Valuation Flashcards
Valuation (164 cards)
1
Q
What is an internal valuer ?
A
“Someone employed within a company to value the assets of the company.
Valuation for internal use only.
No third party reliance.”
2
Q
What is an external valuer?
A
Someone who has no material links with the asset to be valued or the client.
3
Q
What are the three steps to first undertake before commenciing work on a valuation instruction?
A
“1. Competence - if not refer to RICS Find a Surveyor Service
2. Independence - check for any conflicts or personal interests.
3. Terms of Engagement - Set out in writing full confirmation of instructions to the client
Prior to starting - receive full written conformation.”
4
Q
Why are statutory due diligence checks done for valuations ?
A
To check that there are no material matters which could impact upon the valuation.
5
Q
What are some examples of statutory checks ?
A
“1. EPC ratings
2. Legal title and tenure
3. Planning history and compliance
4. Council tax
5. Flooding”
6
Q
What are the five main methods of valuation ?
A
“1. Investment
2. Residual
3. Profit
4. Depreciated Replacement Cost
5. Comparative”
7
Q
What does IVS 105 Valuation Approaches and Methods set out? Redbook
A
“Sets out the 3 valuation approaches
1. Income (Investment, residual, profits).
2. Cost (DRC)
3. Market (Comparative)”
8
Q
What is the income approach ?
A
Converting current and future cashflows into capital value.
9
Q
What is the residual method ?
A
Used to establish site value
10
Q
What is the residual method process ?
A
“Establish GDV
Less build cost and less developer profit
= Site value”
11
Q
What is the cost approach ?
A
Reference to the cost of the asset whether by purchase or construction
12
Q
What is the market approach ?
A
Using comparable evidence
13
Q
What is the heirachy of evidence ?
A
“The relavant weight attatched to different types of evidence:
Cat A - Direct comps, near identical properties
Cat B - General market data that can provide guidance
Cat C - Other sources of transactional evidence “
14
Q
What are the six steps you would taken when collecting comparable evidence?
A
“1. Search them
2. Verify them
3. Assemble them
4. Adjust order of comparables using the heirachy of evidence
5. Analyse them
6. Report “
15
Q
What is the RICS professional standard on comparable evidence?
A
“RICS Professional Standard: Comparable Evidence in Real Estate Valuation 2019
Reissued in April 23 as professional standard”
16
Q
When would you use term and reversion?
A
“Used for reversionary investments
When an asset is underented.”
17
Q
When would you uses the Harcore method ?
A
Used for over rented investments (Passing rent is more than Market Rent).
18
Q
What is the conventional investment method?
A
“Market Value = Rent x YP
The conventional method assumes growth implicit valuation.”
19
Q
How would you find relevant comparables ?
A
“1. Inspection
2. Speak to local agents
3. Auction results
4. In house records/databases and websites
5. Market sentiment analysis can be imporant if there is a lack of evidence
20
Q
When is the investment method used?
A
“Used when there is an income stream to value
The rental income is capitalised to produce a capital value.”
21
Q
What is growth implicit?
A
An implicit method of valuation consists of using a capitalisation rate and current market rent based on comparable evidence. The capitalisation rate is often referred to as an ARY with all risk hidden in the selected yield.
22
Q
What is the ARY?
A
The remunerative rate of interest used in the valuation of fully let properties let at markte rent reflecting all prospects and risks attatched to a particular investment.
23
Q
What is an equivalent yield?
A
“An average weighted yield when a reversionary property is valued using an initial reversionary and yield.
Used when there is a very little under rent or over rent “
24
Q
What is a running yield ?
A
The yield at one moment in time
25
What is a DCF Valuation?
"1) A growth explicit investment method of valuation.
2) Valued by examining the property's future net income flow.
3) The cash flow is then discounted back to the present day at a discounted rate (also known as a desired rate of return) that reflects the percieved level of risk."
4) Usually on a conventional ARY basis.
26
When is DCF used?
"Used where the projected cash flows are explicitly estimated over a finite period
The approach separates out and explicitly identifies growth assumptions rather than incorporating it with an ARY."
like for:
- Short leasehold interests and properties with income voids or complex tenures
- Phased development projects
- Non standard investments
- Over rented properties and social housing.
27
What is the guidance on DCF?
he RICS Practice Information: Discounted cashflow valuations Nov 2023
28
What is the DCF methodology ?
"1) Estimate the cash flow (income less expendature).
2) Estimate the exit value at the end of the holding period
3) select a discount rate
4)discount cashflow at discount rate
5) value the sum of the completed discount cash flow to provide NPV."
29
What are the limitations of valuations?
"Very sensitive to minor adjustments
Implicit assumptions hidden and not explicit."
30
What RICS guidance note is a useful reference for development valuations
RICS guidance note ' Valuations of Development Property' 2019.
31
What is the depreciated replacement method?
"Also known as the contractors method.
Should only be used when there is a lack of direct market evidence for specialised properties inlcuding sewage works, lighthouses, oil refineries and submarine bases.
"
32
How is DRC calculated ?
"The value of the land in its existing use (assumes planning permission exists).
Add current costs of replacing the building plus fees less a discount for depreciation and obsolesence."
33
What are DRC valuations?
"Used for owner-occupied property
Used for accounts purposes for specialised properties.
Used for rating valuations of specialised properties"
34
What is DRC Methology ?
"1) Value of land in its existing use (assume planning permission exists)
2) Add current cost of replacing the building plus fees less a discount for depreciation and obsolence/deterioration "
35
Types of obsolescence ?
"Physical - the result of deterioration/wear and tear over the years.
Functional - where the desing or specification of the asset no longer fulfils the function for what it was origionally designed for.
Economic - due to the changing market conditions for the use of the asset."
36
What is the NPV?
"Net present value.
The sum of discounted cash flows of a project
Can be used to determine if an investment gives a positive return against a target rate of return."
37
What is IRR?
Internal Rate of Return - The rate of return at which all future cashflows must be discounted to to produce a NPV of zero.
38
What is the profits method of valuation?
"Used for valuations of trade related property, where there is a monopoly position (pubs, petrol stations, hotels).
Principle = the value of the property depends on the profit generated from the business not the physical building or location."
39
What is the methodology of the profits method of valuation?
"Adjusted net profit / EBITDA.
Capitalised at the appropriate yield (YP) to achieve market value.
Cross check with comparable sales evidence if possible."
40
What is the structure of the Redbook?
"1. Introduction
2. Glossary
3. Professional Standards (PS)
4. Valuation Technical and Performance Standards (VPS)
5. Valuation Practice Guidance Applications (VPGA)
6. International Valuation Standard (IVS)"
41
What is the latest RICS Redbook?
"RICS Valuation - Global Standards 2021 (Redbook Global)
Effective from 31st January 2022"
42
What where the changes to the Redbook from the previous edition?
"1. Need for compliance with RBG -
- ToR must be clear and unambiguous
2. Valuation for financial reporting purchases
3. Reference to the use of the Profits Method for certain trade-related property valuations.
4. Sustainability and ESG factors.
5. Definitions and scope of valuations contained with International Valuation Standards (IVS)"
43
What must be included within the Terms of Engagement
"1. Identification of Valuer
2. Identification of Client
3. Identification of any other intended users
4. Asset to be valued
5. Currency
6. Purpose of the valuation
7. Basis of value
8. Valuation date
9. Extent of investigation
10. Nature and source of the information to be relied upon.
11. Assumptions and special assumptions to be made
12. Format of the report.
13. Restrictions for use, distribution and publication.
14. Confirmation of Red book/IVS compliance
15. Fee basis
16. CHP to be made available.
17. Statement that the valuation may be subject to complaince by the RICS.
18. Limitation on liability agreed"
44
What is PS 1?
Compliance with standards where a written valuation is provided
45
What are the five exceptions for using the Red Book Global?
"1. Providing agency or brokerage advice for an acquisition or disposal
2. Acting as an expert witness
3. Performing statutory functions
4. Providing a valuation purely for internal purposes without liability and without communication to a third party.
5. Expressly providing advice in preparation for or during the course of negotiations or litigation."
46
What is PS and is it mandatory ?
Professional Stnadards and they are mandatory worldwide
47
What is PS2 ?
Ethics, competency, objectivity and disclosures
48
What does PS2 outline?
"1. Professional and ethical standards
- Members undertaking valuations must act in accordance with the RICS Rules of Conduct
2. Independence, objectivity and the identification and management of Conflicts of Interest.
- The valuer/firm must act objectively and independantly and not be influenced by the situation which could threaten professional objectivity.
- Professional Scepticism where reviewing information and data before relying on it.
- Detailed advice is provided when dealing with Conflicts of Interest."
49
What were the changes to the red book from the previous edition?
"1. The need for compliance with RBG.
2. Includes Valuation for financial reporting purposes
3. Reference to the use of the Profits Method for certain trade related property valuations.
4. Sustainability and ESG focussed factors
5. Definition and scope of valuations contained within the International valuation standards."
50
What is VPS1
"Valuation Technical and Performance standards
Terms of Engagement (Scope of Work)"
51
What does the Red book say on ToE?
It provides a list of minimum matters which must be confirmed in writing to the client as a minimum prior to commencing a red book valuation.
52
What is an assumption ?
These are made when it is reasonable for the valuer to accept that something is true without the need for specific investigation.
53
What is a special assumption ?
An assumption that is taken to be true but is in fact not true
54
Give an example of a pecial assumption ?
Vacant possession of a building
55
Does a client have to agree a special assumption ?
Yes
56
What is VPS 2 ?
Inspection, Investigations and Records
57
What does VPS 2 say in regards to inspections?
Valuers must take steps to verify the necessary information being relied upon for a valuation to ensure the information is professionally adequare for its purpose.
58
Under VPS 2 what is known as a desktop valuation ?
Restricted information (desk top) valuations - no inspection is undertaken
59
Why would a bank client request a valuation with a restricted marketing period ?
Banks need to know what the value of property would be if their client defaults. This would result in a quick sale hence the restricted marketing period.
60
What factors should be considered by the valuer when they are instructed to undertake a valuation of restricted information or without a physical inspection?
"1. The nature of the restriction must be agreed in the TOE.
2. The possible valution implications of the restriction confirmed in wiritng before the value is reported.
3. The valuer should consider weather the restriction is reasonable be regards to the purpose of the valuation.
4. The restriction must be referred to in the report."
61
What is a restricted information (desk top) valuation (no inspection taken)?
When a valuer is instructed to undertake a valuation on the basis of restricted information or without physical inspection.
62
When can a revaluation occur VPS2?
"A revaluation without re-inspection of the property previously valued must not be undertaken unless the valuer is satisfied that there have been no material changes to the property or nature of its location since the last inspection.
This must be confirmed in the TOE and in the valuation report."
63
What does VPS 2 say on records ?
"Proper records must be held of the inspections and investigation and of other key inputs in an appropriate business format.
Note the importance given to ESG and sustainabiliy"
64
What are the minimum requirements under VPS3?
"1. Identification and status of the valuer
2.Client and other intended users.
3. Purpose of the valuation
4. Identification of the asset to be valued.
5. Basis of value
6. Valuation date
7. Extent of investigation
8. Nature and source of the information to be relied upon
9. Assumptions and special assumptions to be made
10.Restrictions for use, distribution and publication
11. Instruction undetaken in accordance with IVS standards.
12. Valuation approach and reasoning
13. Valuation figures
14. Date of valuation report
15. Comments on market uncertainty
16. Setting out the limitations on liability that have been agreed.
"
65
What is VPS 3?
Valuation Reports (IVS Reporting)
66
What advice does PS2 say on preliminary (draft) valuation advice?
"When providing preliminary advice or a draft report member must state that:
- The opinion is provisional and subject to completion of the final report.
- The advice is provided for the clients internal purposes only.
- Any draft is on no account to be published or disclosed.
- If any matters of fundamental importance are not reflected their omissions must be declared."
67
What is VPS 4 ?
"Basis of value
The valuer must determine the basis of value that is appropriate for every valuation to be reported."
68
What are the 6 definitions of value under VPS 4?
"Market Value
Market Rent
Fair Value
Investment Value
Equitable Value
Liquidation Value"
69
What is the definition of market value?
"The price an asset is expected to achieve should it be sold on the open market at the valuatiob date.
- On valuation date
- Willing buyer and seller
- Arms length transaction
- Proper marketing
- Where parties had acted knowledgeably, prudently and without compulsion."
70
What is the definition of market rent ?
"The estimated amount which an interest in real property should be leased:
- On valuation date
- Between a willing lessor and willing lessee
- In an arms legnth transation
- After proper marketing
- Where the parties had acted knowledgeably, prudently and without compulsion."
71
What is the definition of Fair Value?
"The price that would be receieved to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.
- This basis of valuation is now required if the International Financial Reporting Standards have been adopted by the client.
72
What is the measurement date ?
The date of the physical inspection of the property.
73
What is Investment Value ?
"The value of an asset to a particular owner or prospective owner for individual investment or operational objectives.
- This is sometimes used as a measure of worth to reflect the value against the clients own investment criteria "
74
What is Equitable Value ?
"The estimated price for the transfer of an asset or liability between identified, knowledgable and willing parties that reflects the respective interest of those parties.
- Not used in the UK."
75
What is VPS 5?
Valuation Approaches and Methods
76
What does VPS 5 outline ?
"Valuers are responsible for choosing and justifying their valuation approach and use of model.
77
What are the ten VPGAs?
"1. VPGA1 Valuation for inclusion in financial statements
2. VPGA 2 Valuation of interests for secured lending
3. VPGA 3 Valuation of business and business interest
4. VPGA 4 Valuation of individual trade related properties
5. VPGA 5 Valuation of plant and equiptment
6.VPGA 6 Valuation of intangible assets
7. VPGA 7 Valuation of personal property, including arts and antiques
8. VPGA 8 Valuation of real propery interests
9. VPGA 9 Identification of portfolios, collections and groups of properties
10. VPGA 10 Matters that may give rise to material valuation uncertainty "
78
What is a VPGA?
Valuation Practice Guidance Application
79
What is VPGA 1?
Valuation for inclusion within financail statements.
80
What does VPGA 1 outline ?
Fair value will be adopted for all IFRS accounts
81
What is VPGA 2?
Valuaition for secured lending
82
What does VPGA 2 outline ?
Dealing with conflicts of interest for secured lending valuations and reporting procedures.
83
Under VPGA 2 what examples of involvement may result in a COI?
"1. A longstanding professional relationship with prospective borrower or owner.
2. When the valuer will gain a fee from introducing the transaction to the lender.
3. If there is a financial interest in the property holding or prospective borrower.
4. When the valuer is retained to act in the disposal or letting of the completed development of the subject property."
84
Under VPGA 2 what is the procedures for dealing with a COI?
"1. Disclose to the lender - any previous / current / anticipated involvement
2. Previous involvement is defined as being in the past two years but can be longer in some circumstances..
3. If the valuer or client considered that a COI is unavoidable the instruction should be declined.
4. The valuer is responsible to accept/ refuse the instruction with regards to the ROC.
5. If the conflict can be managed this must be agreed with the client and recorded in writing within the TOE and valuation report."
85
What does VPGA 2 outline on reporting procedures ?
As well as the minimum requirements of a valuation report the valuer should be able to advice whether to agree to the loan or in the case of the borrower defaluts
86
What are the REPORTING procedures under VPGA 2
1)The valuer should advise whether to agree to the loan in the case the borrower defaults.
2) Must report if the property is suitable for mortgage purposes
3) Any circumstances which could affect the price.
4) Environmental considerations
5) Disclosure of any COI or arrangements agreed.
6) Special assumptions used - any material difference between the reported value with and without that special assumption."
7) Valuation methodology adopted.
8) Recent transactions of the subject property and the extent to which this has been relied upon.
9) Factors that may conflict with the definition of MV
10) Sustainability and having regard to its relavance within the report.
87
What is VPGA 8?
Valuations of Real Property Interests
88
What does VPGA 8 Outline ?
"Covers inspections and investigations with a particular emphasis on ESG and sustainability issues including the need to consider:
- Direct Valuation Factors (Storm/Floor Risk)
- Indirect Valuation Factors (resilience or carbon emissions)
- Physical risks (heat or wildfire)
- Transition Risks (regulatory change or carbon emissions)."
89
What is VPGA 10?
Matters that may give rise to material valuation uncertainty
90
What does VPGA 10 outline?
"1. A valuation report must not be misleading
2. The valuer should draw attention to and comment on any issues resulting in material uncertainty on the valuation.
3. A standard caveat should not be used."
91
What is Part 6 of International Valuation Standards 2017?
General standards = address matters such as terms of engagement, bases, approached and methods of valuation as well as reporting.
Asset Standards = which provide requirements relating to specific types of assets, such as real property and development property."
92
What is the latest UK National Suppliment ?
RICS Valuation - Global Standards (UK National Suppliment 2023).
93
What does this new UK suppliment set out?
Requirements for UK valuers for UK property
94
What are the five purposes of valuation under the UK VPS 3 ? (Regulated purpose valuations)
"1. Financial Reporting (Company accounts)
2. Stock exchange /inclusion in prospectuses and circulars
3. Takeovers and mergers
4. Collective investment schemes
5. Unregulated property unit trusts."
95
Are secured lending valuations regulated purpose valuations?
Secured lending valuations are not regulated purpose valuation as they are not relied upon by third party or the public interest
96
What are the valuation monitoring requirements ?
"Inspection by RICS professional regulation team now take place.
There is an annual declaration for all members who undertake regulated valuations. The length of time, purposes, extent and duration of the firms relationship with the client has to be outlined."
97
What other information has to be provided as part of valuation monitoring requirements?
"In the last financial year whether percentage fee income from the client is less or more than 5% of the total fee income - if more than 5% it must be disclosed to the nearest 5%
Whether since the end of the last financial year, this has changed or will likely change
Firms must have a policy in place on the rotation of valuers when the asset is regularly valued. RICS recommends a 7 year maximum rotation policy"
98
Under UK VPS 3 what are the rules for properties introduced or purchased by the valuers firm?
When a property is purchased or an introductory purchase fee accepted by the firm, it cannot be valued for regualted purpose valuation for 12 months by the same firm
99
What were the changes to the profits method in the new redbook?
Non exhaustive list of properties including self storage, flexible workspace and purpose build student housing.
100
Please can you tell me about the recent review undertaken into valuations?
Independent review of real estate investment valuations (Dec 21)
101
Who undertook the review ?
Peter pereia gray
102
Name a few items covered in this review ?
"Governance arrangements
Separation of valuation from advisory activities within firms in respect of the use of valuation data and instructions
Developing a time-specific, mandatory procurement and rotation process for valuers
Developing a Valuation Compliance Office role within firms"
103
What does the RICS Global Guidance Note “Sustainability and ESG in commercial property valuation and strategic advice” outline?
Provides a useful glossary of relevant terms and factors which valuers should incorporate into their valuation approaches.
104
What have the RICS referenced in relation to ESG? (document)
RICS Global Guidance Note “Sustainability and ESG in commercial property valuation and strategic advice” December 2021 (effective 31 Jan 2022)
105
What did Dunfermline Building Society V CBRE (2017) assume?
"An acceptable margin of error +/- 15%
Claim was dismissed as the MV was within the margin or error."
106
What is the margin of error?
The permissable range allowed by courts for example in resepct of a valuation.
107
What is the leading case for Margin or error?
"Singer & Friedlander Ltd V J. D. Wood (1977)
It held that the usual margin of error can be varied and it will be narrower for a relatively straightforward valuation case and wider for a more complex case"
108
What did K/S Lincoln and Others V CB Richard Ellis (2010) show?
"The principle of a 10% margin of error was reinforced in respect of a valuation of 4 hotels in 2005.
The judge stated that an appropriate margin may be +/-5% for a standard residential property but for a one-off commercial property +/-10% and if there are exceptional features of the property the margin could be +/-15%"
109
What is hope value ?
The value arising from any expectation that future circumstances affect the property may change
110
Can you give me two examples of when hope value would arise?
"1. Future prospect of securing planning permission for the development of land where no planning permission currently exists.
2. The realization of marriage value arising from the merger of two interests in land."
111
What is marriage value ?
Created by a merger of interest - can be physical or tenurial
112
How can marriage value be calculated ?
"Undertake a before and after valuation and calculate the level of marriage value created
Typical negotiated outcome is to split the marriage value created 50:50 or divide it pro-rata to the value of the individual interest"
113
What is stamp duty land tax?
It is the taxable payment by the purchaser in respected of the transfer of land and buildings (a progressive/incremental tax).
114
What are the STLD bands for residential property
"£0 - £250,000 = Nil
£250,001 - £925,000 = 5%
£925,001 - £1,500,000 = 10%
Over £1,500,00 = 12%"
115
How does SDLT apply to second homes and buy to let properties ?
"From april 2016 higher rates of SDLT to be charged on the purchases of additional residential properties.
Buy-to-let second home owners and limited companies pay a 3% surcharge on top of residential SDLT rates." (CHECK NEW BUDGET RULES)
116
What relief can first time buyers claim on SDLT?
"They can claim releif with a nil rate up to £425,000
5% on the portion from £425,001 to £625,000.
There is no relief if the price is over £625,000"
117
What is the land tax for Wales?
Land Transaction Tax.
118
What else can SDLT be payable on ? (Grant of new leases).
"New leases and premiums payable.
119
What is a surrender and renewal and how would you undertake the valuation?
"When the LL/T wants to surrender the existing lease and agrees to grant a new lease usually longer on different lease terms simultaneously.
Calculation of the premium to reflect the change in value of the leasehold interest. Need to value the before and after the leasehold interest
Understand Valuation Premiums"
120
What must be followed when doing a valuation for a charity?
"The requirements of the Charities Act 2011.
Two sets of changes:
- Changes that came into force on the 14th June 2023.
- Changes that came into force on 31st October 2022.
The charity commission requires the trustees of a charity to obtain a Section 119 of the Charities Act 2011 valuation when the charity is seeking to buy or sell property.
The valuer must follow the Acts requirements:
1. The surveyor must comment as to whether the purchase or sale is in the charity's best interest.
2. Reports must state whether terms agreed are the best that can be reasonably obtained for the charity.
3. UK VPGA 8 sets out advice in respect of the provision of valuation advice to charities.
Basis of the valuation must be MV or MR."
121
What is a Particular Buyer/ Special Buyer?
1. A particular buyer for whom a particular asset has a special value because of advantages arising from its ownership which would not be availabile to other buyers in the market.
122
What are Building Cost Reinstatement Valuations ?
"For building insurance purposes
The cost of the reinstatement of the building without profit."
123
How do you value long leasehold interests?
"1. Rent received less ground rent (Net rental income).
2. Capitalised at an appropriate tield for the remaining length of the lease.
3. Results in the MV of the leasehold interest "
124
What are purchasers costs ?
It is usual valuation practice to deduct the likely cost of purchase from the GMV to provide NMV of the property as a purchaser will have to pay these costs.
125
What costs do purchasers have to pay ?
"1. Stamp Duty
2. Agents Fees - (1% of the purchase price)
3. Solicitors Fees - (0.5% of the purchase price + VAT)."
126
How is a ransom strip of land valued
The Upper Tribunal (Lands Chamber) assesses each case on its own facts
127
What is the key case law for ransom strip valuation ?
Stokes V Cambridge (1961) - when a value of one third of the uplift in the development site value was awarded to the owner of the ransom strip
128
What legislation applies to party walls?
"Party Wall Act 1996
Provides a framework for resolving disputes in relation to party walls, boundary walls and excavations near neighbouring buildings."
129
What is the RICS guidance on rights of light ?
RICS Guidance on Rights of Light 2016
130
What is the right to light ?
The right to light of a building arises after 20 years of uninterupped enjoyment of light without consent of a third party by way of an easement with a prescriptive right.
131
What is the RICS Advice for home-owners on Rights to Light ?
RICS Consumer Guide to Right to Light Published in April 2022 for homeowners.
132
What is the RICS Valuer Registration Scheme?
RICS introduced a regulatory mandatory scheme for all valuers carrying out redbook global valuations from October 2011.
133
How does the RICS monitor the VRS?
Through the submission of the firms annual returns.
134
What is needed to register for VRS?
"Type of valuations
Purpose of valuations
Number of valuations
Firms total fee income from Red Book Global Valuations in the last year
What sources are used
Quality assurance procedures in place
History of any negligence claims and notifications."
135
What are the aims of VRS?
"1. To improve the quality of valuation and ensure the highest possible professional standards.
2. To meet the RICS requirement to self regulate effectively
3. To protect and raise the statuse of the valuation profession as the leading expertise in valuation."
136
What is the other key information for VRS?
"Registration is not mandatory for valuation work excluded from the red book global.
Members are only eligaible if they have completed APC vals to level 3 or subsequently qualify for registration.
Annual Fee payable to the RICS upon registration."
137
What is the definiation of market value if valuing for inheritance tax purposes ?
The price it might reasonably be expected to fetch if sold in the open market at the date of the death of the owner.
138
What is included on an inspection proforma?
"Address/ weather/ inspection date.
Inspection circumstances
Construction of the property
Outside space/parking
External/internal conditions and specifications."
139
Please can you give me an example of an assumption ?
Assuming that the property is connected to mains supply
140
What is a yield ?
A measure of investment return expressed as a percentage of capital invested
141
What are the risks considered within a yield ?
1) Lease terms
2) obsolescence
3) voids
4) security
5) liquidity
142
What is a True Yield?
Assumes rent is paid in advance not in arrears( traditional valuation practice assumes rent is in arrears.
143
What is a Nominal Yield?
Initial yield assuming rent is paid in arrears
144
What is a Gross Yield?
The yield adjusted for purchasers costs
145
What is a Net Yield ?
Is a return on an investment after subtracting all purchasers costs
146
What is an Equivalent yield ?
The average weighted yield when a reversionary property is valued using an initial and reversionary yield.
147
What is an Initial Yield?
Simple income yield for current income and current price.
148
What is a reversionary yield ?
Market rent divided by current price on an investment let at a rent below MR
149
What is a running yield?
The yield at one moment in time?
150
Why does care need to be taken for auction results when collecting comparable evidecne?
There maybe special purchasers or insolvency sale.
151
What is a yield ?
Measure of investment return
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How is a yield calculated?
Income/ Price x 100
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What is YP?
The number of years required to repay its purchase
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What is a reversionry property?
One let under market rent
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When could you use an ARY?
Multi-let properties where it would be difficult to accurately predict void costs and abnormal costs
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What are the International Valuation Standards
The International Valuation Standards (IVS) are standards for undertaking valuations that promote transparency and consistency in valuation practice
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Please talk me through your investment approach ? (Industrial Wiltshire)
As the property was owner occupied, i initially attempted to value the property using comparable evidence.
However, with a lack of VP comparables within the surrounding area I adopted a hypothetical investment approach.
I first established the market rent through analysing recent lettings transactions within the same industrial estate and capitalised this into perpetuity using an appropriate capitalisation rate (reversionry yield) that I established using comparable evidence and considering the type of occupier likely to occupy the property.
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(Industrial Wiltshire) how did you arrive at a suitable capitalisation rate?
1) Comparable evidence of recent transactions
2) consider the likely occupier
3) gauge market sentiment
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(Industrial Wiltshire) What reasoned advice did you give your client?
Based on the strong value of the property and the sentiment in the market I advised the client that the property was suitable for loan security purposes.
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(Retail bristol) How would you zone a property ?
1) Zoning is a valuation technique used to value retail property
2) The rationale is that the rental value reduces away from the frontage.
3) It works using the using the halving back principle which sees the ITZA halve as you move back a zone (20 ft zone).
4) you establish ITZA through comparable evidence.
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(Retail bristol) Did you consider using zoneing?
I did however, as the property was located within a tertiary location the majority of the comparable evidence in the area was provided on a rate psf.
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(Retail bristol) Why did you value this property in perpetuity when there was a lease event in three years?
This was a drafting error.
I used term and reversion and valued the term until the lease event using an appropriate capitalisation rate that I established through comparable evidence.
Then I allowed for a 6 month void and capitalised the reversion using a capitalisation rate adjusted for greater risk.
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What is a typical industrial site area?
40%
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How do you choose a suitable capitalisation rate ?
I usually target an appropriate yield profile identified through comparable evidence whilst also considering the potential occupier.
