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apc- qs > Valuation > Flashcards

Valuation Flashcards

1
Q

What are the 5 methods of valuation?

A
  1. Comparative
  2. Investment
  3. Residual
  4. Profits Method
  5. DRC
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2
Q

What is the difference between an internal valuer and an external value?

A

Internal valuer=
-employed by company to value the sets of the company.
-valuation for internal use only
-no third party reliance

External valuer=
-has no material links with the asset valued or the company

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3
Q

What should you check before you commence a valuation?

A

There are 3 steps to first undertake: CIT
1.Competence
-Are you competent to undertake this work? Do you have the correct level of Skills, Understanding and Knowledge. (SUK)
- if not refer to the RICS find a surveyor service on the RICS website.

2.Independence
-Think first and then check for any conflicts or personal interests.

  1. Terms of Engagement
    -set out in writing your full confirmation of instructions to the client prior to starting work and receive written confirmation of instruction.
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4
Q

When you carry out valuation reports at Knight Frank what due diligence did you conduct?

A

Statutory due diligence is necessary to check there are no material matters which could impact upon the valuation. These included: ABCEEEFFHHLPP
-Asbestos register
-business rates/ council tax
-contamination
-equality act 2010 compliance
-Environmental matters
-EPC rating if available
-flooding
-fire safety compliance
-health and safety compliance
-highways
-legal title and tenure
-Public rights of way
-planning history

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5
Q

What is definition of market value?

A

The estimated price for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arms length transaction after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion

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6
Q

What is the DRC method? Can you briefly describe the principles?

A

-Current cost of replacing an asset with its modern day equivalent.
-less deductions for physical deterioration and all relevant forms of obscelence

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7
Q

What is professional indemnity insurance? Who does it protect?

A

-Commercial policy designed to protect business owners, clients

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8
Q

What valuation methods did you use and why?

A

I used the comparable method to establish my GDV and the residual approach t formulate my land value

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9
Q

What yield did you apply and why?

A

5.25%- I based this on comparable transactions, seek advice from Knight Frank, cushman and Wakefield market report

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10
Q

What purchasers cost did you deduct?

A

6.8%

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11
Q

What are the purchaser costs made up of?

A

5% stamp duty
1% Agents fees
0.5% legal fee
VAT on the legal fee and agents fee

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12
Q

What are the stamp duty rates for mixed use property?

A

£0-£150,000- 0%
£150,001-£250,000-2%
£250,001 +- 5%

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13
Q

Why did you deduct purchaser’s costs?

A

-They are an allowance for the notional costs a buyer will incur in the transaction

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14
Q

What are the benefits of carrying out due diligence prior to a valuation?

A

Confirm that there are no material considerations that can impact on value

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15
Q

What are the three valuation approaches set out in IVS 105?

A
  1. Income approach- Investment method/ Discounted Cash Flow/ Profits method
    2.Cost approach- DRC / Residual method
  2. Market Approach- Comparison method of valuation
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16
Q

What steps should you take when collecting comparable evidence?

A

-search identify
-verify
-assemble
-interpret
-analyse
-report

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17
Q

What is the most recent guidance issued by RICS on comparable evidence?

A

RICS COMPARABLE evidence in Real Estate 2019

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18
Q

What are the 3 categories of evidence outlined in the RICS comparable evidence in Real Estate 2019

A

Category A-direct
Category B- General Market
Category C- Other sources

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19
Q

What steps should be taken prior to valuation?

A

CIT
1. COMPETENCE- am I competent to do this
2. Conflict of interest- are there any conflicts of interest I need to check
3. Terms of engagement

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20
Q

What are the benefits of carrying out due diligence prior to a valuation?

A

Confirm that there are no material considerations that will impact value

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21
Q

Can you give me some examples of statutory due diligence that you would carry out before undertaking a valuation?

A

ABC/EEE/FF/HH/LPP
1. Asbestos register
2. Business rates/council tax
3. CONTAMINATION
4. EPC
5. ENVIRONMENTAL ASSESSMENTS
6. Equality Act 2010 compliance
7. Flooding
8. Fire safety compliance
9. Health and safety act
10. Highways
11. Legal Title
12. Public rights
13. Planning history

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22
Q

What is hierarchy of evidence?

A

-contemporary, completed transactions of near identical with full info
-contemporary completed transactions of similar with full info
-contemporary completed transactions of similar without info
-similar real estate being marketed where offers made but not exchanged
-asking prices

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23
Q

When would you use investment method of valuation?

A

When there is an income stream to be valued

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24
Q

How does investment method work

A

Rent multiplied by years purchase=market value

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25
Q

What is a yield?

A
  • a measurement of the return of an investment against capital invested
    -expressed as %
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26
Q

How would you calculate year purchase

A

100 divided by yield

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27
Q

What does year purchase demonstrate?

A

The number of years it would take an investor to repay the purchase price

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28
Q

What is the years purchase for your deal?

A

100/5.25%=19

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29
Q

Can you tell me what factors impact on a yield?

A

Location
Use
Demand
Lease terms
Security of income
Liquidity
Prospects for rental growth

30
Q

What is an all risks yield?

A

Yield assuming all risks attached to investment

31
Q

What is a true yield?

A

Yield assuming rent is paid in advance

32
Q

What is a nominal yield?

A

-initial yield assuming rent is paid in arrears

33
Q

What is gross yield?

A

Yield before purchasers costs

34
Q

What is net yield?

A

Yield adjusted for purchasers costs

35
Q

What is equivalent yield

A

Average yield of term and reversion

36
Q

What is an initial yield

A

Current income/current price

37
Q

What is a reversionary yield

A

Market rent/ current price on an asset that is under rented

38
Q

What is a running yield

A

The yield at any given point in time

39
Q

When would you use the profit method o valuation?

A

When the value is dependent on the success of the business.
E.g. petrol station, hotel, pub

40
Q

What would you require to carry out a profits method valuation?

A

3 years audited accounts

41
Q

What are the main principles of the profit method?

A

Ebitda
Capitalised at a yield-earnings before interest, tax, depreciation and amortisation

42
Q

How would you cross check and verify a method obtained by the profits method?

A

Using comparable evidence if possible

43
Q

When would you use the DRC method?

A

When limited or no comparable evidence is avaiable
-for specialised properties e.g.
Submarine base
Lighthouse

44
Q

What steps would you take in a DRC Method?

A

Value land in its existing use (assume planning permission exists)
Add current cost of replacing the building plus fees
Discount for deterioration

45
Q

Are DRC Valuation s red book compliant?

A

No
Can only be used for value for financial statements (internal)

46
Q

When reporting value for DRC, what must valuer state regarding alternate use?

A

-if higher state the MV for any readily available use
-if lower, state that MV must be materially lower upon cessation of business

47
Q

What guidance covers DRC Method?

A

RICS Depreciated replacement cost method of valuation for financial reporting

48
Q

When did the RICS valuation-global standards become effective? Red book

A

31st January 2020

49
Q

What are the 6 parts

A
  1. Intro
  2. Glossary of terms
  3. Professional Standards (PS)
  4. Valuation technical and performance standards (VPS)
  5. Valuation applications (VPGA)
  6. The international Valuation Standards (IVS)
50
Q

What is the difference between fair value and market value?

A

-fair value reflects the intrinsic value of an asset
- market value can be determined by market forces such as supply and demand

51
Q

What is hope value?

A

Value arising from the expectation that future circumstances may change
-planning permission is an example

52
Q

How wold you value a long leasehold interest?

A

-deduct ground rent from gross rent to calculate net rent received
-capitalise at a yield for the remaining length of lease 46 year)

53
Q

How is SDLT calculated on a granting of new leases?

A

Up to £150k=0
£150k-£5m=1%
£5m+= 2%

Calculator on HMRC website

54
Q

What is special value

A

Amount that reflects particular attributes of an asset that are only of value to a special purchaser

55
Q

What is a party wall?

A

-extends across the boundary of land belonging to two or more land owners

56
Q

What is the party wall act 1996

A

-provides framework for resolving party wall disputes
-gives a building owner that wants to carry out various works to party wall with additional rights
- must inform all adjoining owners of your intentions to undertake wrks on the party wall

57
Q

Are you qualified to comment on party walls?

A

No, I have basic knowledge

58
Q

What valuations are exempt from red book?

A

Internal purposes
Advice prepared for negotiations
Agency work in prep for receiving instructions to dispose of or acquire an asset
Expert witness

59
Q

What is an assumption as defined in red book

A

Something that is taken to be true without the need for specific investigation

60
Q

Red book definition of Market value?

A

The estimated amount for which an asset or liability should exchange.
-on the valuation date
-between willing buyer and a willing seller
-in an arms length transaction
-after proper marketing
-where he parties he acted knowledgeably , prudently nd without compulsion

61
Q

Define fair value

A

The price that would be received to sell an asset or paid to transfer a liability
-in an orderly transaction
-between market participants
-at the measurement date

62
Q

When would you be required to report fair value

A

Financial statements

63
Q

What is the difference between fair vale and market value?

A

RICS views that definitions are generally consistent
Fair value is casual worth
Market value is price which asset will exchange for

64
Q

What is hierarchy of evidence?

A

It is a structure which shows the relative weight attached to different types of evidence

65
Q

What does hierarchy of evidence category A set out?

A

This is direct comparables of :
-contemporary recent completed transactions of near identical properties where all info is avaiable
-contemporary recent completed transactions of similar properties where all info is avaiable
-contemporary recent completed transactions of similar properties where not all info is available
-similar real estate being marketed where offers made but not completed
-asking price

66
Q

What is category B In hierarchy of evidence?

A

This is general market data that can provide guidance e.g.
1. Info published from sources or commercial databases
2. Other indirect evidence e.g. indices
3. Historic evidence
4. Demand/supply data for rent, owner occupation or investment

67
Q

What is included in hierarchy c

A

Other sources e.g.
1. Transactional evidence from other real estate types and locations
2. Other background data e.g. interest rates, stock market

68
Q

What do you include in a comparable schedule?

A

Address
Type of property
Tenure
Descriptions
Date of transaction
Parties involved
Yield
Price exchanged at or rents

69
Q

Have the RICS issued any guidance with regards to how to deal with comparables?

A

RICS Guidance Note Comparables Evidence in Real Estate valuations 2019

70
Q

What does the comparable evidence in real estate valuation 2019 set out

A

-how to deal with comparable evidence
1. Hierarchy of evidence
2.how to find relevant comparables
3.encorouges global consistency in comparable evidence interpretation

71
Q

What guidance would yo have regarding carrying out the valuation of development property?

A

RICS Guidance note Valuation of Development Property 2019 effective 1st February 2020
-aims to supplement IVS 410 ’Development property’-

72
Q

What guidance is there on discounted cash flows

A

RICS guidance note on discounted cash flow of commercial property investments 2010

apc- qs (18 decks)

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