Valuation - Subs Flashcards
What are the five methods of valuation and when is each units?
The five methods of valuation, as outline in The Red Book, are:
COMPARABLE METHOD – Used for valuing properties where there is sufficient market evidence of similar transactions, e.g. residential properties and standard commercial units
INVESTMENT METHOD – Used for income-producing properties by capitalising net rental income at an appropriate yield, e.g. offices, retail and industrial properties
PROFIT METHOD – Used where a property’s value is based on its ability to generate profit, e.g. hotel, pubs and care homes
RESIDUL METHOD – Used for development appraisals by valuing the completed scheme and deducting costs and profit to determine land value.
DEPRECIATED REPLACEMENT COST (DRC) METHOD – Used for specialist properties where there is no active market, such as schools, hospitals and churches.
What is the purpose of the RICS Valuation – Global Standards 2025 (‘The Red Book’)?
The Red Book provides a globally recognised framework for ensuring consistency, accuracy and transparency in valuations.
It promotes best practice across valuation reporting, ensuring the highest standard.
What are the main changes changes to the red book?
Emphasis on sustainability and ESG factors, reflecting the growing importance of environmental and social considerations.
Requires valuers to rotate off engagements after a certain period of time to ensure they remain objective. This applies for fund valuations where a maximum of 10 years before a valuation firm rotates.
Can you explain the role of PS 1 and how it applies to your valuation work?
PS 1 is compliance with standards where a written valuation is provided.
PS 1 requires that all valuations, unless exempt (litigation, statutory, internal, agency and expert witness), must comply with the Red Book standards.
Can you explain how you would use the Comparative Method to value an resi property?
I would gather evidence of recent transactions – of similar size, location and condition.
Confirm and verify details with local agents.
Adjust compares using a hierarchy of evidence
Analyse comparables to help form an opinion of value
Report value
How do factors such as size, location, age, and tenure impact valuation?
Size – Larger properties may attract discounts per sq ft, while smaller units may command a premium.
Location – Prime locations tend to achieve higher values, while secondary locations may require adjustments.
Age & Specification – Newer, high-spec buildings command premium rents, while older stock may require refurbishment costs to be factored in.
Tenure – Freehold properties often attract higher values than leaseholds, and leasehold values are impacted by lease length, ground rent, and restrictions.
When undertaking a valuation, what are the key steps you follow to ensure the report complies with Red Book standards?
I start by determining my competence and running a conflict-of-interest check on Salesforce (PS 2)
I then issue a written ToE with the client, ensuring all relevant aspects, such as the asset to be valued, the currency and fee basis, the purpose of valuation, the basis of value, the valuation date, assumptions and special assumptions, are agreed upon (VPS 1) and the valuation report (VPS 3).
I then conduct a site inspection (VPS 2), gather relevant market data, then apply the most appropriate valuation method (VPS 4).
I finally choose and justify the valuation approach (income approach/cost approach/market approach) and use of the model as per (VPS 5). – change thses CPS
Why is it important to use appropriate valuation methods for different asset types?
Different asset types have unique characteristics influencing their valuation. Using the correct method ensures accuracy and reliability. For example:
A residential flat is best valued using the comparable method.
A shopping centre requires the investment method due to rental income.
A development site should use the residual method.
What is the hierarchy of evidence in the comparable method of valuation?
The hierarchy of evidence ranks the reliability of market data:
Recent open-market transactions – Best evidence, reflecting real market conditions.
Agreed terms – Less reliable than completed deals but still relevant.
Asking prices – Indicative only, as they may not reflect actual market value.
Historic transactions – Useful for trends but may require adjustments for market changes.
Agent opinions – Helpful for context but subjective.
What ethical considerations should a valuer follow when undertaking a valuation?
Independence & Objectivity – Avoid conflicts of interest and disclose any relationships.
Competence – Only undertake valuations within your expertise.
Transparency – Clearly state assumptions, limitations, and sources.
Compliance – Follow RICS standards, including PS1 & PS2 of the Red Book.
Confidentiality – Maintain client confidentiality and data security.
What steps should you take before undertaking a valuation instruction?
THREE important first steps to undertake?
COMPETENCE
Are you competent to undertake the work?
Do you have the correct Skills, Understanding and Knowledge (SUK)?
If not refer, to RICS Find a Surveyor service on RICS website
2. CONFLICT
THINK FIRST, then check for any conflict/personal interest – WHO?WHY?
3. TERMS OF ENGAGEMENT
Set out in writing full confirmation of instructions to client before starting work and receive written confirmation
Confirm the competence of the valuer
The extent and limitations of the valuer’s inspection must be stated
