Valuation

Question 1

When did the latest Red Book become effective?

Answer 1

2022

Question 2

How has it been updated from the previous version?

Answer 2

o Adequate ToE to reflect RBG compliance or not. No ambiguity.
o Valuation for financial reporting purposes – inclusion of IFRS 13 and IFRS 16 relating to fair value.
o Reference to use of profit based method for certain trade related properties.
 List includes self-storage, flexible workspace and student housing.
o Sustainability and ESG factors:
 Interpretations of ESG and sustainability.
 VPS 2 and 3 (inspection and reporting), valuers should hae regard to relevance and significance of ESG & S.
 VPGA 2 (valuation for secured lending purposes) ESG & S factors should have an integral part of valuation approach and reasoning.

Question 3

What is the purpose of the Red Book?

Answer 3

To ensure consistency of high standards in the profession when carrying out valuations

Question 4

What is the structure of the Red Book?

Answer 4

Introduction
Glossary
Professional Standards (PS)
Valuation technical and performance standards (VPS)
Valuation Application (VPGA)
International Valuation Standards (IVS)

Question 5

Name some best practice guidelines relevant to valuation

Answer 5

VPS 1 – terms of engagement
VPS 3 – valuation report.

Question 6

What is Comparable Evidence in Real Estate Valuation 2019?

Answer 6

Outlines principles in the use of comparable evidence.
Sets out non-prescriptive hierarchy of evidence.

Question 7

What are the four bases of value? When would you use each?

Answer 7

o Market Rent
o Market Value
o Investment Value
o Fair Value

Question 8

What are the five methods of valuation?

Answer 8

o Residual
o Profit
o DRC
o Investment
o Comparable

Question 9

When is it appropriate to apply each method?

Answer 9

Investment – income stream to value
Comparable – sufficient transactional market evidence
Profit – Valuing trade related property.
Residual – valuing development land
DRC – Valuing unusual building e.g. dilapidated castle.

Question 10

What each valuation method methodologies?

Answer 10

Investment – term and reversion / layer and hardvore methods.
Comparable – hierarchy of evidence.
Residual – GDV – costs – developer’s profit = land value.
Profit = EBITDA with appropriate multiplier.
DRC = value land, BCIS build cost for asset less depreciation.

Question 11

What CPD have you undertaken?

Answer 11

I undertook a webinar going into the 5 types of valuation and the 4 bases of value.

Question 12

What is a Special Assumption?

Answer 12

Supposition that is taken to be true and accepted as fact even though it is not.
E.g. building not let, valued on SA it was.

Question 13

What is the difference between an assumption and a special assumption?

Answer 13

Assumption is information reasonable for valuer to deem to be true, with no further investigation necessary.
Special assumption, known not to be true, agreed prior with the client.

Question 14

What is a typical special assumption you have used?

Answer 14

I valued a vacant warehouse in Fradley on the SA that it was 100% let.

Question 15

How did you establish your Market Value?

Answer 15

Found a suitable comparable evidence for a market rent, found suitable evidence for a market yield as well as suitable lease terms, valued on an equivalent basis.

Question 16

What are the benefits and limitations of the databases you used?

Answer 16

Benefits = able to scan an array of transactions quickly.
Limits = usually have inconsistencies. Always need to confirm with the agent involved the terms were correct.

Question 17

How did you ascertain your build costs?

Answer 17

Cost consultant, BCIS, previous examples.

Question 18

What are the advantages and disadvantages of BCIS?

Answer 18

Broad brush, gives an overview.
Can ascertain a build cost quickly, but not tailored to your specific scheme.

Question 19

What health and safety precautions did you adopt for your inspection?

Answer 19

I liaised with the site manager to understand the PPE requirements.
On inspection stayed with the site manager

Question 20

What were the site and local area characteristics?

Question 21

Why is undertaking due diligence important?

Answer 21

To understand if there are any factors that would impact value.

Question 22

What is the RICS Hierarchy of Evidence?

Answer 22

3 different categories:
Directly comparable evidence.
Market data
Other sources.

Question 23

How did you use the hierarchy to ascertain the market value of the site?

Answer 23

I gained directly comparable evidence.
Put in a table, adjusted regarding hierarchy of evidence (certain aspects of these transactions make some transactions more similar than others).
Analysed this table and reported back to the client.

Question 24

In your experience how have you applied the relevant valuation standards and guidance to your valuations?

Answer 24

VPS 1 ToE.
VPS 2 inspection
VPS 3 valuation report format.
Valuation of Development Property
Comparable evidence in RE Valuation.

Question 25

If the client asks for a special assumption do you have to provide it?

Answer 25

Yes, but you should clearly state that it is a special assumption, and also provide the difference in value if it is for a loan security valuation.

Question 26

What must be included in the Terms of Engagement for a valuation?

Answer 26

Valuer name and credentials Client Property Purpose of value Basis of value Assumption and Special assumption Nature of information. Type of sources. Complaints handling procedure. Fee basis. Report format. Currency. Limitations on liability. Valuation date Date of report.

Question 27

How would you approach a fee quote for a valuation?

Answer 27

I am aware it would vary depending on the size and timframe for the job subsequently resource required. I would speak with my director to understand an appropriate fee quote based on other valuations they have undertaken.

Question 28

What must you do before accepting a valuation instruction?

Answer 28

Check independent and competent.

Question 29

When is a red book valuation required as per VPS 3?

Answer 29

UK VPS 3 - for regulated purposes, relied upon by third parties (not secured lending) Takeovers and mergers Financial reporting Stock exchange listing. Collective investment schemes. Unregulated property unit trusts.

Question 30

What should be included in a red book valuation report?

Answer 30

Valuer name. Client name. Property. Basis of value. Purpose of value. Extent of sources. Nature of information. Assumption / special assumptions. Valuation date. Market commentary. Comparable evidence and analysis. Valuation figures. Report date.

Question 31

What is the difference between an internal and external valuer?

Answer 31

Internal valuer can only value for internal (accounts purposes). External valuer can provide valuations for others to rely on.

Question 32

How do you find relevant comparables? What makes a good one?

Question 33

What is the hardcore and layer method? When would you typically use it?

Answer 33

Used for overrented property. Value the overrented aspect of the income at a different yield to the market rent.

Question 34

What is a yield? How is it calculated?

Answer 34

A measure of return against the capital deployed, expressed as a percentage. RENT/PRICE X 100

Question 35

What is the DCF methodology?

Answer 35

Discounted cash flow. Work out the cashflow for a property. Input a disposal figure as you hold the property for a set period. Choose a target rate of return. Discount using this target rate of return. If the discount is positive, you outperform the target rate of return. If negative, failed to achieve.

Question 36

Why is statutory due diligence is required for valuations? Can you name some?

Answer 36

To ensure that the property is being used for its legal purpose. To ensure it is built to its specification. Ensure there is nothing illegal about the property. To ensure there are no key factors that may affect value

Question 37

What is the discounted cash flow technique?

Answer 37

Growth explicit method of valuation. Form of income approach valuation. determines value by examining future net income and discounting to arrive at an estimated current value

Question 38

What additional information is required for a loan security valuation?

Answer 38

Enhanced DD and SWOT analysis to give a recommendation for whether it is suitable for a loan security. purchase price.

Question 39

What is the suggested timeline of a valuation instruction?

Answer 39

Completely depends on the number of units being valued as well as the timeframe set out in the terms of engagement.

Question 40

What is the difference between freehold, leasehold and commonhold?

Answer 40

Owner of the asset. Tenant of the asset. Pay rent. Effective freeholder of your unit in a multiple occupancy building, have shared ownership of common areas

Question 41

How can you become a registered valuer?

Answer 41

Become part of the RICS Valuer Registration Scheme.

Question 42

SDLT tax bands in England:

Answer 42

o Commercial: 0 - £150k = Nil £150 - £250k = 2% £250k + = 5% o Residential: 0 - £250k = Nil £250k - £925k = 5% £925k - £1.5m = 10% £1.5m + = 12%

Question 43

minimum reporting requirements for loan security vals

Answer 43

suitability for lending previous involvement CoI vals methodology transaction history Stat DD acknowledgement of sustainability factors

Question 44

WAULT

Answer 44

weighted average unexpired lease term gross rent (to all lease expiry) / annual contracted rent (p.a.). figure comes out as a years left.

Question 45

Real name for RBG?

Answer 45

RICS Valuation - Global Standards 2021

Question 46

investment value

Answer 46

worth of an asset to a particular individual

Question 47

current business rates, how would you calculate it?

Answer 47

49.9p per rateable foot. 55.6p for large businesses. MV x 0.556