Valuation

Question 1

What 3 things should you consider before undertaking a valuation?

Answer 1

1. Your professional competence
2. Your independence
   3.Terms of engagement

Question 2

What are the minimum information points for Terms of Engagement?

Answer 2

There are 18 matters listed alphabetically set out in IVS 101 (Scope of Work) which should be included in terms of engagement as sub headings.

Question 3

Why might a valuation need to be carried out?

Answer 3

Valuations may be carried out for the following purposes:
- Loan security
- Accounts
- Tax (CGT/IHT)

Question 4

What is the Red Book?

Answer 4

The Red Book is a set of global standards which set out procedural rules and guidance for written valuations.

Question 5

What is the purpose of the Red Book?

Answer 5

Consistency
Objectivity
Transparency

Question 6

What are the five valuation methods?

Answer 6

Comparable
Investment
Profits
Depreciated Replacement Cost
Residual

Question 7

When might a valuation not be Red Book?

Answer 7

Agency - Market Appraisal
Litigation - Rent Review
Internal
Expert witness - duty to court
Statutory

Question 8

How many minimum terms must be included in the TOE and can you name a few?

Answer 8

18 minimum terms
- Identification and status of valuer
- Identification of client
- Identification of any other intended users
- Identification of the asset/liability being valued
- Purpose
- Basis of value

Question 9

How many report headings must be included as per VPS 3 and can you name a few?

Answer 9

16 minimum headings
- Identification and status of valuer
- Identification of client and other intended users
- Purpose
- Identification of asset/liability
-Basis of Value
- Valuation date

Question 10

What is the definition of Market Value?

Answer 10

The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller
In an arms length transaction, after proper marketing
Where parties acted knowledgeably, prudently and without compulsion.

Question 11

What is the definition of Market Rent?

Answer 11

The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee
On appropriate market terms, in an arms length transaction, after proper marketing
Where parties acted knowledgeably, prudently and without compulsion

Question 12

What is investment value?

Answer 12

The value of an asset to the owner or a prospective owner for individual investment or operational objectives.

Question 13

What is Fair Value?

Answer 13

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. IFRS 13

• used for accounts purposes
• IVS advises FV is generally consistent with MV.

Question 14

What is the process to become a registered valuer?

Answer 14

• Valuation to L3 at APC
• Valuer Registration Application Form
• Renewed annually by firm
• Alternative route requires an assessment, 100 days valuation experience signed off by registered valuer, case study submission and CPD.

Question 15

Which parts of the Red Book apply specifically to loan security?

Answer 15

VPS 1-5
VPGA 2 - Valuation of interests for secured lending
VPGA 8 - The Valuation of Real Estate
VPGA 10 - Material Uncertainty

Question 16

Are you aware of a recent piece of valuation negligence case law?

Answer 16

Hart V Large

RICS Homebuyer inspection and report undertaken in November 2011 by Mr Large. The subject property was located on a hill-top in Devon and had been newly reconstructed. Mr Large valued the property at £1.2m and his Homebuyer Report highlighted drainage problems and concerns with the pipes/gutters. The Claimants purchased the house. Following the purchase of the property, it became evident that there were serious issues with water ingress and damp, that ultimately required extensive remedial works.

The Claimants alleged that Mr Large was negligent by:

1. recommending a HomeBuyer report instead of a full Building Survey;
2. failing to identify the significant damp problems at the property following his inspection; and
3. failing to recommend, in his report, that a Professional Consultant’s certificate should be sought.

Question 17

What does the Hart V Large case highlight for surveyors?

Answer 17

Being clear and advising clients on the survey level and scope of inspection, limitations and caveats

Recommending justifiable further investigation

Considering whether any new information provided after inspecting or reporting affects their original advice, and updating their advice if it is justified to do so