Valuation

Question 1

What are some exemptions from the Red Book?

Answer 1

Statutory valuations
Internal valuations
Agency valuations

Question 2

Where can I find the definition of an assumption?

Answer 2

VPS 4- Bases of Value

Question 3

What was the Grey Report?

Answer 3

Comissioned in 2020 by the RICS Standards and Regulations Board following feedback from market professionals.

13 recommendations all accepted by the RICS

Recommended that DCF is used as default for investment valuations

Question 4

What were the overarching recommendations from the Gray Report?

Answer 4

Creation of independently-led valuation regulatory quality
assurance panel

For regulated firms to appoint a valuation regulatory officer

Further RICS guidance regarding behaviour and culture

Also recommended that DCF is used as default method of investment valuations

Question 5

What is an example of a non-market transaction?

Answer 5

Connected parties
Lease renewal
Anchor Tenants

Question 6

What is VPS 2 and what does it contain?

Answer 6

Property Inspection, Investigation, and Records
Sets out mandatory requirements for property inspections

Eg take reasonable steps to verify information
Eg extent of valuation to be agreed in terms

Question 7

How would you adjust a net yield back to gross yield?

Answer 7

Apply the net yield to valuation then add purchasers costs:
Stamp Duty
Legal Fees
VAT

Question 8

What is the capitalization rate?

Answer 8

Net Income divided by Capital Value

Used to estimate a potential return on an investment

Question 9

What is VPGA 8?

Answer 9

Valuation of Real Property Assets

Offers guidance for inspections for valuation purposes

Question 10

What programmes can I use to help inform covenant strength?

Answer 10

Companies House
Fame

Question 11

What are VPS 1-5?

Answer 11

1. Terms of Engagement
2. Inspections, Investigations, and Records
3. Minimum report requirements
4. Bases of Value
5. Valuation Methods

Question 12

What is VPGA 10?

Answer 12

Matters that may give rise to valuation uncertainty

Question 13

What is the definition of Investment Property for Financial Reporting Purposes?

Answer 13

Property held by the owner to produce rentals and/ or capital appreciation

Defined in International Acocunting Standards 40

Question 14

What are the International Valuation Standards?

Answer 14

A guide for valuers globally to promote transparency and consistency

Question 15

Define an In-Use or Operational Asset

Answer 15

A property that is occupied and used for the delivery of services, either discretionary or mandatory

Question 16

What do Local and Central Government Asset Valuations Report to?

Answer 16

IFRS 16

Local govt- UK VPGA 4
Central govt- UK VPGA 5

Question 17

Define existing use value

Answer 17

Estimated value of an asset in its current use, assuming buyer is granted vacant possession, and excluding any potential alternative use

UK VPGA 6

Question 18

Which guidance did you refer to with regards to the North London Court?

Answer 18

International Financial Reporting Standards
UK VPGA 5
Government Financial Reporting Manual

Question 19

What was the basis of value for the Industrial Property in Guildford?

Answer 19

Fair value, which in this instance equated to market value

Question 20

Where in the Red Book can I find Ethics?

Answer 20

PS2

Question 21

Define Investment Value

Answer 21

Value of a property over time to an owner for investment or operational objectives
Takes into account an current leases

Question 22

Define Market Value

Answer 22

Estimated value of a liability or asset, exchanged between a willing buyer and seller on the open market as of the valuation date

Question 23

What are some assumptions of Market Value?

Answer 23

Willing buyer and seller
Arms length transaction
Proper marketing
Parties acting prudently and knowledgeably

Question 24

What is the investment method?

Answer 24

Valuation method to assess potential return on an investment through ongoing income

Question 25

Where is existing use value defined?

Answer 25

UK VPGA 6

Question 26

Where in the Red Book can I find bases of value?

Answer 26

VPS 4

Question 27

Where in the Red Book can I find terms of engagement?

Answer 27

VPA 1

Question 28

Define Fair Value

Answer 28

Amount a liability or asset would be estimated to exchange for in an orderly transaction between market participants as of the measurement date

Question 29

Where is fair value defined?

Answer 29

International Financial Reporting Standards 13

Question 30

Where in the Red Book can I find minimum requirements in a report?

Answer 30

VPS 3

Question 31

What is an equivalent yield?

Answer 31

Average between the initial and reversionary yield

Question 32

How did you know which cost directions to use for the GP Surgery?

Answer 32

The premises had recieved CMR prior to 01 April 2013. Therefore 2004 directions apply

Question 33

What is the methodology for the profits method?

Answer 33

Annual Turnover LESS costs to achieve gross profit LESS reasonable working expenses and operators remuneration equals Fair Maintainable Operating Profit Capitalise using market yield Cross check with comparable sales

Question 34

What is the comparable method methodology?

Answer 34

1. Search 2. Verify 3. Assemble 4. Adjust 5. Analyse 6. Report

Question 35

What is a trade-related property?

Answer 35

A property designed for a trade related purpose, where the value reflects the trading potential

Question 36

What are the notional lease terms for a DRR and where are they found?

Answer 36

Tenant Internal Repairing 15 years 3 yearly rent reviews Found in NHS Cost Directions

Question 37

How did you advise the client with regards to CMR?

Answer 37

Established that the 2004 Cost Directions were applicable. I inspected the property to ensure all facts were correct. I reviewed the lease and established it was to tenant Internal repairing and insuring terms. I adjusted the actual rent to TIR terms by 2.5% I used the comparable method to reach my opinion of CMR. I apportioned this between the two surgeries I advised the client of my opinion of CMR, and also that the actual reimbursable rent should be adjusted back by 2.5% .

Question 38

What is a headline rent?

Answer 38

Rent once short term incentives have expired eg rent free period

Question 39

What is the difference between the 2004 and 2013 NHS Cost Directions?

Answer 39

In 2004 directions: Tandem parking spaces are included Alternative Use Value can be considered for owner-occupied premises

Question 40

What is the hierarchy of comparable rental evidence?

Answer 40

New Lettings to Open Market Value Lease Renewals Rent Reviews

Question 41

What are the different categories of comparable evidence and where are they defined?

Answer 41

RICS Guidance Note: Comparable Evidence in Real Estate 2019 Cat A- Direct comps Cat B- General comps Cat C- other sources eg market reports

Question 42

Where are the specifications of G surgeries found?

Answer 42

NHS Specification Standards for Infection Control

Question 43

What are the different bases of value within the Red Book?

Answer 43

Market Value Fair Value Investment Value Market Rent