Valuations

Question 1

5 Valuation Methods

Answer 1

Comparison/market appraisal
Investment
Residual
Profits
Contractors/Depreciated Replacement

Question 2

5 exemptions when red book valuation not necessary and what part of red book are they specified

Answer 2

• for agency work
• to act as an expert witness
• for statutory functions (e.g tax returns)
• for internal purposes/ no 3rd party reliance
• negotiation or litigation

Under PS 1 Compliance

Question 3

What are the 6 bases of value and where in red book

Answer 3

VPS 4 Bases of Value

• market value
• market rent
• investment value (worth)
• equitable value (fair value)
• synergistic value (marriage value)
• liquidation value - not used in UK

Question 4

What should TofE include and where in red book

Answer 4

VPS 1 - terms of engagement

Written instructions
details of valuer (inc. competence)
state identity of client
Purpose of valuation - date, currency, basis of value
Assumptions to be made
Fee basis
Complaints handling procedure
Liability agreed
Confirm red book compliance

Question 5

What is VPS 3

Answer 5

VP3 = Valuation Reports

Must match the points in the terms of engagement

Draft copies should be labelled as ‘draft’ or ‘for internal purposes only’ so cannot be relied upon

Question 6

Red Book market value definition

Answer 6

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 marketing and where the parties had each acted knowledgeably, prudently and without compulsion

Question 7

3 things to consider before accepting an instruction (CIT)

Answer 7

Competence

Independence

Terms of engagement

CIT

Question 8

Case law on accuracy of valuations

Answer 8

Webb Resolutions vs USurv 2012

Standard resi - 5%

One off features - 10%

Exceptional features - 15%

Question 9

When would profits method be used

Answer 9

To value buildings where the value is inherently linked to the value of the business occupying it

Pubs, bars, clubs, hotels, leisure

Question 10

How to calculate profits method market value

Answer 10

1. Total revenue

Less COGS (costs of goods sold)

2. Gross profit

Less SG&A (sales, general, admin expenses)

3. Net profit

Plus depreciation and amortisation

4. Gross Divisible Value

Less tenants renumeration & risk (%)
And halved for tenants share

5. Leaves ‘available for rent’

Capitalised by YP perp (yield in prep)

6. Leaves market value

Question 11

What is VPGA 10

Answer 11

Material Uncertainty

Very difficult asset to value, limited info or no comps

Report must note material uncertainty as to promote reporting anything misleading. Valuer can express in qualitative terms their uncertainty.

Question 12

What parts of the red book are mandatory or advisory?

Answer 12

Professional standards = mandatory

Valuation Performance Standards = mandatory

Valuation practice guidance applications = advisory

Question 13

Gross vs net yield

Answer 13

Gross is before purchaser’s costs, net is after

Question 14

3 valuation approaches and which VPS

Answer 14

VPS 5

Market approach

Cost approach

Income approach

Question 15

For BtR is IV higher than VP and what difference?

Answer 15

Depends on market

Typically IV up to 20% discount to VP

Question 16

Current Bank of England base rate as of sept 2024

Answer 16

5%

Question 17

When is current red book effective to?

Answer 17

31st Jan 2025

Question 18

What will be the updates to the new red book

Answer 18

Implement recommendations for Valuation review

Update with new IVS Jan 2024

Update for ESG and new technologies

Question 19

When was the latest Red Book UK National Supplement and what did it change?

Answer 19

Effective 1st May 2024

Updated the VPS

Updated mandatory valuer rotation periods - can only use a single valuer for a max of 5 years and must rotate for at least 3 years

Question 20

Red Book Market Rent definition

Answer 20

The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion

Question 21

What’s included in stat DD for vals

Answer 21

Asbestos register
Contamination
Equality act 2010 compliance
EPC
Flood risk
Environmental risk
Public rights of way
Planning history
Conservation area
Title docs (tenure, restrictive covenants)

Question 22

Purchasers costs for Astley val?

Answer 22

6.5%

Stamp duty
Legal fees
Surveys

Question 23

Key costs in GtN

Answer 23

Staff costs
Maintenance and repairs
Cleaning
Utilities
Insurance
Market and leasing costs

Question 24

What should val report include

Answer 24

Mirror VPS 1 terms of engagement which will set the format of the report

Clear conclusion on value

Currency and basis of value

Property condition and characteristics

Assumptions

Extent of investigations

Any material uncertainty

Method used to arrive at value

Valuer and their competency signed

Question 25

What can cause material uncertainty, or lack of evidence for market appraisals

Answer 25

Unique subject property

Information to the valuer is restricted about the property

Limited market evidence