Valuations Flashcards
Three steps to take when undertaking valuation
Competence. Are you competent to undertake the work? Do you have the correct level of skill understanding knowledge SUK
Independence- conflict of interest checks
Terms of engagement- set in writing full confirmation of instruction to the client prior to starting work and receive written confirmation of instruction.
Confirm the competence of the valuer
Extent and limitation of the valuers inspections must be stated.
What are the Methods of valuation and give me an example of when you would use each
Comparable
Investment
Contractors basis- valuation of building
Profits method
Residual- valuation of land
what is Term and reversion and how to calculate
Market rent more than passing rent= under rented
term: current rent up until lease event such as break or rent review.
reversion: market rent. capitalise reversion into perpetuity. reversion higher yield.
add two together and multiply by present value of £1 to work out value of today.
how to calculate Hardcore method
Over rented properties - passing rent more than market rent
I deduced an appropriate capitalisation rate – based on similar estates.
Bottom slice: market rent. lower yield as know can achieve. capitalised into perpetuity
top slice: current rent. higher yield as risky.
hardcore bottom slice
Core
MR YP in perp @% lower
Topslice
CR-MR (froth)
YP X years to next lease event
What are the RICS valuation global standards (Red Book)?
Set of global valuation standards created to achieve the highest standards and best-practice in valuation
What are the main changes from the previous Red Book Version?
Sustainability and ESG factors – definitions, inspections and valuations
What are the pros and cons of Argus?
pros- efficiency
cons- not completely visible
How do you know you are competent?
SUK
-Skills
-understanding
-knowledge
Valued a few retail/office/ industrial units in a similar location so I know I’m competent.
What is included in terms of engagement?
A few of these include:
property address
valuation date
client details
fee
What is Net internal area?
The useable area within a building measured to the internal face of the perimeter walls at each floor level
What to include / exclude for NIA
include: kitchens and area above 1.5 meters high
exclude: cleaners’ cupboards, plant rooms, stairwells, lift wells, those parts of entrance halls, landings.
Why do we zone? what about upper floors or basement?
Zoning is a standard method of measuring retail premises to calculate and compare their value for lots of sizes, shapes equally.
6.1 meters depth from the frontage. Halfing each zone back.
market evidence for upper floors and basement
What is the hierarchy of evidence for comparable properties?
Stated in Comparable evidence in Real Estate Valuations
Cat A – direct comparables
Cat B – general market data
Cat C – other sources
What is the definition of fair value?
price that would be recieved to either sell or be paid between market participants at a measurement date.
Price that would be received to sell an asset in an orderly transaction between market participants at the measurement date
What is the gross internal area?
The area of a building measured to the internal face of the perimeter walls at each floor level.
What is a good spec of an industrial unit?
3 phase power, minimum 8m clear eaves. Full height loading doors. Site cover of 40%. LED lighting
How can planning impact value - why do you need to check this
What is the definition of market value?
Price an asset/liability should exchange for in the open market, between willing seller and buyer, on the valuation date, after proper marketing, in an arms length transaction and where both parties have acted prudently and without compulsion
What is WAULT and how do you calculate it?
weight average unexpired lease term
Unexpired term of each tenant. used when there are multiple occupants or portfolio.
Work out multiplier by rent x unexpired term / total income
Add these all together at the end
Can you talk me through the term and reversion method
implicit
Current rent
YP years to next event lower @%
Value
Market rent
YP in perp @% higher
PV X years to next event
Capital value
Total Value (value + capital value)
What is the definition of freehold
you own the building and the land it stands on
What is a grade A office spec?
raised floor and suspended ceilings (ceiling void 3.50)
A/C (VAV) and double glazed windows
passenger lift- Equality act compliant- lower buttons, Braille
LED lighting- LG 7
maximised opportunities for daylight
What is a special assumption and what is an assumption?
Assumptions – Facts and conditions that don’t need to be agreed by the valuer.
Special Assumptions- an assumption/not real that assumes facts that differ from the actual facts existing at the valuation date
What is the RICS VRS?
Valuer Registration Scheme – regulatory monitoring scheme for valuers introduced in 2011: to 1.improve valuation quality, 2. self-regulate, 3. elevate status of profession
Tell me about the factors that impact Market Rent, and how this differs from Market Value?
MR – location, specification, construction, size
MV – impacted by the same issues, but when analysing comparables, will also be paying consideration to covenant and income profiles.
Why are ToE important?
Set out the agreement of instruction -provide a document to refer back to so you know the scope of work and what to deliver.
Did you include PI cover? What PI cover would be included?
Yes, mandatory for surveyors in all disciplines, as set out in RICS Professional Indemnity Insurance Requirements (2022)
Ensure an adequate and appropriate level is taken out.
For Colliers as a firm with a turnover >£200,000 then >£1m over cover is required and as >£10m also no limit on excess
RICS recommends the use of liability caps for jobs
An industry accepted standard is c.30% for a valuation instruction.
What defects industrial could have been present?
Spalling or efflorescence of the brickwork, penetrating damp, rising damp, condensation, cracking due to heave/subsidence, any deleterious materials that had been worn away from use
What made the property suitable for lending purposes?
The property would be saleable if the borrower defaulted on their loan – e.g. didn’t have any onerous conditions on title, easements, was a depreciating LLH
why is a report on title important?
report on title might cover charges on the land, any rights or easements, or anything else onerous that might impact value
Can you give me an example of when a property wouldn’t be suitable for loan security?
Onerous conditions on title, restrictive covenants, depreciating LLH
What is a yield?
Measure of return on an investment
Why does the Red Book exist?
To ensure consistency, objectivity and transparency.
What type of advice does the Red Book cover?
Red book provides advice for all valuation types and methods.
If you have previously valued an asset, do you need to make any additional disclosures and what might they be?
Yes, within your ToE, report and other published reference you must state:
* The relationship with the client and previous involvement
* Rotation policy
* Time as signatory
* Proportion of fees
When is fair value used? Why is it important?
When undertaking valuations for financial statements such as balance sheet.
Property inputted as ‘asset’ on balance sheet. Which in turn affects company’s net worth.
What purchaser’s costs do you deduct from a valuation?
Stamp duty (varies%)
Agent fees 1%
Legal fees 0.5%
VAT 20%
How does a term and reversion and DCF differ?
DCF – explicit – expected future cash flows
Term and reversion – implicit