Valuations (Resi) Flashcards
Can you describe the steps you take when valuing a residential property using the comparable method?
1) INSPECTION - I first conduct a thorough inspection, assessing key factors such as property size, layout, condition, and location. I also note unique characteristics that could affect value, such as view, parking, or recent refurbishments.
2) SOURCING COMPARABLES - I collect comparable evidence from recent sales or rental data within the subject property’s vicinity, focusing on similar property types, sizes, and conditions.
3) ADJUSTMENTS - After selecting comparables, I adjust for differences. For example, if a comparable property is slightly larger or has a more modern interior, I apply a downward adjustment.
4) MARKET CONDITIONS - I account for market trends, such as recent fluctuations in local demand, and reflect these in my valuation.
5) FINAL VALUATION - I derive the Market Value based on the adjusted comparable data, aiming to reflect a fair and accurate estimate. Finally, I document my process and findings in a report that meets RICS Valuation – Global Standards (the Red Book) guidelines.
How do you handle situations where limited comparable evidence is available?
1) EXPAND THE SEARCH AREA - I may widen the search area slightly, selecting properties that are in similar market conditions, even if they aren’t in the immediate neighborhood.
2) TIME ADJUSTMENTS - I look for slightly older comparables, adjusting for any changes in the market to bring them to current value levels.
3) PROFESSIONAL JUDGEMENT - In the absence of ideal comparables, I rely on my professional judgement, supported by any additional insights into the property’s location and demand. I always ensure that these limitations and assumptions are clearly noted in the report, ensuring transparency for the client.
Can you explain how you handle adjustments for property condition when valuing a residential property?
Property conditions can have a significant impact on value.
1) CONDITION ASSESSMENT: During inspection, I assess the property’s internal and external condition, looking at elements like structural integrity, finishes, fittings, and any areas requiring repair.
2) ADJUSTMENT PROCESS: If the subject property is in better condition than comparables, I apply a positive adjustment, and vice versa. For example, if a comparable property has undergone recent renovation, I adjust it downward if the subject property is less updated.
3) COSTS OF REPAIRS: For properties in poor condition, I estimate the cost of necessary repairs and apply an appropriate adjustment. If repairs are substantial, I may consider additional deductions to reflect the risk or inconvenience to potential buyers.
4) MARKET CONTEXT: Lastly, I ensure adjustments reflect the current market preference. For instance, in a buyer’s market, poor condition might impact value more heavily than in a competitive seller’s market.
How does the purpose of a residential valuation impact your approach? For secure lending
Secure lending - for mortgage purposes, I follow strict lender guidelines, as a bank require a valuation which minimises risk.
How does the purpose of a residential valuation impact your approach? For Taxation
Taxation: For valuations related to taxation (e.g., inheritance tax), I adhere to HMRC’s requirements and provide a Market Value on the valuation date. It often requires additional documentation to justify the value in case of future review.
How does the purpose of a residential valuation impact your approach? For Sale/Purchase Decision
Sale or Purchase Decision: For private sale or purchase, my focus is more on providing a fair market estimate that reflects achievable value in a reasonable time frame.
What are the key factors you consider when valuing a leasehold residential property?
1) LEASE LENGTH - The remaining lease term greatly impacts value. Properties with shorter leases (under 80 years) typically have reduced value.
2) GROUND RENT & SERVICE CHARGE - I analyze the ground rent, frequency of rent reviews, and annual service charges. Higher costs reduce value due to the additional expense for the lessee.
3) LEASE EXTENSION POTENTIAL - If the property has a short lease, I assess the potential cost and process for extending it under the Leasehold Reform Act, as this affects the valuation by providing buyers with an option for added security.
4) BUILDING CONDITION & MANAGEMENT - The overall maintenance and condition of the building impact value. Properties in well-maintained blocks with professional management generally attract a premium.
How do you ensure that your residential valuation report complies with RICS standards?
To ensure compliance with RICS valuations - Global standards (the Red book). I follow these steps:
1) SCOPE OF WORK - I define the terms of engagement clearly at the outset, setting out the purpose of value and any assumptions or limitations.
2) INSPECTION & EVIDENCE COLLECTION - I document my inspection process and ensure comparable evidence is well sourced and verified and adjusted if needed.
3) VALUATION BASIS AND METHOD - I select the appropriate basis (e.g., Market Value) and valuation method, ensuring both are suitable for the purpose and transparently explained in the report.
4) REPORT STRUCTURE - The report is structured according to RICS guidelines, including sections for methodology, valuation rationale, assumptions, limitations, and a clear conclusion.
5) QUALITY ASSURANCE - I review my report against RICS standards and check for consistency, accuracy, and clarity before final submission. I also adhere to any internal quality control processes, such as peer review or supervisor checks.
This approach ensures the valuation is credible, defensible, and aligned with professional standards, providing assurance to clients and stakeholders.
