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
what must be included in a Red Book Valuation terms of Engagement
Valuation Performance Standards - VPS 1- Terms of Engagement
a) Identification and Status of Valuer
b) identification of client
c) identification of intended users
d) Identification of the asset(s)
e) currency
f) purpose
g) basis of value
h) valuation data
I) extent of investigation
J) nature and source of information
K) assumptions and special assumptions
i) format of report
M) restrictions for use
N) confirmation of Red Book and IVS compliance
o) fee basis
p) CHP
Q) statement that valuation may be subject to compliance by RICS
r) limitation on liability agreed
what must be included within a Red Book Report
Valuation Performance Standards VPS 3 - Valuation Reports
Must include:-
a) identification and status of valuer
b) client and intended users
c) purpose
d) identification of asset
e) basis of value
f) valuation date
g) extend of valuation
h) nature and source of info
i) assumptions and special assumptions
j) restrictions of use
k) instruction undertaken in accordance with IVS
l) valuation approach
m) valuation figure
n) date of reporting
o) commend on market uncertainty
p) statement setting out any limitations on liability that have been agreed
can issue draft reports, providing clear states ‘draft’.
what are the bases of value (Red Book)
VPS 4 - Valuation Performance standards - Bases of Value
VPS 4 defines 6 base of value:-
- Market Value
- Market Rent
- Fair Value (same as market value)
- Investment Value
- Equitable Value (not used in UK)
- Liquidation Value (not used in UK)
What does PS 2 cover
Professional Standards (PS) 2 - Ethics, Competency, objectivity and disclosures
covers things such as :-
- members undertaking valuations must adhere to Rules of Conduct
-valuers must remain independent and identify COI
What is VPS 2
Valuation Performance Standards - VPS 2 - Inspection, Investigation and Records
inspections - valuers must take the steps to verify the necessary information being relied upon for a valuation to ensure the information is professional adequate.
No need for a reinspection if no material changes to property when revaluing.
Records must ben held of inspections and investigations
allowed to issue draft reports, providing clearly states draft prior to issuing report in final form
what is VPS 5
Valuation Performance Standards (VPS) 5 Valuation approaches and methods
Valuers are responsible for adopting, and as necessary justifying, the valuation approach(es) and the valuation methods used to fulfil individual valuation assignments.
These must always have regard to:
* the nature of the asset (or liability)
* the purpose, intended use and context of the particular assignment and
* any statutory or other mandatory requirements applicable in the jurisdiction concerned
using one of the approaches below:-
- Income (residual, investment, profit)
- Cost ( DRC - depreciated replacement cost)
- market approach (comparable)
name the 5 VPS (part 4 of the Red Book)
Valuation performance standards
1. terms of engagement,
2. inspection
3. reporting
4. bases of value
5. valuation approaches
what is part 5 of the red book
Valuation applications- valuation practise guidance applications (VPGA’s).
The RICS valuation practice guidance – applications (VPGAs) that follow are intended to set out the key issues that need to be taken into account and also focus in greater detail on the practical application of the standards in specific contexts
Which part of the UK National Supplement for the Red Book did you refer to
RICS Valuation - Global Standards - UK National Supplement 2018
outlines to relationship between redbook global and UK national supplement
UK VPGA (Valuation Practise Guidance Application) 8 Valuation of charity assets (Taunton)
what are the 3 mandatory Sections of the UK National Supplement Valuation Performance Standards
UK Valuation performance standards 1 - Terms of Engagement and Report
VPS 2 - supplements for Scotland
VPS 3 - Regulated Purpose Valuation supplement
what are the different purposes of valuation
valuation for financial reporting, commercial/secured lending, mortgages capital gains, inheritance tax and SDLT etcc,
What did you refer to when carrying out the valuation for IHT (Minehead and Cedar Falls)
RICS Valuation Global Standards, UK National Supplement 2018 VPGA 15 UK VPGA 15 Valuations for Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax and Tax on enveloped dwellings
Walton - explain the case law surrounding ransom payments
why did you apply 50%
Stokes v Cambridge Corporation [1961], a seminal case, especially for valuers. It mainly concerns involves worth of land in comparison to it betterment value, but also has impacted compulsory purchase, ascertaining ransom strips, and even overage agreements, completely depended upon negotiation, facts of the case.
Chambridge corporation also held land beyond the site in question that would benefit from the ransom release.
Ozanne v Hertfordshire County Council - On the basis that there was only one practical access, the Tribunal awarded 50% of the increase in value of the development backland.
what is market value
the estimated amount for which an asset should exchange, on a valuation date, between a willing buyer and a willing seller, in an arms length transaction, after property marketing, where the parties have each acted knowledgeably, prudently and without compulsion
what is fair value
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date
what is the hierarchy of evidence?
RICS Comparable Evidence in Real Estate
category A - direct comps
cat b - general market data
cat c - other sources
what would you do if there was a lack of evidence
RICS Comparable evidence in real estate valuation
lack of evidence should not prevent a valuation from occurring
Redbook standards state ‘valuers should not treat a statement expressing less confidence in valuation as a sign of weakness it is a matter for disclosure’
Red Book standards requires a valuer to comment on material uncertainty in relation to valuation where it is essential to ensure clarity to the user
what is NPV
sum of discounted cashflows, if positive has exceeded target rate of return
what is the difference between internal and external valuer
defines an internal valuer:-
A valuer who is in the employ of either the enterprise that owns the assets, or the accounting firm responsible for preparing the enterprise’s financial records and/or reports. An internal valuer is generally capable of meeting the requirements of independence and professional objectivity in accordance with PS 2 section 3, but may not always be able to satisfy additional criteria for independence specific to certain types of assignment, for example under PS 2 paragraph 3.4.’
Issue:-
While all valuers are obliged to act impartially and transparently to reduce bias, the closer relationship between valuers and clients among internal valuations may raise additional concerns regarding the independence of the valuer and hence the objectivity of the result
viability case law - Parkhurst Road Ltd v Secretary of State for Communities and Local Government and London Borough of Islington,
At the inquiry, the Appellant had argued that any more than a 10% affordable housing requirement was unviable on the site. It provided a range of market evidence to support its view that the BLV for the site was between £11.9m and £13.6m. LBI contended that the market evidence presented by the Appellant failed to sufficiently reflect the development plan’s expectation for affordable housing. It provided evidence to support a BLV for the site of £6.75m.
A crucial difference in the Claimant’s and the Council’s assessments was the approach to calculating BLV. In short, the Claimant adopted an approach based purely on market signals and comparable market evidence. The Council adopted an approach which: i) took account of the negligible existing use value of the site (‘EUV’); ii) acknowledged the lack of any realistic alternative use other than the appeal scheme; iii) reflected the fact that value on the site therefore arose from its allocation in the Local Plan and from the prospect of planning permission; iv) consequently required value to be assessed with affordable housing policies in mind; and v) took account of market comparators in that context, that is, recognising that unadjusted market data would not necessarily reflect policy compliant assumptions on affordable housing provision.
why did you carry out a Charities Act Valuation
The basic scheme of sections 117 to 121 of the Charities Act 2011 is that, before a charity
disposes of land or any interest in that land (usually including administrative or operational
buildings), the charity trustees should take valuation advice from a qualified surveyor to ensure
that they transact on the best terms that can reasonably be obtained for the charity.
Be mindful that there has been an update to the charities act - now in force
First set of changes from Charities Act 2022 come into force
The first set of provisions from the Charities Act 2022 are now in force.
From:
The Charity Commission
Published
31 October 2022
what is a non designated heritage asset
Non-designated heritage assets are locally-identified ‘buildings, monuments, sites, places, areas or landscapes identified by plan- making bodies as having a degree of heritage significance meriting consideration in planning decisions but which do not meet the criteria for designated heritage assets’ (PPG).
