Valuations Flashcards
What are the purposes of valuations?
- Purchase/Sale
- Secured Lending
- Financial Statements e.g. accounts
- Statutory purposes
- Internal purposes
What is the latest version of the Red Book Global?
The RICS valuation global standards which is effective from January 2022
What are the contents of the red book global?
Professional standards – mandatory
Valuation technical and performance standards (VPS) - mandatory
International valuation standards (IVS)
Valuation applications (VPGA) - advisory
(Valuation Practice Guidance Applications)
What are the professional standards (PS)?
PS 1 – Compliance
PS 2 - Ethics, Competency, Objectivity & Disclosures
What are the 5 Valuation Performance Standards (VPS)?
VPS 1 - Terms of Engagement
VPS 2 - Inspections, Investigations and Records
VPS 3 - Valuation reports
VPS 4 - Bases of value, assumptions & special assumptions
VPS 5 - Valuation approaches and methods
What is IVS 105?
Valuation Approaches and Methods
- Income approach
- Cost approach
- Market approach
What are the 10 VPGA’s?
VPGA 1 - Valuation for inclusion in financial statements
VPGA 2 - Valuation of interests for secured lending
VPGA 3 - Valuation of businesses and business interests
VPGA 4 - Valuation of individual trade related properties
VPGA 5 - Valuation of plant and equipment
VPGA 6 - Valuation of intangible assets
VPGA 7 - Valuation of personal property including arts and antiques
VPGA 8 - Valuation of real property interests
VPGA 9 - Identification of portfolios, collections and groups of properties
VPGA 10 - Matters that may give rise to material valuation uncertainty
What is the purpose of the red book?
- Impose mandatory obligations for competence objectivity and transparency
- Establish a framework for uniformity and best practice
What is the statutory due diligence required for valuations?
- Asbestos Register
- Business rates / Council Tax
- Contamination
- Equality Act 2010 compliance
- EPC
- Flood risk
- Fire safety compliance
- Health & Safety compliance
- Highways
- Legal Title
- Planning history/compliance
What is the process of a Redbook valuation?
- Conflict of interest checks
- Terms of engagement
- Inspection notes
- Planning, rating & environmental searches
- Comparables and analysis
- Valuation calculations with rationale
- Report
What are the exceptions to Redbook valuations?
- Agency work in anticipation of disposal/acquisition instructions
- For internal purposes
- etc.
What is the definition of fair value?
The price received to sell an asset or liability in an orderly transaction between market participants at the measurement date (same as market value)
What is the definition of market value?
The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction, after property a proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion
What is the definition for investment value?
The value of an asset to the owner of perspective owner for individual investment or operational objectives
What is the definition of equitable value?
The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflect their respective interests of those parties
What does VPS 1 (ToE) include?
- The client
- The property
- The valuer
- The purpose
- The basis of value
- The currency
- Valuation date
- Assumptions and special assumptions
- Extent and limitations of inspection & investigations
- The fee
- Complaints handling procedure
Name some bases of value?
Market value, market rent, investment value, fair value
What is the special assumption?
Where assumption assumes facts that differ from those on the valuation date for example planning consent will be granted or property is vacant or development is completed in accord with the defined plan
What are the five methods of valuation?
- Comparative
- Investment
- Residual
- Profits
- Contractors (Depreciated Replacement Costs)
What is the hierarchy of evidence for valuations?
Category A: direct comparables of contemporary
- completed transactions of near identical
- similar real estate transactions
- under offers
- availability
Category B: General market data
- historic evidence
- supply/demand data
- indirect evidence e.g. indices
Category C: other sources
- other asset classes
- other locations
What is the hierarchy of evidence for lease renewals and rent reviews?
Open market lettings
Lease renewals
Rent reviews
Independent experts determination
Arbitrators awards
What does EBITDA stand for?
Earnings before Interest, tax, depreciation and amortisation
What is the typical margin for error?
A 10% margin for error is generally accepted for commercial property which was reinforced by case of Lincoln and others versus Richard Ellis in 2005 in respect of a valuation of four hotels
What is WAULT?
Weighted average unexpired lease term
When is WAULT used?
It is used when valuing an essay or considering appropriate investment yield comparable is for multi occupier investments or portfolios
What is zoning?
This is a valuation technique used for comparison of retail property is to create a unit of comparison for different size properties.
The halving back principle is applied with 6.1 m Zones
What is the purpose of the RICS valuation registration scheme (VRS)?
To improve the quality of valuation and ensure the highest possible professional standards
To meet the RICS requirement to self regulate effectively
To protect and raise the status of the valuation profession
What is needed to register with the VRS?
Annual fee
Type of valuations
Purpose of valuations
Number of valuations
Total income from Redbook valuation in the last year
Data sources used
Any previous negligence claims
