Market Appraisals Level 1 Flashcards
(11 cards)
What are the key differences between a market appraisal and a formal ‘Red Book’ Valuation?
Market Appraisal - provides an informed estimate of the likely market value of a property, based on trends, comparables and surveyor’s experience.
Red Book Valuation - follows the RICS Valuation - Global Standards (2021), ensuring the valuation is formal, structured and regulated. It includes an in-depth analysis of comparable evidence and must be objective, independent and compliant with RICS ethical and professional standards.
Why is forecasting advice excluded from a Red Book Valuation?
Forecasting introduces speculation and uncertainty, such as anticipating growths in rent.
A red book valuation is a snapshot of value based on current market evidence, not assumptions about future conditions.
In what situation would you conduct a market appraisal instead of a Red Book Valuation and why?
- Market Appraisals are informal and suited for advisory and preliminary discussions.
- MA’s are less regulated and don’t require the same level of detail or compliance as Red Book Valuations
- MA’s can help for assisting in pricing decisions for letting, providing guidance to a client on potential investment decision, advising landlord/tenants on rent levels.
In what situation would you conduct a Red Book Valuation instead of a Market Appraisal and why?
- For Loan Security Purposes - when a property is being used as collateral for a loan, lenders will require a high degree of accuracy.
- For Accounting Purposes - companies require Red Book Valuation to report property Valuations to report property values on their balance sheet in accordance with International Financial Report Standards (IFRS)
What are the key principles behind conducting a market appraisal?
The key principles include:
- Understanding local market trends and conditions
- Analysing comparable evidence (recent transactions, lettings, and listings)
- Assessing property-specific factors such as condition, location, and prominence
- Ensuring the appraisal is based on accurate and verified data
What sources of information do you use when preparing a market appraisal?
Common sources include:
- Comparable market evidence (recent sales and lettings)
- Market reports and indices (e.g., MSCI, CoStar, Rightmove, Zoopla)
- Local knowledge and professional experience
- Land Registry and EPC data
- RICS guidance on valuation and market trends
Why is it important to use accurate and verified information in a market appraisal?
Using accurate and verified information ensures reliability, avoids misleading clients, and upholds professional integrity. Incorrect data can lead to poor decision-making, financial losses, and reputational damage.
How do market conditions influence property values and rental levels?
Market conditions, such as supply and demand, interest rates, economic performance, and government policies, can significantly impact property values and rental levels. For example, high demand and low supply typically drive prices up, while economic downturns may cause values to fall
What are the key factors that affect market rents?
Market rents are influenced by:
- Location (prime vs. secondary)
- Demand and supply (tenant competition, vacancy rates)
- Property condition and specification
- Lease terms (length, rent-free periods, break clauses)
- Macroeconomic factors (interest rates, inflation, employment levels)
What role does location and property condition play in market appraisals?
Location determines desirability, accessibility, and demand, making it a primary driver of value. A well-located property in a prime area commands higher prices. Property condition affects marketability, with well-maintained properties achieving stronger interest and higher values than poorly maintained ones.
What are current Interest Rates?
Bank of England Interest Dates - 4.25%
