Definitions

Question 1

What is Market Value?

Answer 1

• “The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

Question 2

What is Fair Value?

Answer 2

• The price paid to sell an asset or transfer a liability between willing market participants in an orderly transaction on the valuation date.

Question 3

What is Market Rent?

Answer 3

• “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 each acted knowledgably, prudently and without compulsion”.

Question 4

What is Investment Value?

Answer 4

• “The value of an asset to a particular owner or prospective owner for individual investment or operational objectives”.

Question 5

What is a Yield?

Answer 5

• Investors rate of return on an investment

Question 6

What is a Running Yield?

Answer 6

• The yield at one moment in time.

Question 7

What is True Yield?

Answer 7

• Assumes rent is paid in advance not in arrears (traditional valuation practice assumes rent is paid in arrears).

Question 8

What is a Net Initial Yield?

Answer 8

• The resulting yield adjusted for purchasers’ costs.

Question 9

What is a Reversionary Yield?

Answer 9

• Market rent (MR) divided by current price on an investment let at a rent below the MR.

Question 10

What is the Profits Method?

Answer 10

Used for licensed venues and restaurants

1. Income – costs = gross profit
2. Gross Profit minus expenses & operator’s remuneration = adjusted Net Profit.
3. Adjusted Net Profit Capitalised at yield
4. Compare against comps

Question 11

What is the DRC Method?

Answer 11

Contractors Method

1. value land in existing use,
2. add current cost of replacing building plus fees
3. less discount for depreciation.

Question 12

What is the Residual Method?

Answer 12

find the market value of the site based on market inputs.

Method: GDV – Total Development Costs = Residual Value

Question 13

What is the Comparable Method?

Answer 13

1. Research the relevant market for the subject property in terms of asset class and location to source comparable transactions.
2. Confirm/verify details and analyse headline rent to give a net effective rent as appropriate.
3. Assemble comparables in schedule
4. Adjust comparables using the hierarchy of evidence
5. Analyse comparables to form opinion of value
6. Report value and prepare file note

Question 14

What is the Investment Method?

Answer 14

• Used when there is a rental income stream to value
• Rental income is capitalised to produce a capital value
• Conventional method assume growth implicit valuation approach
• An implied growth rate derived from market capitalisation rate (yield)

Question 15

What is Gross Frontage?

Answer 15

overall external measurement in straight line across from of building from outside of the external walls or the centre line of party walls.

Question 16

What is Net Frontage?

Answer 16

overall frontage of shop line measured between internal face of external walls.

Question 17

What is an All Risk Yield?

Answer 17

• The remunerative rate of interest used in the valuation of fully let property let at market rent reflecting all the prospects and risks attached to the particular investment.

Question 18

Nominal Yield

Answer 18

• Initial yield assuming rent is paid in arrears.

Question 19

What is a Gross Yield?

Answer 19

• The yield not adjusted for purchasers’ costs (such as an auction result).

Question 20

What is an Equivalent Yield?

Answer 20

• Average weighted yield when a reversionary property is valued using an initial and reversionary yield. Blended rate of current and future return.
• Equivalent yield is used when valuing an under-rented property.

Question 21

What is an Initial Yield?

Answer 21

• Simple income yield for current income and current price.

Question 22

What is sustainability?

Answer 22

‘meeting the needs of the present without compromising the ability of future generations to meet their own needs’.