Valuation

Question 1

Define bases of value

Answer 1

Statement of fundamental measurements assumptions used in a valuation

Question 2

Why was the Red Book Introduced

Answer 2

Mandatory rules and best practice guidance and related commentary for asset valuations

Question 3

Can you give me some examples of VPGA?

Answer 3

Valuation of plant and equipment
Valuation of tangible assets
Valuation of personal property, including arts and antiques
Valuation of interests for secured lending
Valuation for inclusion in financial statements

Question 4

What is in a valuation report

Question 5

What 2 rates make up he YP dual rate?

Answer 5

Accumulative rate
Remunerative rate

Question 6

How would you value a leasehold interest

Answer 6

Capitalise profit rent at YP dual rate or YP dual rate tax adjusted, or single rate

Question 7

How do you value a long leasehold interest?

Answer 7

Rent received less ground rent = net rental income
Capitalise net rental income for remaining term
= MV of leasehold interest

Question 8

When would you us a dual rate investment calculation?

Answer 8

To value a leasehold interest with value
- When a leasehold interest has a profit rent and unexpired term of 1 year

Question 9

Give examples of when you would use DCF?

Answer 9

Phased development projects
Large multi-let properties with frequently changing income
Alternative investments
Short leasehold interests and properties with income voids or complex tenures

Question 10

Benefit of using DCF

Answer 10

It is very detailed
Doesn’t require comparable
Allows for sensitivity analysis
Can be used on complex multi-let properties
Includes all major assumptions of the business

Question 11

What is the SAAMCO cap?

Answer 11

Claimant can only recover loss that falls within the scope of the duty of care assumed by the negligent defendant professional adviser

Question 12

Under the SAAMCO cap, is the valuer liable for losses due to a downturn in the market?

Answer 12

No, only the amount the property was over-valued but not a down-turn in the market.

Question 13

What would you do if you received a notice of a PII claim from a Client or their solicitor?

Answer 13

Notify my teams partner and our solicitor / insurers

Question 14

Is there a difference between being negligent when undertaking a survey / valuation and providing negligent advice?

Answer 14

Yes, negligent undertaking a survey could involve missing defects or poor due diligence
Negligence when providing advice could be not recommending further investigations, or not outlining the limits of the inspections/investigations

Question 15

What is your duty of care as a surveyor when undertaking a valuation?

Answer 15

Duty to take all reasonable skill and care
Duty to be professional and undertake proper due diligence

Question 16

To whom do you owe a duty of care when undertaking a valuation?

Answer 16

The Client

Question 17

Why is independence and objectivity important when valuing?

Answer 17

Confidentiality of information
Conflicts of interest

Question 18

Which do you follow, the IVS or the Red Book Global?

Answer 18

International Valuation Standards are adopted and applied throughout the RICS Red Book Global Standards

Question 19

What type of valuations might be relied upon by third parties?

Answer 19

Regulated purpose valuations (i.e financial statements)

Question 20

If your firm is too small to have a rotation policy or valuation panel, what else can you do to ensure objectivity?v

Answer 20

RICS advises every 7 years rotation, but depends on frequency of valuation
Have valuation reviewed by another member

Question 21

What is a restricted service valuation and when can you provide one?

Answer 21

Restrictions on a valuation such as short timescale or limitations on inspection

Yes can provide, however must be agreed by the Client and specifically stated in terms of engagement

Question 22

How do you deal with limitations on inspection or analysis?

Answer 22

Agree with Client beforehand and only undertake if possible.
State in terms of engage and explicitly say Client has agreed

Question 23

Can you value a property without inspecting?

Answer 23

Yes, however must agree in terms of engagement and disclose that the valuation is not to be relied upon.

Question 24

Where does the definition of fair value come from?

Answer 24

IFRS 13

Question 25

When is fair value used?

Answer 25

Financial reporting – IFRS 13

Question 26

What are the 3 approaches under VPS 5

Answer 26

Market approach (comparable)
Income approach (Investment, residual, profits)
Cost approach (DRC)

Question 27

What is the Valuer Registration Scheme?

Answer 27

Risk monitoring and quality assurance program

Question 28

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

Answer 28

Fair value

Question 29

When would you use EUV?

Answer 29

To describe what property or land is worth in its current form

Question 30

What is a regulated purpose valuation?

Answer 30

Valuation relied upon by third parties
E.g financial statements, stock exchange listings, takeovers and mergers

Question 31

What is the bases of value for a statutory valuation?

Answer 31

Market Value

Question 32

What is a yield?

Answer 32

Measure of investment return – annual income expressed as % of property price

Question 33

What is NIY?

Answer 33

Simple income yield - current income expressed as a % current price

Question 34

What is reversionary yield?

Answer 34

Yield once passing rent has adjusted to the level of market rent

Question 35

What is an equated yield?

Answer 35

Internal rate of return taking into account growth

Question 36

What is an equivalent yield?

Answer 36

Weighted average yield
Average between initial yield and reversionary yield

Question 37

Difference between a growth implicit yield and growth explicit yield

Answer 37

Growth implicit yield – prospect of rental growth is factored into the yield

Question 38

When would you use a dual rate investment calculation?

Answer 38

Valuing a leasehold interest

Question 39

What is marriage value?

Answer 39

An additional element of value created by the combination of two or more assts (where the combined value is more than the sum of the separate values)

Question 40

When would you use an element of hope in a valuation?

Answer 40

Hope value is the value based on the expectation that land will get permission for development in future
- May be used in a residual valuation

Question 41

What is dual capitalization rate and when would you use one?

Answer 41

Uses Accumulative rate and renumeration rate
For leasehold interest

Question 42

How do you calculate a tenants proportion of rent in a profits valuation?

Answer 42

A % of net operating profit, or divisable balance is taken to arrive at the Market rent
Usually at 50%

Question 43

What is fair maintainable turnover?

Answer 43

The level of trade that a reasonably efficient operator would expect to achieve on the assumption that the property is in good repair and suitably equipped

Question 44

What is a reasonably efficient operator?

Answer 44

Concept where the valuer assumes that the market participants are competent operators, acting in an efficient manner, of a business conducted on the premises

Question 45

What is personal good will?

Answer 45

Intangible value that arises from the efforts or reputation of a business owner or any other individual

Question 46

What is intangible good will?

Answer 46

Intangible asset that is associated with the purchase of one company by another – such as brand reputation

Question 47

What is synergistic value?

Answer 47

Synergistic value arises from the combination of two or more assets to create a new assets that has a higher value than the sum of the individual assets