Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

APC OCT 2024 > Valuation > Flashcards

Valuation Flashcards

1
Q

What is the Red Book? (L1)

A

A comprehensive set of valuation standards and guidance notes to provide guidance when undertaking valuations

Current edition: RICS Valuation - Global Standards (took effect January 2022)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why do we need the Red Book? (L1)

A

Provides guidance when undertaking valuation work

Impose mandatory obligations for competence, objectivity and transparency

Helps to support and achieve high standards of integrity and clarity

Establishes a framework for uniformity and best practice

Does not: instruct on how to value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the structure of the Red Book? (L1)

A
  1. Introduction
  2. Glossary
  3. Professional Standards (PS)
    (mandatory)
  4. Valuation Technical and Performance Standards (VPS) (mandatory)
  5. Valuation Applications (VGPA) (advisory)
  6. International Valuation Standards
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the purpose of the Red Book? (L1)

A
  • Purpose of the Red Book:
    • Assure global valuation consistency, objectivity, and transparency.
    • Adherence to the highest professional standards worldwide.
  • Standards Provide:
    • Mandatory Obligations:
      • Competency
      • Objectivity
      • Transparency
    • Framework for:
      • Uniformity
      • Best practice
    • Compliance with:
      • RICS Rules of Conduct
  • Standards Do Not:
    • Instruct on valuation methods.
    • Prescribe a specific report format.
    • Override local mandatory standards.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the 5 Conventional Methods of Valuation?

A

Investment

Comparable

Profit

Residual

Cost (Depreciated Cost Replacement - DRC)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the difference between an implicit and explicit investment valuation technique?

A

Implicit valuation methods employ all-risks yields as input yields with most real-life complications wrapped up into/implied in the input yield(s) chosen. An alternative approach is to make all the cash-flow assumptions explicit. This requires the investor and valuer to articulate all cash-flow assumptions and attitudes to risk. Such an approach tends to be more applicable to complex investments or markets in which sophisticated investors operate.

This methodology is usually referred to as a discounted cash-flow (DCF) method.

ARY reflects implicitly all future benefits and disadvantages of an investment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What should you do before undertaking/accepting a valuation?

A

Check competency. Do I have the necessary skills, knowledge and experience to deal with this valuation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

After confirming whether you are competent to undertake a valuation, what are the file contents?

A

After meeting the competency requirements, a Red Book Valuation and file contents are:

  1. Conflicts of Interest check
  2. Terms of Engagement
  3. Inspection notes etc.
  4. Planning, rating and environmental searches
  5. Comparables and analysis
  6. Valuation calculations with rationale
  7. Report
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

As per PS1, the Red Book applies to all valuations unless the purpose is specifically listed as an Exception. What are they?

A

Agency or brokerage work in anticipation of disposal or acquisition instructions

Acting or preparing to act as an expert witness

Performing statutory functions

Purely for internal purposes

Preparation for or during negotiations or litigation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

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

A

VPS 1 Terms of engagement (scope of work)
VPS 2 Inspections, investigations and records
VPS 3 Valuation reports
VPS 4 Bases of value, assumptions and special assumptions
VPS 5 Valuation approaches and methods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the main contents of the Terms of Engagement (VPS 1)

A

The Client
The Property or Asset
The Valuer
The Purpose of the Valuation
The Basis of the Value
The Method of Valuation
Currency
Valuation Date
Assumptions and Special Assumptions
Extent and Limitations of Inspection and Investigations
The Fee

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the Valuation Report section? (VPS 3)

A

This corresponds with the Terms of Engagement plus:

  • Valuation approach and reasoning
  • Amount of the valuation or valuations
  • Date of the valuation report
  • Commentary on any material uncertainty
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are matters that may give rise to material valuation uncertainty? (VPGA 10)

A
  • Asset or liability specific characteristics
  • Limited or restricted information
  • Disrupted markets
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the Bases of Value? (VPS 4)

A
  • Market Value
  • Market Rent
  • Investment Value (or worth)
  • Fair Value (IFRS definition)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is Market Value? (VPS 4 Bases of Value)

A

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 proper marketing where the parties had each acted knowledgeably, prudently and without compulsion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is an arm’s length transaction?

A

An arm’s length transaction refers to a business deal in which buyers and sellers act independently without one party influencing the other

17
Q

What is Market Rent? (VPS 4 Bases of Value)

A

The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion

18
Q

What is Investment Value? (VPS 4 Bases of Value)

A

The worth of a property to a particular investor, or class of investors, for identified investment objectives

19
Q

What is an Assumption?

A

Something that is likely to be true - although you may not be able to prove it. Include:

  • Clean title
  • Condition of buildings
  • Services
  • Planning (zoning)
  • Contamination and hazardous substances
  • Environmental matters
20
Q

What is a Special Assumption?

A

Where an assumption assumes facts that differ from those existing at the valuation date. Includes:

  • Planning consent has or will be granted
  • Development completed in accordance with defined plan and specification
  • Property changed in a defined way
  • Property is vacant (when occupied)
  • Property is let on defined terms (when vacant)
  • Synergistic value is created
21
Q

What are the Conventional Valuation Methods?

A
  1. Profits / Income / Account
  2. Investment
  3. Comparable / Comparative
  4. Residual
  5. Depreciated Replacement Cost

Contemporary techniques: DCF

22
Q

What is the Hierarchy of Evidence?

A

For lease renewals and rent reviews:

  1. Open market lettings
  2. Lease renewals (above a rent review as rent can go up or down)
  3. Rent reviews
  4. Independent expert’s determination
  5. Arbitrator’s awards
23
Q

Can you explain how only 3 years remaining on a lease can affect investment value?

A
24
Q
A
25
Q

Is it better to have a higher rent let to a lower covenant or better covenant with lower rent?

A

Depends on the extremities of each and requirements of the client

26
Q

When would you use the profits method?

A

For a property that enjoys some sort of monopoly position where the value of the property depends on the profitability of the business

27
Q

How is the profits method calculated?

A

Annual t/o

Less costs and expenses = gross profit

Less working expenses = unadjusted net profit

Less tenants share = adjusted net profit / EBITDA

Capitalised at an appropriate yield

28
Q

How would you value a retail building?

A

Investment method

29
Q

How would you go about calculating the market rent for a retail unit?

A

Use comparable evidence to find an appropriate rent on a Zone A basis

30
Q

How does Zone A work?

A

Halfing back principle, 6m depth, unit of comparison

APC OCT 2024 (12 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions