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FELIX HOLLAND RICS FINAL CARDS > Valuation Summary Of Experience > Flashcards

Valuation Summary Of Experience Flashcards

1
Q

Outline the red book?

A
  1. Intro
  2. Glossary
  3. PS1 - compliance with standards where a written valuation is provided.
  4. PS2 - ethics, competency, objectivity and disclosures
  5. VPS1 - Terms of engagement
  6. VPS2 - inspection, investigation and records
  7. VPS3 - valuation report
  8. VPS4 - bases of value, assumptions and special assumptions
  9. VPS5 - valuations report and method
  10. VPGA 1-10
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2
Q

What’s mandatory in the red book?

A

PS1, PS2, VPS1-5

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3
Q

Walk me through your Cody Road example?

A

The market rent was in line with the passing rent.

Annual rent X Years purchased = Market value

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4
Q

what does the ARY incorporate?

A
  • Anticipated rental growth
  • property condition
  • age
  • location
    -other lease terms
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5
Q

ARY

A

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’

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6
Q

What other types of yields are you aware of?

A

Initial yield
Reversionary yield

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7
Q

What is the initial yield?

A

The net income at date of purchased expressed as a percentage of the purchase price

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8
Q

what is a reversionary yield?

A

Market rent expressed as a percentage of purchase price

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9
Q

What is the Gross initial yield?

A

passing rent expressed as a percentage of the purchase price

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10
Q

What is the net initial yield?

A

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

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11
Q

how do you value a under rented property?

A
  • 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

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12
Q

In your residual, how did you calculated your Gross Development value?

A

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

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13
Q

What were your build costs?

A

£3500sq

BCIS owned by rics

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14
Q

what was the site value?

A

£20mil (19% of GDV)

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15
Q

what was the gross development value?

A

£120 mil

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16
Q

What costs are included in your residual?

A
  • 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)
17
Q

What is the current base rate?

A

5.25%

18
Q

what are the financing rate?

A

6-8% dependent on lending risk

19
Q

Profits method

A

Turnover (net of VAT)
- costs of generating turnover
= Net operating profit

Net operating profit is then capatalised

20
Q

Hierarchy of evidence?

A

Ranking evidence on transaction type

  1. Open market lettings
  2. Lease renewals
  3. Rent reviews
  4. Expert determination
  5. Arbitration
21
Q

Outline contractors (DRC)?

A

Cost of modern building + cost of site
= Total value of property
- depreciation
= existing property

22
Q

What does the Red book say we have to do before a valuation?

A
  • CIT

competency check
conflict of interest check
terms of engagement

23
Q

What is in your valuation files?

A
  • Conflict of interest
  • terms of engagement
  • Inspection notes
  • Planning, rating and environmental searches
  • Comparable data
  • valuation calculations
  • Report
24
Q

Does Fair value differ from market value?

A

usually similar

25
Q

Exceptions of the red book?

A
  • agency
  • litigation
  • expert witness
  • internal purposes
  • statutory functions
26
Q

What is the yield a measurement of?

A

Risk

27
Q

Was the yield in the investment method?

A

ARY (gross yield)

28
Q

What are gross acquisition costs and quantify these?

A

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

29
Q

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?

A
  • Asbestos
  • Contamination
  • Flooding
  • Invasive species
30
Q

Are you aware of any updates to valuation?

A

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.

FELIX HOLLAND RICS FINAL CARDS (13 decks)

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