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RICS APC Valuation Main Competence > 3-OPTIONAL - LOAN SECURITY VALUATION > Flashcards

3-OPTIONAL - LOAN SECURITY VALUATION Flashcards

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1
Q

What must a client be made aware of if a property stock is not being valued as a single portfolio?

A

That the total of individual valuations may differ from the price achievable if sold as a portfolio or concurrently as individual sales (per VPS 1, VPS 6, and VPGA 9).

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2
Q

What factors must be considered when valuing a housing provider’s interest?

A
  • Nature of the interest (e.g., freehold, leasehold)
  • Restrictions and encumbrances (e.g., Section 106 agreements, right to buy, nomination rights)
  • Planning consent limitations (e.g., occupation or tenure)
  • Terms of any shared ownership leases
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3
Q

When did the new RICS APC pathway guides come into effect?

A

1 August 2018.

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4
Q

What significant new competency was introduced for real estate professionals in the updated RICS APC pathways?

A

Loan Security Valuation.

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5
Q

What is the main purpose of the Loan Security Valuation competency?

A

To value property specifically for loan security purposes in line with the Red Book standards.

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6
Q

What session first assessed the new pathways including Loan Security Valuation?

A

Session 2 of the 2018 final assessment (October/November).

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7
Q

What are candidates expected to understand at Level 1 of the Loan Security Valuation competency?

A
  • Financial market basics
  • Debt finance and its sources
  • Trading assets and loan security
  • Red Book standards
  • Negligence case law
  • Due diligence, conflicts of interest, and risk management
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8
Q

What is a key skill for Level 1 in Loan Security Valuation?

A

Understanding the role of the valuer in debt finance and secured lending.

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9
Q

What must candidates demonstrate at Level 2 of the competency?

A
  • Practical valuation for loan security
  • Use of appropriate valuation techniques
  • Application of Red Book standards
  • Addressing lenders’ specific requirements
  • Research into risk factors
  • Identifying factors affecting ability to obtain finance
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10
Q

What distinguishes Level 2 from Level 1 in this competency?

A

Level 2 focuses on applying knowledge to produce actual valuations that meet lenders’ specific needs.

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11
Q

What is required at Level 3 of the Loan Security Valuation competency?

A
  • Providing complex, reasoned, quantitative valuation advice
  • Preparing compliant valuation reports (including SWOT analysis, loan terms, investment performance, and market influences)
  • Explaining recommendations to clients to mitigate risk
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12
Q

What is the key to success at Level 3 in Loan Security Valuation?

A

Understanding and meeting the lender client’s needs through detailed, risk-aware reporting.

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13
Q

How does the Loan Security Valuation competency differ from the general Valuation competency?

A
  • Valuation: Broad valuation methods and numeric advice for all purposes
  • Loan Security Valuation: Specialist advice tied to financial risk and lending context
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14
Q

How can candidates avoid duplication when selecting both Valuation and Loan Security Valuation competencies?

A

By showing:
* Valuation: Technical valuation and numeric advice
* Loan Security Valuation: Specialist qualitative advice for mitigating financial risk

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15
Q

What should candidates consider when choosing between old and new APC pathway guides?

A

They should read the “Pathways to professional qualification – summary of changes” document to make an informed decision.

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16
Q

What must a valuer agree with the client when valuing a large number of similar properties?

A

Whether all properties or only a sample will be inspected (at least externally), and the extent of those inspections.

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17
Q

What should the valuer ensure when selecting properties for sample inspection?

A

That the inspected properties are representative of the uninspected ones and of the portfolio as a whole.

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18
Q

What must the valuer do if the agreed inspection scope proves inadequate?

A

Advise the client, and seek further instructions before proceeding with the valuation report.

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19
Q

Who must agree on the basis of value in a secured lending valuation?

A

The lender and the valuer, in accordance with restrictions in UK VPGA 14.1.

UK VPGA 14.1 - Extent of the inspection - outlines specific guidelines for valuers in secured lending contexts.

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20
Q

What is Existing Use Value for Social Housing (EUV–SH), and when is it appropriate to use?

A

EUV–SH assumes properties will remain let as social housing and vacant units re-let to the target group. It’s appropriate for secured lending valuations.

EUV–SH reflects the ongoing use of properties for social housing purposes.

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21
Q

When might market value subject to special assumptions be used?

A

When it is necessary to reflect the tenanted nature of the asset(s) in the valuation.

This approach helps in accurately assessing properties that are not vacant.

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22
Q

What valuations are typically required when a proposed or in-progress development is used as security for lending?

A

A valuation of the property in its current condition, and a valuation assuming completion per the provided plans and specifications.

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23
Q

What must a valuer consider when establishing the current value of a development property?

A

The availability and reliability of anticipated development cost information

Referring to RICS’ Valuation of development property guidance.

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24
Q

What rent-related information must be included in a valuation report under UK VPGA 14.5?

A

Average rents for each dwelling and tenancy type
Comparison with open market rents for unfurnished letting

This ensures that the valuation reflects current market conditions and provides a basis for assessing the property’s rental value.

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25
What occupancy and demand details must a valuer include in their report?
Existence of nomination rights Explanation for high vacancy rates (if applicable) Commentary on demand strength at current or proposed rent levels ## Footnote Understanding these factors helps in assessing the property's marketability and potential income.
26
What planning and expenditure considerations must be addressed in the report?
Impact of unimplemented or potential planning consents on valuation Opinion on future material expenditure required during the loan period ## Footnote These considerations are important for understanding the long-term viability and investment potential of the property.
27
What valuation methodology disclosures are required in the report?
Valuation method(s) used Use of comparable evidence If discounted cash flow is used: principal assumptions, inputs, and discount rate must be stated Comment on the suitability of the property as loan security ## Footnote Transparency in methodology aids in the credibility and reliability of the valuation.
28
What is the importance of the relationship between the valuer and the lender under UK VPGA 14.6?
A close working relationship is essential—especially in complex cases—to ensure the valuer’s service meets the lender’s needs and the lender fully understands the valuation advice provided.
29
Why can’t a rigid valuation protocol be applied to all UK commercial secured lending?
Because lenders vary—mainstream and alternative lenders have different regulatory requirements, risk governance, and due diligence standards, requiring flexibility in valuation approach. ## Footnote This highlights the need for tailored valuation strategies in response to the diverse lending landscape.
30
What is the overriding objective of UK VPGA 10?
To ensure that the valuer understands the lender’s requirements, and the lender understands the valuer’s advice, with departures (as per PS 1) agreed and documented where needed. ## Footnote This emphasizes the importance of clear communication and documentation in the valuation process.
31
What does UK VPGA 10 apply to?
Valuations for commercial secured lending against investment, development, and owner-occupied real property ## Footnote This includes ‘standard’ asset classes, operating assets, and residential assets in the professional investment sector.
32
What is the main guidance document for secured lending valuations in the UK?
VPGA 2 ## Footnote This guidance is applicable alongside UK-specific guidance.
33
Is the DRC method suitable as the sole valuation method for secured lending?
No, it is conceptually unsuitable as the sole or primary valuation method ## Footnote However, it may provide a useful crosscheck in appropriate circumstances.
34
What should valuers consider when applying UK VPGA 10?
They should have full regard to VPGA 2 alongside UK-specific guidance.
35
Fill in the blank: The definition of commercial property includes 'standard' asset classes, operating assets, and _______.
residential assets
36
True or False: The DRC method can be used exclusively for secured lending valuations.
False
37
What global guidance must be considered alongside UK VPGA 10 for secured lending valuations?
VPGA 2 from the RICS Valuation – Global Standards, which remains wholly applicable to UK secured lending valuations. ## Footnote VPGA stands for Valuation Practice Guidance Application.
38
When is the Depreciated Replacement Cost (DRC) method appropriate in secured lending valuations?
The DRC method is not suitable as the primary valuation method for secured lending but may be used as a crosscheck alongside other methods in appropriate cases. ## Footnote DRC is a valuation method that estimates the cost to replace an asset minus depreciation.
39
What must valuers comply with regarding conflicts of interest in commercial secured lending?
They must follow RICS' Conflicts of Interest guidance, as well as PS 2, VPGA 2, and the Red Book Global Standards.
40
What is best practice when a valuer identifies a potential conflict of interest?
Make a full and transparent disclosure to the lender, even if the valuer believes the conflict is immaterial.
41
What should valuers do when a lender opens communication with the borrower?
Request written instructions from the lender on how to handle non-public information exchange with the borrower.
42
What is expected regarding the status of the valuer in a secured lending valuation?
The valuer must be, at minimum, an external valuer and ensure the lender's definition of 'independent' is confirmed in writing before accepting instructions.
43
What must members comply with in addition to the standards and guidance in Red Book Global Standards?
RICS' Conflicts of interest requirements ## Footnote This includes PS 2 and VPGA 2.
44
Why is it important for a valuer to disclose any potential conflicts of interest?
To ensure transparency and best practice, irrespective of the valuer's assessment of materiality ## Footnote This aligns with PS 2 section 5.3 paragraph 5.3.1.
45
What criteria should valuers use to judge conflicts of interest?
The criteria set out in RICS' Conflicts of interest ## Footnote Valuers should also consider PS 2 and VPGA 2.
46
What should a valuer do if they identify a conflict or perceived conflict?
Discuss proposals to manage the conflict with the lender ## Footnote The lender will assess the proposals against their policies.
47
What is the expectation for a valuer in relation to secured lending?
To provide objective and unbiased advice ## Footnote This is crucial for the lending decision.
48
What is the minimum expectation for a valuer providing an opinion of value for lending decisions?
To be an external valuer as defined in the Glossary ## Footnote This is critical for maintaining objectivity.
49
What should a valuer confirm regarding terms like 'independent valuer'?
That the instructing client has defined the terms in writing ## Footnote This ensures clarity on the criteria for independence.
50
Fill in the blank: Valuers must comply with the standards and guidance in _______ in addition to RICS' Conflicts of interest.
Red Book Global Standards
51
True or False: A valuer is obligated to agree to terms they find unduly onerous when settling terms of engagement.
False ## Footnote Valuers are not obligated to agree to such terms if they believe them to be undue.
52
What is good practice for a valuer when receiving instructions about obtaining non-public information?
Request these instructions in writing ## Footnote This is especially important if communication is opened directly between the borrower and the valuer.
53
What should valuers be aware of regarding the roles they may perform in the secured lending process?
Refer to UK VPGA 10.4 for details ## Footnote This guidance outlines other roles valuers may take.
54
What should valuers do to mitigate risk in valuation work?
Follow the current edition of RICS' Risk, liability and insurance in valuation ## Footnote This includes adhering to VPS 1 and VPGA 2 regarding terms of engagement and instructions for secured lending.
55
What must valuers discuss with clients before accepting instructions?
The principle of liability caps and reliance on the valuation ## Footnote This agreement must be documented in the terms of engagement and valuation report.
56
What is the purpose of framework agreements or panel agreements?
To standardise terms of engagement/instruction and associated reporting requirements ## Footnote These agreements may be made directly with valuation firms or managed via a third-party panel management firm.
57
Why must valuers be cautious about standardised terms of engagement?
Because the diversity of circumstances relating to property assets may make standardised terms inappropriate ## Footnote Valuers should not feel obliged to undertake assignments under unduly onerous or inappropriate terms.
58
What should valuers keep under regular review?
Panel agreements ## Footnote This ensures relevance and clarity of expectations on both parties.
59
What does VPGA 2 provide guidance on?
Agreeing terms of engagement with lenders who do not issue panel agreements ## Footnote It also covers responding to requests for valuations by brokers and prospective borrowers.
60
To whom should a loan security report be addressed?
The named lender ## Footnote It is strongly recommended not to address it to a broker or potential borrower.
61
What must be negotiated between the lender and the valuer regarding liability?
The actual limits of liability ## Footnote Any cap in liability should be reasonable and proportionate to the nature of the instruction and exposures to risk.
62
What should the terms of engagement state about reliance?
Limit reliance only to the addressee, who should be the named lender ## Footnote Third-party reliance should be specifically excluded by default.
63
What should be done if other beneficiaries are included in the reliance?
They should be specifically named in the terms of engagement ## Footnote This is appropriate to the nature of the instruction.
64
What should valuers do before accepting instructions for secured lending valuations?
Discuss and clearly document liability caps and the reliance placed on the valuation in the terms of engagement and valuation report. ## Footnote This ensures clarity and sets expectations for all parties involved.
65
What is important to consider regarding panel agreements or framework agreements?
Ensure they are appropriate for each specific assignment, and valuers should not accept unduly onerous or inappropriate terms. ## Footnote Regular reviews of these agreements are essential to maintain compliance and relevance.
66
To whom should loan security valuation reports be addressed?
Ideally, only to the named lender, not to brokers or prospective borrowers. ## Footnote This protects the confidentiality and intended use of the valuation.
67
What should valuers consider about limitation of liability?
Liability caps must be reasonable and proportionate to the instruction and risks. ## Footnote Careful management is necessary if providing advice triggering PS 2 section 2 paragraph 2.4 obligations.
68
What is the default position on limitation of reliance in secured lending valuation reports?
Reliance is limited only to the named lender (addressee), excluding third parties unless specifically named in the terms of engagement. ## Footnote This helps to mitigate the risk of claims from unintended parties.
69
What do valuers need to review in arriving at their opinion of value?
A range of technical reports and other due diligence information sources ## Footnote Key topics are listed within VPGA 2, but it is not an exhaustive list.
70
What should valuers recognize regarding their expertise?
The limits of their expertise and restrict comments to observations of fact ## Footnote Valuers should recommend specialists to review their interpretations.
71
What may a lender request from a valuer regarding asset quality?
An opinion in accordance with categories established by regulatory authorities ## Footnote Valuers should provide direct answers and note limitations in their ability to answer.
72
Who is responsible for assessing the suitability of an asset for loan security?
The lender ## Footnote Comments by the valuer should focus on property or market factors affecting cash flow, value, or liquidity.
73
What is the expectation for valuers when providing opinions?
To base opinions on readily available market information and/or reasonably foreseeable data ## Footnote Forward-looking advice must meet specific VPS requirements.
74
What should a valuer exercise caution about when confirming a valuation after a loan delay?
Any material change in the facts and circumstances that may influence the valuation ## Footnote They may confirm the valuation where appropriate.
75
What guidance should be followed for a revaluation without re-inspection?
The guidance in VPS 2 ## Footnote Valuers should determine if the loan is an extension of the original loan or a new loan.
76
Why are sustainability and ESG factors important in valuations for secured lending?
They can have a significant market influence ## Footnote These factors must be considered in the valuation process.
77
What does VPS 1 paragraph 3.2(s) mandate?
Consideration of significant environmental, social, and governance (ESG) factors ## Footnote This is within the terms of engagement.
78
What does VPS 6 paragraph 2.2(q) require regarding ESG factors?
Significant ESG factors used and considered must be reported ## Footnote Reporting is limited to the scope of the terms of engagement.
79
What are some relevant considerations for the valuation of UK commercial property?
* Minimum Energy Efficiency Standards (MEES) * Energy Performance Certificates (EPCs) * Sustainability-related property certification * 'Green' leases * Flood risk ## Footnote VPGA 8 paragraph 3.7.4 includes further relevant factors, but it should not be used as a checklist.
80
What should valuers do when reviewing technical reports and due diligence documents?
Recognize their expertise limits, restrict comments to facts, and recommend specialists review interpretations if needed. ## Footnote This ensures that valuers remain within their professional boundaries and do not mislead clients.
81
How should valuers respond to lender requests for opinions on asset quality per regulatory categories?
Provide direct answers only, noting any limitations on their ability to answer accurately. ## Footnote This maintains transparency and helps lenders make informed decisions.
82
Who is responsible for assessing the suitability of an asset for loan security?
The lender has full responsibility; valuers should only comment on property or market factors affecting cash flow, value, or liquidity. ## Footnote Valuers provide insights but do not bear the ultimate responsibility for lending decisions.
83
On what basis should valuers provide forward-looking advice to lenders?
Based on market information readily available or reasonably foreseeable, meeting VPS 6 and VPS 2 requirements. ## Footnote This ensures that valuations are grounded in current market realities.
84
What should valuers consider when confirming the validity of a valuation after loan completion delays?
Exercise caution if there are material changes in facts or circumstances that may influence the valuation. ## Footnote Changes can significantly impact the accuracy of the original valuation.
85
What is important when instructed to do a revaluation without re-inspection?
Follow VPS 2 guidance and clarify whether the loan is an extension or a new loan, as this affects liability. ## Footnote Understanding the nature of the loan is crucial for determining the valuation approach.
86
How should valuers treat sustainability and ESG factors in secured lending valuations?
Consider them significantly, include in terms of engagement and report their influence on value per VPS 1 and VPS 6. ## Footnote ESG factors are increasingly important in determining asset value.
87
What are some examples of ESG-related considerations in UK commercial property valuation?
* Minimum Energy Efficiency Standards (MEES) * Energy Performance Certificates (EPCs) * Sustainability certifications * ‘Green’ leases * Flood risk ## Footnote These considerations are vital for compliance and valuation accuracy in the context of sustainability.

RICS APC Valuation Main Competence (16 decks)

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