Valuation Flashcards

Question

Explain what a yield is

Answer 1

A measure of investment return expressed as a % of capital invested Income/100

Answer 2

dividing 100 by the yield this will give the number of years for income to pay back purchase price

Answer 3

prospects of rental and capital growth quality of location and covenant use of property lease terms voids security and regularity of income liquidity

Answer 4

The remunerative rate of interest used in the valuation of fully let property at market rent reflecting all the prospects and risks attached to the particular investment

Answer 5

assumes rent is paid in advance not in arrears

Answer 6

initial yield assuming rent is paid in arrears

Answer 7

The yield not adjusted for purchasers costs

Answer 8

The resulting yield adjusted for purchasers costs

Answer 9

Average weighted yield when a reversionary property is valued using an initial and reversionary yield

Answer 10

Simple income yield for current income and current price Passing rent / value of property

Answer 11

Market rent divided by current price on an investment let at a rent below MR

Answer 12

The yield at one moment in time

Answer 13

used for valuations of trade related property where there is a monopoly position used where the vale of the property depends upon the profitability of its business and its trading potential Used for pubs, petrol stations, hotels, guest houses, children's nurseries, leisure and healthcare properties and care homes basic principle is the value of the property depends on the profit generated from the business, not the physical building or location must have accurate and audited accounts if possible for 3 years use estimates/business plan if needed for a new business adjust for maturity of business and any unacceptable or exceptional items of expenditure

Answer 14

Annual turnover (income received) - costs/purchases = gross profits Less reasonable working expenses= net profit Less operators remuneration = adjusted net profit know as Fair Maintainable Operating Profit (FMOP) EBITDA = earnings before interest, taxation, depreciation and amortization Capitalized at appropriate yield to achieve market value Cross check with comparable sales evidence if possible

Answer 15

Used to find market value for land that the purchaser intends to build an investment on.

Answer 16

Calculate development value which is total area X market rent = estimated annual market rent capitalized using an all risks yield less construction costs, site preperation, planning costs, professional fees, contingency, marketing costs & fees, finance = residual land value.

Answer 17

Only used where direct comparable evidence is not available and they do not make a profit specialized properties as sewage works, lighthouses, oil refineries docks, schools, churches For owner-occupied property For accounts purposes for specialized properties and rating valuations

Answer 18

Value of land (planning permission assumed) + current cost of replacing the building plus fees less a discount for depreciation

Answer 19

RICS Valuation - Global Standards 2021 (Red Book Global) effective Jan 2022

Answer 20

The need to comply with RBG and terms of reference must be clear that it is/isnt RBG compliant Valuation for financial purposes reference to the use of profits method for certain trade related property valuations Sustainability and ESG factors such as with inspections and reporting valuers should have regard and use this as integral part of valuation

Answer 21

during negotiations or litigation providing advice expressly provided performing a statutory function unless in a stat return to tax authority provided as part of agency or brokerage work for giving evidence as an expert witness

Answer 22

Must act in accordance to RICS rules fo conduct must be independent and no be influenced by any situation Should apply skepticism when reviewing information and data before relying on it Must understand clients requirements and demonstrate competence

Answer 23

ID and status of valuer ID of client and other intended users The asset to be valued Currency Purpose and basis of valuation Valuation date Extent of investigation nature and source of info to be relied upon Assumptions and special assumptions format of report restrictions for use confirmation of Red Book Global Fee basis CHP Statement of valuation compliance by the RICS Limitation on liability agreed

Answer 24

where it is reasonable for the valuer to accept something is true without specific investigation

Answer 25

It is a belief without proof that something is true and accepted as fact even though it is not true - assuming planning permission has been granted

Answer 26

Valuer must carry out inspection to verify information Desk top valuation is red book compliant unless part of PS1

Answer 27

Nature of the restriction agreed in writing Valuation implications of restriction confirmed in writing Consider if the restriction is reasonable The restriction must be mentioned in the report

Answer 28

Valuing without inspection only if valuer is sure no material change or in location since last valuation Must be confirmed in terms of engagement

Answer 29

ID and status of valuer Client and intended users Purpose of valuation ID of asset to be valued Basis of value Valuation date Extent of investigation Nature & source of information relied upon Assumptions and special assumptions Restrictions on use Undertaken in accordance with IVS standards Valuation approach and reasoning Valuation figure date of report Comment on market uncertainty Statement setting out any limitations on liability that have been agreed

Answer 30

The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and willing seller in an arms length transaction after proper marketing where the parties had each acted knowledgably, prudently and without compulsion

Answer 31

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

Answer 32

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 The basis of valuation is now required if the international financial reporting standards have been adopted by the client It is adopted by the international accounting standards board The RICS view is that this definition is generally consistent with the definition of market value

Answer 33

The value of an asset to a particular owner or perspective owner for an individual investment or operational objectives May differ from market value This is sometimes used as a measure of worth to reflect the value against the clients own investment criteria

Answer 34

Valuers are responsible for choosing and justifying their valuation approach Can be more than one approach used

Answer 35

Fair value used for all IFRS adopted accounts prescribed Performance standards must be adhered to

Answer 36

Any previous or current involvement in the past 2 years should be stated. If anyone thinks this is a conflict then the instructions should be declined

Answer 37

longstanding professional relationship with owner or borrower If valuer will gain a fee from introducing the transaction to the lender If there is a financial interest in the property holding or prospective borrower When the valuer is retained to act in the disposal or letting of the completed development

Answer 38

Details of any COI Valuation methodology adopted Information that recent transaction or offer is at market value If enquiry does not provide information valuer must state environmental consideration comment on suitability for mortgage purposes Anything that could effect the price any other factor that could impact market value or assumptions Sustainability factors should have relevance to the instruction

Answer 39

Emphasis on ESG and specific environmental constraints. The need to consider environmental factors such as storm or flood risk, indirect factors (carbon emissions, physical risks (heat or wildfire and transition risks (Carbon emissions)

Answer 40

Report must not be misleading draw attention to issues resulting in material uncertainty A standard caveat should be used

Answer 41

General standards such as terms of engagement, approaches to and bases and methods of valuation as well as reporting Asset standards - requirements to specific asset types such as real property and development property

Answer 42

Weighted Average Unexpired Lease Terms

Answer 43

Current rent x years left for each tenant Add up each tenants total rent divide this number by the current rent