Valuation Flashcards
What are some types of Statutory Due Dilligence
“Asbestos register
Business rates
Contamination
Flood Risk
Fire safety
Title check - owenership, boundary, covenents, easements, wayleaves
Planning
Public rights of way or neighbours
EPC”
What are the 5 methods of valuation?
Comparable
Investment
Profits
Residual
Depreciated replacement cost (DRC)
What are the three valuation approaches set out in IVS 105?
“Income approach - converting current and future cash flows into a capital value.
Cost approach - reference to the cost of the asset whether by purchase or construction.
Market approach - using available comparable evidence
When are each valuation methods required?
The comparable method is the most widespread valuation method, typically to assess the market rent and market value .
The investment method is used where there is an income stream to value. You will need to be able to assess rental values (market rent) and a market-based yield. The investment method can reflect income streams which are under-, rack- and over-rented by incorporating risk within the yield choice.
The profits method, or receipts and expenses or income and expenditure method, is also used for income-producing properties. However, these are typically referred to as being specialist properties, such as hotels, golf courses, petrol stations.
The residual method is typically used for property or land with development potential. The output is market value of the land and it requires valuers to make a variety of assumptions around input costs.
The depreciated replacement cost (DRC) method is used for owner-occupied or specialised property that is rarely sold on the open market. It is also known as the method of last resort.
What are the six steps when collecting comparable evidence & what is the RICS guidance note.
“Search and select comparables (agent’s boards, online databases)
Confirm / verify information with a party directly involved in the transaction
Assemble comparables in a schedule
Interpret comparables using hierachy of evidence
Analyse comaprables to form an opinion of value
Report value and prepare file note”
RICS Comparable evidence in real estate valuation, 2019.
How does the conventional investment method work?
“Rent received (or Market Rent) x Years Purchase = Market Value
Assumes growth implicit valuation approach”
When would you use a Term and Reversion method? How does it work?
“Used for reversionary investments i.e. where Market Rent is more than passing rent
Term capitalised until next rent review / lease expiry at an initial yield.
Reversion to Market Rent valued into perpetuity at reversionary yield”
What is a yield?
“Measure of investment return expressed as a percentage of capital invested.
Calculated as income / price x 100”
How do you calculate a years purchase?
100 / yield or interest rate.
Represents the number of years required to repay the purchase price.
What is an All Risk Yield
“Yield which encompasses all the prospects and risks attached to a
particular investment”
What is a True Yield
Rent paid in advance not in arrears. Non-traditional
What is a Gross yield?
Yield based on the net purchase price
(i.e. not adjusted for purchasers’ costs)
What is a Net yield?
Yield based on the gross purchase price
(i.e adjusted for purchasers’ costs)
What is an Equivalent yield?
Average time weighted yield reversionary property is valued using an initial and reversionary yield.
What is an Initial yield?
Simple income yield for current income and current price
What is a Reversionary yield?
A yield which is applied to the Market Rent in the reversionary period into perpetuity.
