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Case Study Questions Flashcards

1
Q

What are the key principles of UKVPGA-10?

A
  • Through liaison with UK Finance, it reflects general requirements of the lending market
  • It provides supplementary guidance to valuers on mitigating risk and ensuring terms of engagement and reporting are undertaken in accordance with VPS 1 and VPS 3
  • 10.1 Application of RICS Valuation - Global Standards (secured lending vals - VPGA 2)
  • 10.2 Independence, objectivity and conflicts of interest
  • 10.3 Instructions and disclosures
  • 10.4 Reporting
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2
Q

What is the purpose of the Red Book?

A

To promote and support high standards in valuation delivery worldwide. To provide comfort to stakeholders that the valuation is accurate set against the basis or bases of value (definition) adopted.

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3
Q

How did you undertake your COI check?

A

I used LSH’s internal Conflict of Interest database (PROPERTY AND CLIENT).

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4
Q

What RICS guidelines did you refer to when carrying out your COI check?

A

RICS Conflict of Interest Global Professional Statement 2017

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5
Q

What would you have done if you found out you had a COI?

A

Check with LSH internal conflicts of interest policy and seek guidance from the compliance officer if unsure, and then inform the client if I was unable to accept the instruction, or inform them so that I could be instructed with informed consent.

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6
Q

Provide examples of what was included in TOE.

A

As per VPS1:

  • Identification and status of valuer, client, and borrower
  • Identification of property being valued
  • Purpose of valuation
  • Bases (and date) of valuation
  • Assumptions and special assumptions
  • Format of report and restrictions on its use, distribution and publication
  • Fee basis
  • Limitations on liability
  • Reference to LSH complaints handling procedure with a copy available on request
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7
Q

Tell me more about your DD process, e.g., what information did you collect?

A

I collected information on:
- Title
- Services
- Planning (policy and history)
- Rating Assessment
- Flooding
- EPC

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8
Q

What other factors did you consider affected value?

A
  • Condition of buildings (inspection)
  • Situation/location of property
  • Covenant strength
  • Lease term certain
  • Vacancy levels in parade
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9
Q

Did you undertake a risk assessment prior to inspection and what did it include?

A

I undertook a dynamic risk assessment when I arrived at the property. I identified the main hazards as hot coffee being spilt and falling on the stairs to the basement, which could have harmed me or others. I decided these were low-level risks and that general awareness of my surroundings and movements of others were adequate precautions.

PRE-INSPECTION RISK ASSESSMENT FORM?!?!?

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10
Q

What RICS guidance did you adhere to when inspecting?

A

RICS Surveying Safely Global Professional Standard (2nd edition 2018)

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11
Q

Did you need to consider lone working procedure whilst inspecting? If so, how was this done?

A

No, I inspected with two colleagues.

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12
Q

What site notes did you take?

A

I noted:
- No evidence of damp or structural cracks
- Property’s use and specification
- Arrangement of the property
- Situation of property (no customer parking but loading to rear)
- Occupiers in immediate vicinity
- No vacancies
- Took measurements
- Noted levels of customers (busy or not) and footfall

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13
Q

Why did you receive an asbestos survey?

A

Because the building was constructed prior to the year 2000.

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14
Q

What was included in the asbestos survey?

A

It confirmed that there was no asbestos present. However, if asbestos was present, it would confirm the location and quantity of materials, as well as any remedial action required.

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15
Q

If asbestos materials were found, what would you have done?

A

Informed the manager on site and then my client, advising that an asbestos survey be conducted as soon as possible.

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16
Q

Why did you use a laser meter and how did you ensure it’s accuracy?

A

I used it for ease over longer distances and I calibrated it before use against a tape measure at home.

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17
Q

Why did you measure to NIA?

A

Because its a retail property which is required to be measured under Code of Measuring Practice, 6th edition as its not office or residential.

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18
Q

Tell me about your relativity for zoning

A

Zone A = 1/1
Zone B = 1/2
Zone C = 1/4
Remaining retail = 1/8
Ancillary = 1/12
Basement (whole) = 1/10

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19
Q

What is ITZA and why is it used?

A

It refers to “zoning” of retail property. It is a valuation technique which applies higher values to the areas closer to the front of a retail property, which are seen to be more valuable due to footfall.

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20
Q

What is the difference between gross and net frontage?

A

Gross frontage is measured from the outside of external walls (or centreline of party walls) whereas net frontage is measured from the internal face of external walls (or support columns).

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21
Q

What are the key principles of RICS Code of Measuring Practice 6th edition?

A

To provide succinct, precise definitions to permit the accurate measurement of buildings and land, the calculation of the sizes (areas and volumes), and the description or specification of land and buildings on a common and consistent basis. GUIDANCE - does not need to be followed but in cases of negligence failure to follow RICS guidance is viewed dimly.

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22
Q

Why didn’t you measure to IPMS?

A

Because it is a retail property requiring measurement under the Code (only offices and residential must be measured under IPMS), unless otherwise instructed by client.

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23
Q

Key Issue 1 - what else was included in the client’s instruction letter?

A

Details of the existing loan facility (amount, term) and Borrower.

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24
Q

Key Issue 1 - what industry published reports did you refer to?

A

I referred to PROMIS retail reports and the Knight Frank yield guide

25
Q

Key Issue 1 - How did you weigh up your different criteria when determining Market Rent?

A

I gave more weight to recent open market lettings for properties in similar locations, similarly situated with similar occupiers, of a similar size.

26
Q

Key Issue 1 - What is included in a headline rent?

A

Headline rents include any rent-free periods and incentives (what is stated on the lease “rent passing”).

Case - Broadgate Square vs Lehman Brothers 1995. LL argued that headline rent be put on at RR date instead of net-effective.

27
Q

Key Issue 1 - Why did you use the comparable method?

A

Because it provides a real-world view of typical transactions of a given type and it’s the industry standard for this type of valuation and one would only deviate from it in the absence of evidence.

28
Q

Key Issue 1 - Why did you go back 18 months when sourcing comparable evidence?

A

Because there was limited evidence available in the last 12 months and I wanted to see if there was any significant changes prior to the last 12 months.

29
Q

Key Issue 1 - What specific lease details did you want to confirm with agents?

A
  • Agreed rent (and Zone A rate)
  • Floor area
  • any incentives/rent free periods
  • lease term
  • Any break clauses and rent reviews
30
Q

Key Issue 1 - What do you mean by Category A evidence?

A

Direct transactional evidence.

31
Q

Key Issue 1 - Explain your understanding of the hierarchy of evidence.

A

Certain evidence usually takes precedence over others. For example, more weight should be given to direct transactional evidence for comparable properties compared to databases and indices.

32
Q

Key Issue 1 - What are the key principles in RICS PS: Comparable Evidence in Real Estate Valuation (2019, reissued 2023)

A
  • To outline principles of the use of comparable evidence
  • To encourage consistency in the use of comparable evidence globally
  • To address issues of availability and use of comparable evidence, especially in challenging market conditions
  • To consider potential sources of comparable evidence and their relative importance
33
Q

Key Issue 1 - What is a return frontage?

A

When a property has its shop front at its front and side elevations, on a street corner.

34
Q

Key Issue 1 - How do you know 77 The Grove was a secondary pitch?

A

Because it was situated in a residential area away from the main thoroughfare, in a parade with few (local) occupiers and low levels of footfall.

35
Q

Key Issue 1 - What is your understanding of quantum?

A

The larger a floorspace, the lower the rate paid psf, and vice versa

36
Q

Key Issue 1 - What do you mean by rack-rented?

A

A full market rent.

37
Q

Key Issue 2 - Why is covenant strength important?

A

It signifies financial health and capability to meet rental obligations under a lease.

38
Q

Key Issue 2 - Talk me through your investment comparables

A
39
Q

Key Issue 2 - What key information do you need to collect for investment comparables?

A
  • Tenant (to assess covenant strength)
  • Sale value
  • Passing rent
  • Term certain
  • Floor area
  • Date and type of transaction
40
Q

Key Issue 2 - What is included in Use Class E of the Town and Country Planning (Use Classes) Order 1987?

A

Commercial, business and service

E.g. retail, office, professional services etc. (N.B. industrial uses which can be carried out in residential areas with no detriment are permitted under Class E)

41
Q

Key Issue 2 - What is included in NIY?

A

Passing rent divided by sale price including purchasers costs

42
Q

Key Issue 2 - Why did you use NIY?

A

Because my evidence was analysed on a NIY basis.

43
Q

Key Issue 2 - What do you think was the cause of low transaction volumes over the last 12 months?

A

I think mainly the increases to interest rates, increased cost of finance, economic uncertainty, continuation of lower demand for high-street retail property

44
Q

Key Issue 2 - How does covenant strength impact yield?

A

A strong covenant will compress a yield and vice versa

45
Q

Key Issue 2 - What do you mean by reversion?

A

It refers to a potential change in rent linked to a lease event

46
Q

Key Issue 2 - How does the Uxbridge market compare to the Ealing market?

A

For investments, location is less relevant than with the rental market. With an investment, although location is still a factor, the security of income and tenant strength are more important. Capital and rental values are lower in general but it is a relatively affluent commuter town with a buoyant retail market providing an indication as to yields which can be expected to be achieved with strong (but local) covenants.

47
Q

Key Issue 2 - How did you deduct 1 years’ worth of rental income from MV?

A

I deferred the income for 12 months after lease expiry

48
Q

Key Issue 2 - Talk me through the standard purchase costs you adopted.

A

I calculated SDLT (0 -150K NOTHING, 150,001 - 250K - 2%, 250k+ 5%), equating to 3.496% of Gross Value

Agent & legal fees at 1.5% (plus VAT @ 20%)

49
Q

Key Issue 2 - What is an equivalent yield?

A

It’s an average weighted yield used mainly for short term income variables, don’t need to apply valuer interpretation over split yield differentials

50
Q

Key Issue 2 - How does an equivalent yield differ to a NIY?

A

Equivalent yield is based on the reversionary (market) rent, whereas Net Initial Yield is based on rent passing

51
Q

Key Issue 3 - What is included in the VPGA 2?

A
  • Taking instructions and disclosures
  • Independence, objectivity and conflicts of interest
  • Basis of value and special assumptions
  • Reporting and disclosures
51
Q

Key Issue 2 - Why would you use an equivalent yield?

A

To value a multi let reversionary property with short-term income variables, removes requirement for split yield and reduces requirement for valuer interpretation

52
Q

Key Issue 3 - What risks will the landlord face if the property became vacant?

A

May incur void costs (business rates & insurance reinstatement premium), and reletting costs (agent @ 10% of rent and legals @ 5%)

53
Q

Key Issue 3 - How does economic uncertainty cause a threat to the value of the property?

A

It may cause rents to decrease, increase yields, and reduce demand for the property, tenant goes bust, value of property decreases

54
Q

Did you measure for damp while inspecting? If not, why not?

A

I examined the property for signs of damp (visually and to see if I could smell any) but noted none. I wasn’t doing a survey, just an inspection.

55
Q

What makes the report ‘Red Book’ compliant?

A

Compliance with the RICS Rules of Conduct, adoption of the International Valuation Standards, and compliance with all requirements of the RICS Global Valuation Standards (2022) and UK National Supplement (2023)

Done or signed off by a Registered Valuer!

56
Q

What are the key principles of VPS 3?

A
  • It applies International Valuation Standard (IVS) 103 reporting
  • It specifies additional mandatory guidance for RICS members designed to enhance client understanding and use of reports
  • It addresses particular aspects of implementation that may arise in individual cases
57
Q

What would you do differently next time?

A

Nothing

58
Q

How did you act ethically?

A

APC (12 decks)

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