Valuation Summary Of Experience Flashcards
Outline the red book?
- Intro
- Glossary
- PS1 - compliance with standards where a written valuation is provided.
- PS2 - ethics, competency, objectivity and disclosures
- VPS1 - Terms of engagement
- VPS2 - inspection, investigation and records
- VPS3 - valuation report
- VPS4 - bases of value, assumptions and special assumptions
- VPS5 - valuations report and method
- VPGA 1-10
What’s mandatory in the red book?
PS1, PS2, VPS1-5
Walk me through your Cody Road example?
The market rent was in line with the passing rent.
Annual rent X Years purchased = Market value
what does the ARY incorporate?
- Anticipated rental growth
- property condition
- age
- location
-other lease terms
ARY
ARY is known as the All Risks Yield as it takes into account all the risks of the investment
also known as the ‘market capitalisation rate’
What other types of yields are you aware of?
Initial yield
Reversionary yield
What is the initial yield?
The net income at date of purchased expressed as a percentage of the purchase price
what is a reversionary yield?
Market rent expressed as a percentage of purchase price
What is the Gross initial yield?
passing rent expressed as a percentage of the purchase price
What is the net initial yield?
passing rent expressed as a percentage of the gross cost of acquisition
i.e. purchase price plus purchaser’s costs
Purchaser costs
-stamp duty land tax
- agent fees
- legal fees
- VAT on agent and legal
how do you value a under rented property?
- term and reversion
term
passing rent capatilised to next lease event at a lower yield
reversion
market rent capatilised into perpetuity at a higher yield
discount this back to the present value £1 for how many years left until the lease event
Add your term and reversion together = Market value
In your residual, how did you calculated your Gross Development value?
Comparable
comparable of what a newly development commercial building would sell for in Chelsea
Investment method
Get the market rent and capatilise it into perp to get GDV
What were your build costs?
£3500sq
BCIS owned by rics
what was the site value?
£20mil (19% of GDV)
what was the gross development value?
£120 mil
What costs are included in your residual?
- Demolition
- Build costs
- Building costs fees (12% of BC) architect etc
- Contingency (2%)
- Finance costs (7%)
- Acquisition cost (SDLT, Legal, Agents, VAT)
- Developers profit (15% GDV or 25% total costs)
What is the current base rate?
5.25%
what are the financing rate?
6-8% dependent on lending risk
Profits method
Turnover (net of VAT)
- costs of generating turnover
= Net operating profit
Net operating profit is then capatalised
Hierarchy of evidence?
Ranking evidence on transaction type
- Open market lettings
- Lease renewals
- Rent reviews
- Expert determination
- Arbitration
Outline contractors (DRC)?
Cost of modern building + cost of site
= Total value of property
- depreciation
= existing property
What does the Red book say we have to do before a valuation?
- CIT
competency check
conflict of interest check
terms of engagement
What is in your valuation files?
- Conflict of interest
- terms of engagement
- Inspection notes
- Planning, rating and environmental searches
- Comparable data
- valuation calculations
- Report
Does Fair value differ from market value?
usually similar
Exceptions of the red book?
- agency
- litigation
- expert witness
- internal purposes
- statutory functions
What is the yield a measurement of?
Risk
Was the yield in the investment method?
ARY (gross yield)
What are gross acquisition costs and quantify these?
SDLT
under 150k - 0%
150k-250k - 2.5%
anything over 250k - 5%
agent fees 1%
legal fees 0.5%
VAT 1.8% or 20% on fees
You understand that inspections can be undertaken for a variety of purposes, What items or factors that may negatively impact a valuation that may be observed on valuation inspection?
- Asbestos
- Contamination
- Flooding
- Invasive species
Are you aware of any updates to valuation?
The RICS have published a new Red Book UK National Supplement which takes event today.
- It is ultimately there to reduce risks of COI in Valuation reports.
- Also puts a focus on sustainability and ESG being an integral part of the valuation approach.
