3. Comparable Method of Valuation Flashcards
(8 cards)
What is the relevant RICS document for comparable evidence method?
RICS Professional Standard: Comparable evidence in real estate valuation, 2019
Outlines principles - provides advice in dealing with situations where there is limited evidence -
**Hierachy of evidence
Talk me through the Hierachy of evidence (3 categories)
Category A - Direct comparables e.g. recently completed, similar property,
Category B - General Maket Data e.g. CoStar (unverified), historic evidence
Category C - Other sources e.g. other property types/locations
What does the hieracy of evidence state about properties under offer and asking prices?
Under offer: Category A “similar real estae being marketed where offers may have been made but a binding contract has not been completed”
Asking prices: Category A “only with careful analysis”.
What is the methodology of the comparative method? (6 steps)
1) Search and select comparables
2) Confirm/verify and analyse headline rent to give net effective rent as appropriate
3) Assemble in schedule
4) Adjust using hierachy of evidence
5) Analyse comparables to form opinion of value
6) Report value and prepare file note
What is the difference between a headline rent and the net effective rent? Why look at a net effective rent?
Headline rent: the rent stated in the lease.
Net effective rent: Reflects incentives such as rent-free periods or stepped rents.
Comparing net effective rents ensures valuations are accurate and consistent across different lease structures.
How can you find relevant comparables?
- Inspection of area, look at agent boards
- Visit/speak to local agents
- Auction results
- Data bases (e.g. Costar / EGI)
What is the hierarchy of evidence when considering leasing deals?
- Open market lettings
- Lease renewals
- Rent review
- Third Party determinations
- Sale and leasebacks
- Inter-company transactions
Why is a lease renewal better than rent reviews on the hierachy of evidence?
Lease renewals are done as an open market letting. Rent reviews are upwards only, no ability to leave so less negotiation, other terms not negotiable, might be CPI linked review.
