Valuations Flashcards
5 Valuation Methods
Comparison/market appraisal
Investment
Residual
Profits
Contractors/Depreciated Replacement
5 exemptions when red book valuation not necessary and what part of red book are they specified
- 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
What are the 6 bases of value and where in red book
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
What should TofE include and where in red book
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
What is VPS 3
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
Red Book market value definition
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
3 things to consider before accepting an instruction (CIT)
Competence
Independence
Terms of engagement
CIT
Case law on accuracy of valuations
Webb Resolutions vs USurv 2012
Standard resi - 5%
One off features - 10%
Exceptional features - 15%
When would profits method be used
To value buildings where the value is inherently linked to the value of the business occupying it
Pubs, bars, clubs, hotels, leisure
How to calculate profits method market value
- Total revenue
Less COGS (costs of goods sold)
- Gross profit
Less SG&A (sales, general, admin expenses)
- Net profit
Plus depreciation and amortisation
- Gross Divisible Value
Less tenants renumeration & risk (%)
And halved for tenants share
- Leaves ‘available for rent’
Capitalised by YP perp (yield in prep)
- Leaves market value
What is VPGA 10
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.
What parts of the red book are mandatory or advisory?
Professional standards = mandatory
Valuation Performance Standards = mandatory
Valuation practice guidance applications = advisory
Gross vs net yield
Gross is before purchaser’s costs, net is after
3 valuation approaches and which VPS
VPS 5
Market approach
Cost approach
Income approach
For BtR is IV higher than VP and what difference?
Depends on market
Typically IV up to 20% discount to VP
Current Bank of England base rate as of sept 2024
5%
When is current red book effective to?
31st Jan 2025
What will be the updates to the new red book
Implement recommendations for Valuation review
Update with new IVS Jan 2024
Update for ESG and new technologies
When was the latest Red Book UK National Supplement and what did it change?
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
Red Book Market Rent definition
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
What’s included in stat DD for vals
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)
Purchasers costs for Astley val?
6.5%
Stamp duty
Legal fees
Surveys
Key costs in GtN
Staff costs
Maintenance and repairs
Cleaning
Utilities
Insurance
Market and leasing costs
What should val report include
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
What can cause material uncertainty, or lack of evidence for market appraisals
Unique subject property
Information to the valuer is restricted about the property
Limited market evidence
