Valuation

Question 1

What are the five methods of valuation?

Answer 1

1. Comparable
2. Residual
3. Investment
4. Profit
5. Depreciated Replacement Cost

Question 2

What is the comparable method?

Answer 2

estimates value through analysing recent market transactions of similar properties

Question 3

What makes a good comparable?

Answer 3

Hierarchy of Evidence
Category A
Category B
Category C

Question 4

What is Category A of the Hierarchy of Evidence?

Answer 4

Direct comparables

Question 5

What is Category B of the Hierarchy of Evidence?

Answer 5

relies on general market data that provides guidance and is not a direct indication of value

Question 6

Provide an example of when it would be appropriate to use a Category B comparable?

Answer 6

Special purchasers

Question 7

What is a Category C of the Hierarchy of Evidence?

Answer 7

other sources that rely on wider data to provide an indication of value
e.g transactional evidence from other property types & locations

Question 8

What is a Hierarchy of Evidence?

Answer 8

A weighted system to allow comparables to be ranked in terms of relevance

Question 9

Best Quality Comparable?

Answer 9

Exact evidence from Land Registry of the last sold figure

Question 10

Good Quality comparable?

Answer 10

Recently sold similar nearby properties

Question 11

Ok quality comparable?

Answer 11

further afield properties

Question 12

What other considerations are required in the Hierarchy of Evidence that may impact value?

Answer 12

Location
Size
Date Sold
Condition
Property Type
Tenure
Energy Efficiency

Question 13

When would you use the Residual Method?

Answer 13

When there is development potential

Question 14

When would you use the Investment Method?

Answer 14

When there is an income stream to value e.g rent

Question 15

When would you use the Profits Method?

Answer 15

When there is a specialist trade related property e.g hotel

the value is dependent on the profitability of the business

Question 16

When would you use the Depreciated Replacement Cost Method?

Answer 16

method of last resort used for specialist properties where the value is based on the cost of buying the site and building - the depreciation and deterioration e.g church

Question 17

What are the three approaches to valuation?

Answer 17

1. Income
2. Cost
3. Market

Question 18

What is the Income Approach?

Answer 18

Converting the current cash flow and future cash flows into capital value

Question 19

What Methods of Valuation use the Income Approach?

Answer 19

Investment, residual & profit

Question 20

What is the Cost Approach?

Answer 20

Refers to the cost of the asset by purchase or construction

Question 21

What Methods of Valuation use the Cost Approach?

Answer 21

Depreciated Replacement Cost

Question 22

What is the Market Approach?

Answer 22

uses comparable evidence

Question 23

What are the FOUR basis of Value?

Answer 23

1. Market Value
2. Market Rent
3. Investment Value
4. Fair Value

Question 24

What is the definition of Market Value?

Answer 24

the estimated amount for which an asset would exchange on the valuation date between a willing seller and a willing buyer after proper marketing

Question 25

what is the definition of Market Rent?

Answer 25

the estimated amount for which an interest in property would lease for on the valuation date between a willing buyer and a willing seller

Question 26

What is the definition of Investment Value?

Answer 26

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

Question 27

what is the definition of Fair Value?

Answer 27

Price that would be received to sell an asset or pair to transfer a liability in an orderly transaction between market participants at the measurement date. Primarily used for accounting purposes

Question 28

What are the FOUR types of sale?

Answer 28

1. Private Treaty 2. Informal Tender 3. Formal Tender 4. Auction