Generic Questions Flashcards
(60 cards)
How do you calculate WAULT?
Add all contracted rental income on the portfolio between now and the time the leases expire, then divide it by the sum of the contract. Expressed in number of years.
Describe the methodology behind using the comparable method.
- Search and select comparables
- Verify information using a triangulated approach
- Produce a schedule
- Adjust comparables according to the hierarchy of evidence
- Analyse comparable evidence
- Form opinion
- Report value and prepare file note
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?
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.
What did the RICS publish in relation to valuation and the use of comparable evidence?
RICS Guidance Note on Comparable Evidence in Real Estate Valuation 2019.
Describe the Traditional Investment Method of Valuation.
Income stream (market rent) is capitalised at a yield. Growth is implicit.
What is the formula for calculating present value?
Future Value / (1+discount rate)^time.
What is the formula for YP for a term?
1-Present value / discount rate or interest rate.
What is a term and reversion valuation?
Used for reversionary assets (when the ERV is greater than the passing).
* Term is valued until the break / review at initial yield.
* The reversion capitalised into perpetuity at the reversionary yield.
What method of valuation do you use when a property is overrented?
Layer and Hardcore Method.
* Apply a froth rate to the over rented section.
* Higher yield reflects greater risk on rent.
Define Equivalent Yield.
Time weighted average yield between net initial and reversionary yield.
Define Nominal Yield.
Initial yield assuming rent is paid in arrears.
Define True Yield.
Assumes rent is paid in advance, most traditional rent assumes that rent is paid in arrears.
Define NPV.
Net present value = sum of all discounted cash flows of the project. Used to determine viability of an investment given a certain level of desired return.
Define IRR.
Internal Rate of return. The rate at which all future cashflows must be discounted to produce an NPV of 0.
When is the Profits method of valuation used and how does it work?
Used to value property on the basis of a business / trading potential.
* Commonly for the valuation of care homes and hotels, pubs, petrol station properties.
* Value is determined by the profitability of the operation within the asset.
* Annual turnover less costs less reasonable working expenses less operator’s remuneration = FMOP.
* Aka the EBITDA capitalised at appropriate yield (YP) to achieve market value.
How many years of audited accounts would you ideally like to see for a Profits Method Valuation?
3 years.
What is the difference between a development appraisal and residual valuation?
A development appraisal assesses the viability of a project for a developer. Assumes site value or calculates it based on profit requirements. A residual valuation looks to the market to appraise the value of a piece of development land. A residual valuation is a one moment in time for a specific purpose.
What are the formulas for these?
Profit:
* GDV – Costs – Fixed Land Price.
Land Value:
* GDV – Costs – Profit.
When should you use the depreciated replacement cost method of valuation?
It should be used when there is limited availability of market evidence.
It is calculated:
* Value of land, with existing use planning permission in place,
* Cost of replacing the building, with allowance for depreciation (BCIS).
What are three types of obsolescence?
Physical, functional, economical.
What must a valuer include when reporting a DRC valuation?
State the value for any readily identifiable alternative use if it is higher than the current use if appropriate. If appropriate, a statement that the market value would be lower on cessation of the business use.
Can you undertake a re-valuation of a property without re-inspection?
In accordance with VPS2 of the red book, you can revalue a property without reinspection providing you as the valuer are satisfied there has been no material change that will impact the property’s value.
* This should be stated in the Terms of Engagement and in the report.
What does VPS3 say that a Valuation Report should contain?
- Identification and status of valuer
- Identification of client
- Identification of the asset
- Purpose of valuation
- Bases of value adopted
- Valuation date
- Extent of investigation
- Nature and sources of information relied upon
- Assumptions and special assumptions
- Restrictions on use
- Confirmation that the valuation has been undertaken in accordance with IVS
- Valuation approach and reasoning
- Amount of valuation or valuations
- Date of valuation report
- Commentary on any material uncertainty in relation to the valuation where it is essential to ensure clarity on part of the valuation user
- Statement setting out any limitations on liability that have been agreed.
