Valuation Flashcards

Question

Regulated purpose valuation?

Answer 1

Theres 5 examples, ` When a valuation is relied upon by a 3rd party who did not comission the valuation. i.e Stock exchange Financial accounts Takeover and mergers Unregulated property unit trusts Collective Investments Schemes UK RED BOOK SUPPLEMENT VPS 3.

Answer 2

Fair value

Answer 3

Assuming planning has been granted. Assuming something is true when its not the case.

Answer 4

Something is believed is to be true and dont have to investigate it further.

Answer 5

Profits method

Answer 6

Turnover - less costs of sales = Gross profit - less operating expenses - Interest/tax/deprection/amoritisation Could include R = Rent

Answer 7

6 parts: Introduction Glossary PS VPS VPGA IVS

Answer 8

Compliance with RBG + terms to reflect this in TOE OFRS 13 and 16 need to provide reasonable possible fair value measurements. Profit method - Self stroage, PBSH, flexible workspace Interpretation of ESG and Sustainability. - note within VPGA 2.

Answer 9

For secured lending purposes

Answer 10

Professional Standards - Compliance with standards and practice statements where a written valuation is provided. When does a valuation have to be a red book? Mandatory use for all valuation - except for 5 reasons: ALIES

Answer 11

Ethics, Competency, Objectivity and disclosures. Members undertaking valuations must act with in accordance with the RICS rules of conduct. Valuer and firm must act objectively - not influenced by any situation that could threaten objectivity. Professional scepticism when revewing data Detailed advice is proved on dealing with conflicts of interest. TOE must understand the clients requirements and comly with the minimum TOE - demonstrate competence.

Answer 12

Terms of engagement (IVS 101 Scope of work) Minimum matters must be confirmed in writing to the client as a minimum Prior to commencing Red Book. Include: identification of valuer Identification of client identification of other intended users Asset to be valued Currency purpose of valuation basis of value valuation date extent of investigation nature and source of the info to be relied on assumptions and special assumptions format of the report restriction for use, distribution and publication. confirmation of RBG/IVS compliance Fee basis Complaints handling procedure Statement on the valuation may be subject to compliance by the RICS Limitations on liability agreed

Answer 13

It is a RBG valuation unless for one of the specific purposes set out in PS1. Valuer should consider: Nature of restriction must be agreed in writing in TOE Possible valuation implications of the restriction confirmed in writing before the value is reported Is the restriction reasonable with regard to the purpose of the valuation Restriction must be referred to in report

Answer 14

Inspection, Investigations and Records Inspections - valuers must take the necessary info to verify the info being relied and ensure info is professionally adequate to for its purpose Restrictions should be given serious consideration as to TOE, Implications, Purpose and refer to it within the report. Records - Proper records must be held of the inspectios and investigations and of other key inputs in an appropriate business format Note importance of ESG and Sustainability

Answer 15

Valuation reports (IVS 103 Reporting) Minimum requirements to be stated in the report are: ID and status of valuer Client and any other intended users Purpose of valuation ID of the asset to be valued Basis of value Valuation date Extent of investigation Nature & Source of information relied on Assumptions and Special Assumptions Restriction on use, distribution and publication Insutrction undertaken in accordance with IVS Standards Valuation approach and reasoning Valuation figures Date of valuation report Comment on market uncertainty Statement setting out any limitations on liability that has been agreed.

Answer 16

Can be given but must be marked DRAFT for internal purposes only, cannot be relied on and cannot be published on any account. Subject to completion.

Answer 17

Note the importance given to Valuers having regard to the relevance and significance of ESG and Sustainability factors which should then form an integral part of the valuation approach and reasoning.

Answer 18

Valuer must determine the basis of value that is appropriate for every valuation to be reported. Definitions Market Value - estimated amount for which an asset or liability should exchange, on the valuation date, between a willing buyer and seller, in an arms length transaction, after proper marketing, where the parties have acted knowledgeably prudently and without compulsion. Market Rent - estimated amount for which an asset should be leased, on the valuation date, between a willing lessor and a willing lessee, on appropriate lease terms, in an arms length transaction, after proper marketing, when parties had each acted knowledgeably, prudently and without compulsion. Fair Value - IFRS 13 - the price that would be recieved to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, on the basis of valiation is now required if the IFRS have been adopted by the client - generally consistent with Market Value. Investment value - the value of an asset to a particular owner, or prospective owner for individual investment or opertation objective, may differ from MV, this is sometimes used as a measure of worth to reflect the value against the clients own investment criteria.

Answer 19

Valuation approaches and methods (IVS 105) Valuers are responsible for choosing and justifying their valuaion appraoch and use of model - in some cases more than one may be appropriate.

Answer 20

Valuation Practice Guidance Application

Answer 21

Valuation for inclusion of financial accounts Fair value will be adopted for all IFRS adopted accounts perscribed Performance Standards (PS) must be adhered to

Answer 22

Valuations for secured lending Check for conflicts for secured lending valuations: Any previous current or anticipated involvement with the borrower or property to be valued must be disclosed. Previous involvement is within last 2 years but under certain conditions can be longer. If valuer or client consider that involvement creates a conflict that cannot be avoided then it must be declined. VPGA 2 gives examples: longstanding relationship with borrower or owner, valuer will gain a fee from intodiction the transaction to lender, financial interest in the property holding or borrower, valuer retained to act in the disposal or letting of the completed developemnt on the subject property. It is clearly stated its the valuers repsonsiblity to accept or not. If conflicts can be managed then must have arrangements recorded and included in TOE and report.

Answer 23

Additional information must be reported to give the lender more information regardign the instructions and be able to advise whether to agree the loan. Extra info includes: Disclosure of any involveent identified in TOE or arrangements on COI. Or a statement that valuer is not involved. Vals method adopted, supported where requested with the calculation. Recent transaction has occured or a provisional agreed price has been disclosed - extent of which that info has been accpeted as MV. - a statement if no info has been revealed. Comments on ESG Suitability for mortgage Anything that could affect the price. Any other potential conflicts with definition of MV or its underlying assumptions. If a special assumption - then a comment on the difference in valuation.

Answer 24

Valuations of real property interests Covers inspection and investigations, with particula emphasis on ESG and environmental constraints, Identifies ESG and sustainability issues including the need to consider direct vals factors (storm or flood risk), indirect valuation factors (resilience or carbon emissions), physical risks (heat or wildfore) and transition risks (regulatory change or carbon emission). Direct vals factors Indirect vals factors Physical risks Transition risks

Answer 25

Matters that may give rise to material valuation uncertainty Overiding requirement that a vals report must not be misleading. Valuer should clearly draw attention to and common on any issues resulting in material uncertainty on vals date relating to risks surrounding the valuation of the asset. A standard caveat should not be used.

Answer 26

It includes General Standards - address matters such as TOE, approaches to and bases and methods of valuation as well as reporting. Asset Standards - provide requirement relationg to specific types of asset, such as real property and development property.

Answer 27

Effective Jan 2019, and set out clarification that the UK Red Book supplement augments the Red Book. It provides specific requirements for members on the application of RICS valuations undertaking in the UK subject to UK Jursidictions. Most advice is advisory.

Answer 28

These are valuations relied on by a 3rd party who have not commissioned the valuation. Valuations for five purposes: Financial reporting Stock exchange listing / inclusion in prospectus Takeovers / Mergers Collective Investment Vehicles Unregulated property unit trusts CUFTS Must state how long caluer has acted for client for regulated valuation purposes and the extent and duration of the firms relationship with the client In the last financial year, whether percentage fee income from the client is less than or more than 5% of total fee income - if more than 5 its to the nearest %. Whether since the end of the last financial year this has changed or will change. There should be a policy in place on the rotation of valuers when the asset is reguarly valued. RICS recommends 7 year max rotation policy. When a property was purchased or an intro fee accepted by the vauer when the property was purchased, it can not be valued for a regulatory purpose valuation for 12 months by the same firm.

Answer 29

Cost Income Market

Answer 30

Compliance with valuation standards within the UK Jurisdiction Ensure complaince with UK Law - requirements which are subject to UK jurisdiction. They supplement the RICS Red Book Global

Answer 31

UK VPS 1: Terms of engagement and reporting red book compliance.

Answer 32

Regulated purpose valuation supplementary requirements. Mandatory that you do not carry out vals on a property that you were part of the purchase 12 months ago

Answer 33

1. Financial reporting 7. Registered social housing providers' assets for financial statements 8. Charity assets 10. Commercial secured lending purposes. 11. Residential mortgage purposes 14. Registered social housing for loan security purposes 15. Capital gains tax, Inheritance tax, SDLT and Annual Tax on Enveloped Dwellings.

Answer 34

Done by Peter Pereira Gray Commisoned by RICS Standards & Regulation Board Have accepted findings in full and will implement them in due course Recommendations include: Standardising governence for high risk valuations Rotation for process for valuers Develop a Valuation compliance officer role to cover valuation process and rotation Continue to diversify the RICS Need for further specific RICS guidance to clarify RICS expectations around culture and behaviours of RICS members doing valuations.

Answer 35

Procides useful glossary of relevant terms and factors which valuers should incorporate into their valiation approach: TOE Valuation purposes Inspection Reporting Also provides guidance on relevant sustainability characteristics, considerations and risks to think of the when analysing comps. How they should be reflected in valuation methodology.

Answer 36

Depends on type of property, narrower for relatively straight foward valuations. 10% margin gor KS Lincolnvs Richard Ellis om respect of 4 hotel in 2005. Judge declared: 5% for standard residential property one of commercial 10% and if thre are exceptional features - 15%

Answer 37

The value arising from any expectation that future circumstances affecting the property may change - such as securing planning, where no planning exists.

Answer 38

Outside my scope of competence, would refer them to the charities team at Rapleys. I am aware that valuations have to be done in accordance with the Charities Act 2011. Also UK VPGA 8. Market Value or Market Rent.

Answer 39

Created by the merger of interest - physical or tenurial Undertake a before and after valuation and calculate the level of marriage value created.

Answer 40

£0 - £150k = 0% £150k - £250k - 2% £250k+ = 5%

Answer 41

Yes Calculated on NPV of the lease. discounted at RPI. NPV up to £150k = 0% NPV over £150k = 1% NPV over £5m = 2% Break clauses excluded. Calculator on HMRC website.

Answer 42

Surrender of the existing and agree to grant a new lease - either extended or on differnet terms. Premium to reflect the change in the value of the leasehold interest. Need to value the before and after leasehold interests

Answer 43

a particular buyer for whom a particular asset has special value because of advantages arising from its ownership that would not be avialbel to other buyers in a market. Special value is an amount that reflects particular attributes of an asset that are only of value to a special purchasor. Special purchasor - tenant buying their own freehold.

Answer 44

Deduct ground rent from the gross income to calculate the net rent recieved. This is capitlaised at a yield for the length of the lease to create a market value. Single rate yield duly discounted to relfect an additional element of risk. DCF or Sinking fund can also be used.

Answer 45

SDLT Agent fees of 1% of purchase price + VAT Solicitor fee of 0.5% of purchase price + VAT

Answer 46

Wheighted average unexpired lease term remaing to the first break of expiry of lease. Weighted by the contracted rent.

Answer 47

Value of ransom strip in order of 15% - 50% of the development value unlocked by the inclusion of the ransom strip. Stoke v Cambridge in 1961 33% of the uplift in the development site value was awarded to the owner of the ransom strip.

Answer 48

valuation technique. rental value reduces away from the street, halve back in 6.1m (20 ft zones)/ 9.14m (30 ft) in prime london, belfast and scottish retail streets. Basement and FF as a/10 depending on comps. Return fronrage is 10% uplift - depending on comps Natural zoning is when it reflects physical properties of the premises such as steps. Masking is for hidden/obscured areas.

Answer 49

Specialist area - Party Wall Act 1996 provides framework. The act provides a building owner who wishes to carry out various sorts of work to an existing party wall - additional rights. If you are a party wall owner you must inform all adjoining owners of your intention.

Answer 50

Rights of light of a building arises after 20 years uninterupted enjoyment of light w/out the consent of a 3rd party, by way of an easement. Injunctions can be granted.

Answer 51

RICS COVID-19 pratice alert in marhc 2020 and July 2021. Explains the need to ensure that inspection and use of data do not lead to unnaceptably reduced standards of service or risk. Wording can be used if their is material uncertainty on the availability of sufficient market evidence. along the lines..." our valuation of X is therefore reported as being subject to material valuation uncertainty as set out in VPS 3 and VPGA of RICS RBG. In respect of this vaulation less certainty and a higher degree of caution should be attached". Withdrawn March 2022.

Answer 52

Regular monitoring scheme for all valuers carrying our RBG Vals from October 2011. 3 main aims: Improve quality of vals and ensure highest possible professional standards Meet RICS requirement to self regulate effectively Protect and raise the status of the valuation profession as the leading expertise in valuation. Clients should expect: openness and transparency RICS protection and international valuation standards Expertise and clear reporting World class regulations. Not mandatory for work excluded from RBG Vals level 3 or post route qualification. To register info required on vals work undertaken: type, purporse, number of vals, firms total fee income from RBG in last year, Data sources used, Quality assurance audit procedures in place, History of any negligence claims. RICS monitor throught first annual return. and additional ranges with RISK Based Reviews from desktop investigations to site based Regulatory Review Visits, dependant on risks identified. Head of Regulation has power to remove a valuer from the Scheme

Answer 53

identity and status of valuer identify of client any intended users Asset Currency Purpose of valuation basis of valuation valuation date extent of investigation nature of source to be relied on assumptions + special assumption Format of report restriction on use/distribution Confirmation of RBG/IVS compliance Fee basis complaints handling statement RICS compliance subject to it Limitation on liability

Answer 54

Assumption = area OOB was/is of the same specification. OR no restriction on title Special assumption = has planning - requires investigation.

Answer 55

Calculate turnover Deduct operating costs To get FMOP Get yield from comparables to find multiplier.

Answer 56

Located within VPS 1 of the RBG

Answer 57

All Risks Yield - renumarative rate used in the valuation of fully let property let at market rent reflect the prospects risks attached to teh particualr invesment. True yield - Rent paid in advance and not in arrears. Nominal Yield - assumes rent is paid in arrears Gross yield - yield not adjusted for purchasors costs Net yield - adjusted for purchasors costs Equivalent yeild - average weighted in term and reversion Initial yield - simple income yield - rent divided by current price Reversionary yield - MR diveded by current rent on investment below MR. Running yeild - Yield at any one moment.

Answer 58

Modern replacement costs Adjust for obsolesence Land Value

Valuation Flashcards

(83 cards)