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APC 2022 > Valuation > Flashcards

Valuation Flashcards

1
Q

Three steps before instruction?

A

Competence, independence, signed terms of engagement

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2
Q

What statutory due diligence do you need to carry out prior to instruction?

A

Environmental, rateable value, EPC, contamination, legal title, tenure, planning history

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3
Q

5 Methods of valuation?

A

1) Comparative
2) Investment
3) Profits
4) Residual
5) Contractors (depreciated replacement cost)

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4
Q

3 IVS valuation approaches?

A

1) cost approach
2) income approach
3) market approach

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5
Q

Six step comparative method?

A

1) Search for comps
2) confirm details
3) assemble in table
4) adjust by hierarchy of evidence
5) analyse comparables to form opinion of value
6) report value

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6
Q

what is the valuation guidance note called on comparables?

A

Comparable evidence in real estate valuations 2019

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7
Q

What are the three types of evidence in RICS GN Comparable evidence in real estate valuations 2019?

A

Category A - direct comparables of contemporary
Category B - General market data
Category C - Other sources

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8
Q

How would you find comps?

A

agency boards
speaking to local agents
property databases
auction results
in house database

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9
Q

What is the investment method?

A

When there is an income stream to value
Rental income capitalised to produce a capital value
conventional method assumes growth implicit valuation

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10
Q

What is a yield?

A

It’s a measure of investment return expressed as a % of capital invested

Is is also a measure of growth & risk

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11
Q

Describe the DCF method (5 steps)?

A

1) Estimate cash flows over holding period
2) Estimate exit value
3) Select discout rate
4) Discount cash flows at discount rate
5) Sum of the cash flows gives the NPV

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12
Q

In a DCF, if NPV is positive what does this mean?

A

You are achieving more than the required rate of return

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13
Q

When would you use the profits method?

A

When the value of the property depends on the profitability of the business

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14
Q

What is the profits method methodology?

A

Annual turnover - less costs
- reasonable working expenses - operators remuneration to give adjusted net profit or (fair maintainable operating profit). then capitalised at a yield

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15
Q

What the residual method of valuation?

A

A valuation of development land based on a deduction of the costs of development from the anticipated proceeds. The residual is usually the land value. it is based of market inputs

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16
Q

what is a development appraisal?

A

It is a tool to financially assess the viability of a development scheme

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17
Q

what is the residual methodology

A

GDV - TDC - developers profit = residual site value

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18
Q

What do you need development finance for?

A

Site purchase
Construction costs
Holding over costs to cover void periods

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19
Q

Whats the method of calculation for development finance?

A

100% debt finance
Straight line basis for site purchase compounded interest over the development period)
Construction period is done on an S curve
Holding period done on compounded interest until development is sold

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20
Q

Two types of finace?

A

Debt finance
Equity finance

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21
Q

What is a typical loan to value?

A

60-70%

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22
Q

Different levels of debt?

A

Senior debt - first level of debt to get paid
Junior debt -
Mezzanine debt - additional funding

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23
Q

What is the profit erosion period?

A

The length of time it takes for development profit to erode due to holding charges

24
Q

Problems with residual method?

A

Sensitive to small changes
Implicit valuation approach
accurate data is needed

25
Types of sensitivity analysis?
Simple sensitivity Scenario analysis Simulation
26
What is overage?
Agreement between parties of the sharing of extra proceeds from a development
27
DRC method?
Used when direct market data isn't available Value of land in existing + current cost of replacing less discount due to depreciation
28
What is the red book?
Details mandatory practises for RICS members when carrying out valuation services?
29
When valuing VP using investment method do you use headline or net effective rent?
Headline
30
Whats the impact of high office content in a industrial unit?
Usually you would apply a 15-20% discount on the office space. It may materially affect the usability of the ground floor space
31
Describe a prime warehouse
- 8m eaves - 3 phase power - plastic coated steel profiled cladding - 30KN/sqm - 40% site coverage - 10-15% office content - Main services are capped off - full height loading door - steel portal frame
32
If apply investment method to vacant property what costs might you allow for?
Void period to market property Rent free letting costs empty rates
33
How would you change your yield for VP property?
typically 100bps higher to reflect risk and time to let out the property
34
What are common defect with industrial units?
- roof leaks around roof lights - cut edge corrosion - damaged cladding - cracks in brickwork - blocking guttering
35
Standard acquisition costs?
SDLT agents fees legal fees
36
Whats in PS1?
Compliance with standard and practise statements when written valuations are provided
37
PS1 exceptions?
1) valuation in advance of negotiations or litigation 2) valuations for statutory functions (expect tax authority) 3) Valuations for internal monitoring purposes 4) Valuations for agency or brokerage work (expect purchase report) 5) Valuation in advance of providing evidence for being expert witness
38
PS2?
Ethics, competency, objectivity and disclosers use professional scepticism when reviewing information
39
VPS1? Min requirements?
Terms of Engagements a) valuer b) client c) other users d) asset to be valued e) currency f) purpose of valuation g) basis of valuation h) valuation date i) extent of investigation j) nature and source of information k) assumptions &SA l) format m) restrictions on use n) confirmation of red book compliance o) fee basis p) CHP q) statement its compliance r) PII
40
VPS2?
Inspection, investigations and records.
41
Steps to go through for desktop inspection?
VPS2 1) Nature of restriction confirmed in TOE 2) Consider valuation implications 3) is it reasonable? 4) Refer to it within report
42
When do you not need to go on reinpection?
When there has been no material change to property or surroundings
43
Whats included in VPS3 - valuation reporting
valuer client intended user asset purpose of valuation extent of investigation assumption & special assumption restriction on use valuation date valuation figure basis of value in accordance with IVS standards approach & reasoning comment on market uncertainty PII
44
Define market rent
VPS 4 The amount which a property should be leased at on the valuation date between a willing lessor and a lessee tenant on standard lease terms in an arms length transaction after proper marketing with both parties acting knowledgeably, prudently and without compulsion
45
Define market value
The amount which a property should exchange on the valuation date between a willing buyer and a seller in an arms length transaction after proper marketing with both parties acting knowledgeably, prudently and without compulsion
46
Define fair value
Defined with IFRS 13 The price that would be received to sell an asset in an orderly transaction between market participants on the measurement date
47
What is investment value?
The value of an asset to a particular investor. Sometimes a measure or worth
48
What is equitable value?
Define with IVS 104 Previously was fair value. Takes into account the respective interests of parties
49
Which Valuation Applications are you aware of
VPGA 1 - Valuations for inclusion financial accounts VPGA 2 - Valuations for secured lending VPGA 8 - Valuation of property assets VPGA 10 - matters that give rise to material uncertainty
50
What does VPGA 2 outline?
1) Dealing with COI for securing lending valuation. Previously involvement is usually two years 2) additional reporting procedures. Valuation methodology, environmental considerations, comment on suitability for loan security purposes. Special assumption value must be stated differently
51
what does VPGA 8 outline?
Identifies sustainability factors that may influence value
52
What is the UK national supplement 2018?
Specific requirements for members carrying out valuations in the UK
53
do you know any UK VPGAs?
UK VPGA 1 - valuation for financial reporting UK VPGA 8 - valuation of charity assets UK VPGA 10 - valuation for commercial secured lending purposes
54
What is a special purchaser?
Someone who will pay above market value as they have a special interest in the property. Special value arising from ownership of property
55
What is monto carlo simulation
model used to predict the probability of a variety of outcomes when the potential for random variables is present

APC 2022 (4 decks)

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