Valuation Flashcards
(52 cards)
What are the 5 methods of valuation?
1 - Comparable method
2 - Investment method
3 - Profits method
4- Residual method
5- Contractors methods / Depreciated Cost Replacement Method
What method of valuation would you use for a incoming producing property which is under- rented?
Investment method, using the term and reversion.
You would decrease the yield in the term to show the property is under-rented.
What is the profits methods and how does it work?
The profits method is used for income producing properties but specialist properties such as Hotels, care homes, petrol stations and pubs.
What is the red book?
Issues by RICS as part of the commitment to promote high standards in valuation worldwide
Why does the red book exist?
To support high standards in valuation delivery worldwide. The publication details mandatory practices for RICS members undertaking valuation services.
Is there a separate red book for the UK?
Since 2015, there has been a separate UK supplement to the red book.
What are the five exceptions to the red book?
1- Agency Work ( disposing/ acquiring)
2- Internal use only for the client
3- For litigation purposes
4- A statutory Function
5- Giving evidence as an expert witness
Name 4 of the bases of value
1- Market value
2- Fair value
3- Investment value / worth
4- market rent
What is Market Value?
The estimated amount for an assets which should exchange on the valuation date, between a willing seller and willing buyer at an arm’s length transaction after proper marketing, where the parties have acted knowledgeable, prudently and without compulsion
What is market rent?
The estimated amount an asset should be leased on the valuation date between a willing lessor and lessee, on appropriate terms in an arms length transaction, where the parties have acted knowledgable, prudently and without compulsion.
What is fair value?
The price that would be received to sell an assets in a orderly transaction between market participants at the measurement date.
What is investment value?
The value of an asset to a particular owner, for individual investment or cor occupational objectives.
This may differs from market value and used a measure of worth to reflect the value to a certain individual.
What is the overall purpose of the red book?
Consistency, objectivity and transparency are fundamental to building and sustaining public confidence and trust in valuation.
What does COT stand for when asking what the purpose of the red book is?
Consistency, Objectivity and Transparency.
All Risk Yield
The rate that reflects all prospects and risks attached to a property/ tenant
True yield
Assumes the rent is paid in advance and not arrears
Nominal yield
Initial yield assuming rent paid in arrears
Gross yield
Yield mot adjusted showing purchaser costs
Net yield
Yield showing purchasers costs
Equivalent yield
Average weighted yield when a reversionary property is valued using an initial and reversionary yield
Reversionary yield
Market rent / divided by current price of an investment let out at below market rent
Running yield
A yield at one moment in time
What is Net Present Value
The sum of the discounted cash flows
What is internal rate of return
The rate of return which all future cash flows must be discounted to produce a NPV of 0
