Valuation

Question 1

What are the Valuation Technical and Performance Standards (VPS)?

Answer 1

VPS 1 – Terms of Engagement
VPS 2 – Inspection, investigation and records
VPS 3 – Valuation Report
VPS 4 – Bases of value, assumptions and special assumptions
VPS 5 – Valuation approaches and methods

Question 2

What are the Valuation Practice Guidance Applications (VPGAs)?

Answer 2

VPGA 1 – Valuation for including in financial statement
VPGA 2 – Valuation for secure lending
VPGA 3 – Valuation of businesses and business interests
VPGA 4 – Valuation of individual trade related properties
VPGA 5 – Valuation of individual trade related properties
VPGA 6 – Valuation of intangible assets
VPGA 7 – Valuation of personal property, including arts
VPGA 8 – Valuation of real property interests
VPGA 9 – Identification of portfolios, collections, and groups of properties
VPGA 10 – Matter may rise to material valuation uncertainty

Question 3

When does a valuation have to be Red Book compliant?

Answer 3

It is mandatory for all valuations to be Red Book compliant with the exception of the following purposes:

Advice expressly provided for/or during the course of negotiations or litigation

Tax/Rating purposes

Provided for solely internal valuations

Question 4

You have said here it is important to have the RICS Global Standards worldwide, why is that?

Answer 4

It makes valuations consistent worldwide

Question 5

What is included in the Terms of Engagements?

Answer 5

• Clients details
• Valuers details and status
• Basis of valuation
• Currency
• Fee
  The rest are in the VPS 1 of the Global Red Book

Question 6

You’ve said you were instructed on a retail unit in Barnes, please could you tell me how you were instructed?

Answer 6

Approached by a client to complete a valuation

Completed a conflict check and ensured I was competent to complete the valuation

Sent a fee quote, which they agreed with

Sent them Terms of Engagement in writing which they signed

Question 7

How do you carry out a conflict check?

Answer 7

We send an email around the whole firm referencing the property as well as check our internal database

Question 8

Prior to your inspection, you undertook statutory enquiries, what were these?

Answer 8

• Check title plan to check boundaries
• Check planning
• Flood risk
• Leases

Question 9

What is an all risks yield?

Answer 9

this yield reflects all of the risks and rewards of the subject property

Question 10

What is a net initial yield?

Answer 10

income as a percentage of capital value which reflects purchasers costs

Question 11

What is a Gross Yield

Answer 11

Income as a percentage of capital value

Question 12

What is a Equivalent yield

Answer 12

weighted average yield between term and reversion

Question 13

What is a reversionary yield

Answer 13

the anticipated yield, which the initial yield will rise to once the rent reaches the ERV and when the property is fully let.

Question 14

How do you use the hardcore method of valuation?

Answer 14

Bottom slice – capitalised the Market Rent by the yield into perpetuity. I applied a rack rented capitalisation yield on my bottom slice.

Deducted the current rent passing by the market rent, capitalised this with the yield. I applied a higher yield to the top slice to reflect the risk of over rented.

Then add together.

Question 15

When would you use Hard Core Method?

Answer 15

When the property is over rented

Question 16

Why is there a higher risk on the top slice?

Answer 16

Because it’s over rented - the tenant is more likely to default on payments as they are paying over the market rent

Question 17

What are your purchasers costs?

Answer 17

6.8%

o 5% stamp duty
o 1% agents fee
o 0.5% legal fee
o The agents and legal fee both + 20% VAT

Question 18

You mentioned a special assumption, what is it and how does this differ from an assumption?

Answer 18

Assumption – You don’t know either way, but it is likely it is the case e.g. assuming there is not rental arrears

Special assumption – something you know which is not the case e.g. assuming the property has planning permission when it doesn’t

Question 19

How do you carry out a term and reversion valuation?

Answer 19

Value to the capital value of the income flow for the term by applying a capitalisation rate

on the reversion you would value the market rent into perpetuity at reversion and bring it back to todays value using the present value of £1

Question 20

Why do you apply a higher yield to the reversion?

Answer 20

This rate considers the time value of money, as future cash flows are inherently riskier and less certain than current income. The higher yield acts as a reflection of this risk, adjusting the reversion’s value to today’s terms.

Question 21

When would you use a term and reversion valuation?

Answer 21

When a property is under rented.