Valuations Flashcards
what are the 3 main approaches to valuation
Income - Investment, Residual and Profits
Cost - depreciated replacement cost
Market - comparable approach
what 3 important steps must you undertake when you start a valuation
- ensure competence
- Independence - is there any COI
- Terms of engagement - set out in writing and receive written confirmation prior to commencing work - outline extent of instruction and limitations
what statutory Due Diligence do you need to refer to when carrying out a valuation (what needs to be checked that could have an material impact upon the valuation)
- Asbestos Register
- Business/Council Tax
- Contamination
- Equality Act 2010
- Environmental matters
- EPC
- Flooding
- Fire Safety
- Health and Safety compliance
- highways (access)
- Legal title and tenur
- ROWs
- Planning history and compliance
5 methods of valuation
- Comparative
- investment
- profits
- residual
- depreciated replacement cost
what guidance RICS is there for comparable data
RICS Professional Standard Comparable Evidence in Real Estate Valuation 2019
This sets out that valuers should rank comps using hierarchy of evidence, using professional judgement to access relative importance on case by case basis
what is the investment method of valuation
used when there is an income stream to value, using a yield - yields factor in rick and perceived investment return
what is the profits method of valuation
using to value a business, rather than the building
work out total turnover, less all costs = profit, less reasonable working expenses and operators remunerations = fair maintainable operating profit (FMOP); can we expressed as EBITDA
what is the S curve ? what are the principles of the S curve and it’s use and application in construction
is the theory of the payment of construction costs, adopt as S curve when plotted on graph. This is because projects are ‘slow to start’, ramps up with all types of activity during the middle part of project delivery, and slows towards the end as companies are tying up loose ends and closing things like defects out
what types of overage are there
planning gain, agreed GDV, turnover overage
What are the 3 main types of sensitivity analysis
simple - such as yield, GDV, build costs
scenario - change scenarios for the development, such as phasing the scheme or modifying design
Monte Carlo - using probability theory
what RICS guidance is there on valuing development property
RICS Valuation of Development Property Professional Standard (2019)
Sets out how to value development property and how to factor in risk, such as planning potential, how to make assumptions and special assumptions and arriving at a market value - using comparison method to cross check findings.
Best practise requires risk analysis and valuation to be reported as a single figure
what guidance is there on Financial Viability in Planning
RICS Professional Statement Financial Viability in Planning (2019)
Sets out benchmark land value - owner of land should receive existing use value + premium for their land
Government shift, as set out in the RICS Prof Statement 2019, to a focus on viability in plan making, which means ensuring/testing on an area wide basis whether planning policies in the plan are realistic and that the total cost of the policies will not undermine the deliverability of the plan.
what is the depreciated replacement cost method
used for specialist property, like oil refineries. Two steps, 1 = value of land in existing use, 2 = add current cost of replacing the building, plus fees less a discounted for depreciation and obsolescence
what is the RICS Red Book
Red book sets out the best practice guidelines and rules for professional valuation services.
RICS Valuation Global Standards 2021, effective from Jan 22
feeds in from the International Valuation Standards Committee
RICS Valuation - Global Standards 2017 - UK National Supplement (PDF 0.72MB), sets out the application of the Red Book for valuations in the UK
Red Book split into 6 parts
when is the Red Book used
Professional Standards (PS) 1 states that the red book should be used for all valuation, with the following 5 exceptions:-
- Agency
- Litigation
- Internal
- Expert Witness
- Statutory