PE Valuation - Specific Purposes

Question 1

Where in the Red Book Global would you specifically find out about specific purpose valuations?

Answer 1

VPGAs

Question 2

Are the VPGAs mandatory?

Answer 2

No - advisory only

Question 3

What does VPGA 1 relate to?

Answer 3

Financial statements

Question 4

Why do financial statement valuations require particular care?

Answer 4

They must comply strictly with the financial reporting statements adopted by the entity

They may be relied upon by third parties

Question 5

What are the two commonly used financial reporting standards used in the UK?

Answer 5

IFRS
UK GAAP

Question 6

Does does IFRS stand for?

Answer 6

International Financial Reporting Standards

Question 7

What does UK GAAP stand for?

Answer 7

UK Generally Accepted Accounting Principles

Question 8

What type of comapny generally must adopt IFRS as their financial reporting standard?

Answer 8

Public listed companies

Question 9

Under FRS - what basis of valuation should be adopted?

Answer 9

Fair value

Question 10

What financial reporting standard do UK non-listed companies generally comply with?

Answer 10

UK GAAP (FRS 100-103 or FRSSE 2015)

Question 11

What RICS guidance relates to financial statement valuations in the UK (2019 UK Red Book)?

Answer 11

UK VPS 3

Question 12

When was UK GAAP last updated?

Answer 12

1 Jan 2015

Question 13

What are the bases of value under UK GAAP FRS 102?

Answer 13

Fair value (revaluation model)
Historic cost (cost model)

Question 14

When would you use the historic cost (cost model) basis of value?

Answer 14

Where market evidence is not available

Question 15

What does SOPR stand for?

Answer 15

Statements of recommended practice

Question 16

What is a SORP?

Answer 16

Sector driven recommenations on accounting practices for specialised industries or sectors, e.g. may specify basis of value

Question 17

When is existing use value used as a basis of value?

Answer 17

When valuing operational property, plant and equipment for local authorities and assets for central government financial statements

Question 18

What basis of value would be adopted for non-operational surplus relating to local authority assets or central government financial statements?

Answer 18

Fair value

Question 19

What is the definition of Existing Use Value (EUV)?

Answer 19

The estimated amount for which a property should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion, assuming that the buyer is granted vacant possession of all parts of the asset required by the business, and disregarding potential alternative uses and any other characteristics of the asset that would cause its market value to differ from that needed to replace the remaining service potential at least cost.

Question 20

In a financial statement valuation (under FRS 102), should you include directly attributable acquisition or disposal costs in your valuation?

Answer 20

No - if requested by the client, they should be stated separately

Question 21

What does VPGA 2 relate to?

Answer 21

Secured Lending

Question 22

What additional criteria apply to secured lending valuations?

Answer 22

That the valuer has had no previous, current or anticipated involvement with the borrower, or prospective borrower, the asset to be valued or any other party connected with a transaction for which the lending is required (for 24 months, or longer if requested)

Question 23

What information should you specifically request for a secured lending valuation?

Answer 23

Intended lender (if you are instructed by a prospective borrower or broker)

Further information on marketing, incentives and circumstances of any transaction relating to the subject

Terms of the lending facility

Any recent transactions/price agreed on the subject property

Question 24

What is the most widely used basis of value for secured lending valuations?

Answer 24

Market value

Question 25

What would be typical special assumptions for a secured lending valuation?

Answer 25

Planning consent has been granted for development at the property Physical change to the property, such as new construction or refurbishment New letting on given terms, or the settlement of a rent review at a specific rent, has been completed Special purchaser, which may include the borrower Constraint that could prevent the property being either brought or adequately exposed to the market is to be ignored New economic or environmental designation has taken effect Property suffers from natural, non-natural or existing use environmental constraints Unusual volatility in the market as at the valuation date is to be discounted Any lease or leases between connected parties has been disregarded

Question 26

What does UK VPGA 1 (2019 UK Red Book) relate to?

Answer 26

Valuation for financial reporting: general matters

Question 27

What does UK VPGA 11 (2019 UK Red Book) relate to?

Answer 27

Valuations for residential mortgage purposes

Question 28

What basis of value is adopted for valuations of residential property for the purpose of possible possession proceedings or the proposed sale of a repossessed property?

Answer 28

Projected Market Value (PMV) - the estimated amount for which an asset is expected to exchange at a date, after the valuation date and specified by the valuer, between a willing buyer and a willing seller, in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion subject to 2 special assumptions.

Question 29

What are the 2 special assumptions under PMV?

Answer 29

During the marketing period the property has been unoccupied and all furnishings and fittings have been removed The vendor (mortgagee) has to sell the property within a reasonable period to recover the secured debt

Question 30

What does a RICS Home Survey include?

Answer 30

Inspection Concise report based on inspection Valuation

Question 31

What does VPGA 9 relate to?

Answer 31

Identification of portfolios, collections and groups of properties

Question 32

What is the general principle when dealing with a portfolio valuation?

Answer 32

The valuation purpose and your client's instructions will dictate the approach you take to lotting

Question 33

What does VPGA 10 relate to?

Answer 33

Matters that may give rise to material valuation uncertainty

Question 34

How should you deal with material uncertainty?

Answer 34

In qualitative terms indicating your confidence in your valuation opinion

Question 35

What does UK VPGA 2 (2019 UK Red Book) relate to?

Answer 35

Other regulated purposes

Question 36

What would require a regulated purpose valuation?

Answer 36

Inclusion in financial statements Inclusion in prospectuses and circulars issued by UK companies In connection with takeovers and mergers For collective investment schemes For unregulated property unit trusts

Question 37

Can you provide a regulated purpose valuation of a property acquired by your client in the last 12 months or where you or your firm received an introductory fee or agreed the purchase?

Answer 37

Only if another unrelated firm has valued the property since the transaction was agreed

Question 38

What additional disclosures must you make in a regulated purpose valuation?

Answer 38

In relation to the firm’s preceding financial year the proportion of the total fees, if any, payable by the client to the total fee income of the valuer’s firm expressed as either less than 5%, or if more than 5%, an indication of the proportion within a range of 5 percentage points If since the end of the last financial year, it is anticipated that there will be a material increase in the proportion of the fees payable, or likely to be payable by the client

Question 39

What does UK VPGA 15 (2019 UK Red Book) relate to?

Answer 39

Valuations for capital gains tax, inheritance tax, stamp duty land tax and tax on enveloped dwellings

Question 40

What is the basis of value for CGT, IHT and SDLT valuations?

Answer 40

Statutory definition of market value

Question 41

What is the statutory basis of market value (defined in the relevant tax legislation)?

Answer 41

Price which the property might reasonably be expected to fetch if sold in the open market at that time, but that price must not be assumed to be reduced on the grounds that the whole property is to be placed on the market at one and the same time

Question 42

What else applies to the statutory definition of market value?

Answer 42

Case law, which established a number of additional assumptions

Question 43

Does RICS provide any guidance on sustainability and valuation?

Answer 43

Yes - for both residential and commercial property

Question 44

What is the general principle of reflecting sustainability in valuations?

Answer 44

Reflect, don't lead markets

Question 45

What sustainability issues could you reflect in your advice?

Answer 45

Green design features Life cycle materials Embodied carbon Energy efficiency Waste management Location Accessibility

Question 46

How could you compare the value of a sustainable vs. non-sustainable building?

Answer 46

DCF

Question 47

What is the standard rate of IHT?

Answer 47

40%

Question 48

How long do you have to survive a gift for IHT not to be payable?

Answer 48

7 years