirds floor at the time.
I also considered comparable evidence.
(West End 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).
(Sydenham 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”
(West End 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.
(West End 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.
(West End example)
How did you value the property in the West End?
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.