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APC > Valuation 2 > Flashcards

Valuation 2 Flashcards

1
Q

Name the conventional methods of valuation

A
  1. Comparative
  2. Investment
  3. Residual
  4. Profits / Accounts
  5. Contractor’s / Depreciated Replacement Cost
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2
Q

What are contemporary valuation methods?

A

Valuations where Discounted Cash Flow (DCF) techniques are used

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3
Q

What makes a property transaction comparable to the property being valued?

A

There must be similarities.
1. Physical characteristics
2. Location
3. Use
4. Tenure (and lease terms if appropriate)
5. Time scale

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4
Q

How many comparables are needed to produce a valuation?

A

Enough to establish a trend, no set number

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5
Q

What is the longest time period before a valuation date that a transaction could be accepted as being comparable?

A

No time period. Depends on market conditions at the time. Ideally, not before March 2020 due to the Coronavirus Pandemic. More recent the better.

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6
Q

What do you understand by the expression weighting of comparable evidence?

A

A valuer must weight and rank each piece
Some may be disregarded
Attach the greatest weight to the greatest similarity.

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7
Q

What do you understand by the expression hierarchy of evidence?

A

Valuation: Principles into Practice (6th Edition, 2008) - chapter on Lease Renewals and Rent Reviews of Commercial Property p404:
1. Open market lettings
2. Lease renewals
3. Rent Reviews
4. Independent expert’s determination
5. Arbitrator’s awards

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8
Q

What is interpolation of comparable evidence?

A

Is calculating or, plotting on a graph, a value that lies between two extreme points of comparable evidence

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9
Q

What is extrapolation of comparable evidence?

A

Is calculating or, plotting on a graph, a value that lies outside two extreme points of comparable evidence

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10
Q

What is the purpose of Zoning?

A

A comparable technique to analyse and value retail space with different frontage to depth ratios.

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11
Q

What is the standard Zone depth?

A

Zones of 6.1m (20ft). Oxford Street - 9.14m.

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12
Q

How would you arrive at the Market Rent the first floor of a retail unit?

A

X / 10 is commonly used for first floor accommodation be it retail space or storage

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13
Q

How would arrive at the Market Rent of a retail unit with a return frontage?

A
  • a percentage uplift for the depth of the return (5% seems usual) depending on the pedestrian flow
  • all of the unit becoming Zone A if both frontages have equal pedestrian flow (could have a reduction for excessive Zone A)
  • a percentage reduction for a lack of internal space for shelving and display racks
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14
Q

How would you value a shop unit for rent review with frontages on two roads i.e. it is a through unit?

A

in halving-back from both frontages at the same or different Zone A rate(s)

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15
Q

How would you determine the Market Value of an investment property let on internal repairing terms?

A

The market rent less external repairs, insurance and additional management which leaves the net rent to be capitalised.

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16
Q

What factors make up the all risks yield?

A
  1. The construction (age, design, specification)
  2. The quality of the tenant’s covenant
  3. The amount of rent (i.e. market-rented, under-rented, over-rented)
  4. The unexpired lease term
  5. The other lease terms
  6. Anticipated rental growth (location)
17
Q

What is the market capitalisation rate?

A

The all risks yield is called the market capitalisation rate because it is the rate at which the market capitalises the income

18
Q

How would you value a green-field site with planning permission for residential development?

A

When it is not possible to value by comparison, the residual method is used to value land and properties with development, redevelopment and refurbishment potential.

19
Q

Describe how you have carried out (or would carry out) a Residual Valuation.

A

Value of completed development
Deduct
All development costs
Deduct
Developer’s profit
To arrive at
The residual land value

20
Q

What costs did you deduct (are deducted) in your / a Residual Valuation?

A
  1. Demolition
  2. Cost of Construction
  3. Construction Fees
  4. Cost of Finance
  5. Contingency
  6. Agent’s / Legal Fees
  7. Acquisition Costs
21
Q

How did you calculate (would you calculate) developer’s profit in your / a Residual Valuation?

A

Can be calculated by either a percentage of total cost (22% to 25%) or a percentage of gross development value (15% to 17%). *Depends on risk; not set in stone.

22
Q

What are the usual acquisition costs of a development site?

A
  • Stamp duty land tax (0% on first £150K, 2% on next £100K, 5% thereafter)
  • Agents fees (1%)
  • Legal fees (0.5%)
  • Non recoverable VAT (0.3%)
23
Q

What is a ransom strip?

A

Is land that gives access to development land and has ransom value

24
Q

What is ransom value?

A

Value of the ransom strip

25
Q

How did you (would you) value a ransom strip?

A

1/3 of the increase in value of the development land resulting from the access

26
Q

What does the case of Stokes v Cambridge mean to you?

A
  • A compulsory purchase case
  • the valuation of 12.6 acres of farmland
  • agreed that planning permission for industrial development must be assumed
  • Subject to satisfactory access and provision of estate roads
  • Land which could provide satisfactory access was a track with an area of 0.7 acres
  • third of extra value attributed
27
Q

What is the Profits Method also known as?

A

Accounts Method

28
Q

Name three property types that would be valued by the Profits Method.

A

Casinos, golf courses and theatres

29
Q

Why are certain properties valued by the Profits Method?

A

Where the land is specific to that use and you cannot differentiate.

30
Q

Explain and basic approach to the Profits Method.

A

Turnover (net of VAT)
Less Costs of generating the Turnover
= Net Operating Profit
Which is Capitalised

31
Q

What valuation checks can be carried out on a valuation produced by the Profits Method?

A

In practice, the valuation of leisure property is sometimes carried out by capitalising
- the gross turnover, excluding VAT or,
- the adjusted net profit by the required return on capital.
Other valuation checks are
- unit prices per seat (cinemas)
- per bedroom (hotels, rest homes and nursing homes).

32
Q

When is the Contractor’s Method used in practice?

A

The method of last resort. Is used to value:

properties which do not usually change hands on the Market (Specialised Properties)
- Inclusion in Company Accounts and other Financial Statements (Asset Valuations)
- Compulsory Purchase (Rule 5)
- Rating

Non-Specialised Properties when there is no direct / inconclusive comparable evidence
- this is why it is sometimes called the Contractor’s Test

33
Q

What is another name for the Contractor’s Method?

A

Depreciated Replacement Cost

34
Q

Explain the basic approach to the Depreciated Replacement Cost Method.

A

The Gross Replacement Cost (maybe not mention)
Cost of Modern Building
Less Depreciation
Net Replacement Cost
Plus Site Value
Equals Value as Existing

35
Q

Explain what is included in a Reinstatement / Replacement Cost for Insurance Purposes.

A
  1. Demolition
  2. Shoring up and weather-protection of adjoining buildings
  3. Rebuilding in accordance with current Building Regulations
  4. Professional Fees
36
Q

How would you value a property for which there are no comparables?

A

The Contractors Method

APC (15 decks)

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