Valuation Flashcards
(124 cards)
1
Q
What is the Redbook?
A
Set of global standards which set out procedural rules and guidance for written valuations.
2
Q
What is the full title of the latest red book?
A
RICS Valuation - Global Standards 2022 / RICS Valuation - Global Standards 2025
3
Q
Explain Special Purchaser
A
VPS 4 Basis of Valuations - Where a particular asset has special value to a particular purchaser because of advantages arising from its ownership that would not be available to other buyers in a market.
IRC V Clay (1914)
4
Q
What is an Internal Rate of Return (IRR)?
A
Applies to DCF. A discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.
5
Q
What is the purpose of the Red Book?
A
Greater consistency, objectivity and transparency in written valuations
COT
6
Q
Why has the red book been updated?
A
Because the IVS (international Valuation standards) are updated on a rolling program every 2 years new IVS 2024.
Red book needed minor updates to stay aligned with IVS 2024
To increase focus on sustainability and ESG.
More focus on AI and automated valuation models.
7
Q
What does ESG stand for?
A
Environmental, social and governance
8
Q
Who creates the International Valuation Standards?
A
Valuation professional organisations such as RICS and the American Society of Appraisers.
9
Q
Professional standard 1 in the red book is about?
A
Compliance with standards where a written valuation is provided
10
Q
Professional standard 2 in the red book is about?
A
Ethics, Competency, Objectives disclosures (ECOD)
11
Q
Any accepted departures where the valuer may not follower the VPS?
A
Agency marketing appraisal
Litigation (rent review)
Internal purposes only
Expert witness valuation
Statutory basis
(ALIES)
12
Q
What are the terms of engagement?
A
Contract with the client detailing the work assignment, can be used as an important defence against negligence claims.
13
Q
Professional Standard 1 changes
A
It must be clear and unambiguous within the terms of engagement if members are to apply any exceptions to VPS 1-5 under PS 1.
Red book compliance is binary. Valuation is either a Red Book valuation or it is not. No more partial red book.
14
Q
What is market value?
A
Estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
15
Q
What is market rent?
A
Estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.
16
Q
Define investment value?
A
Value of an asset to a particular or prospective owner for individual investment or operational objectives.
17
Q
What is fair value?
A
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Applies only to financial statements
18
Q
What do understand about synergistic value
A
Defined in VPS 4.
Synergistic value is the result of a combination of 2 or more assets where the combined value is more than the sum of the separate values.
19
Q
What are the three valuation approaches described in VPS 5?
A
M - Market
I - Income
C – Cost
MIC
20
Q
what is the market approach as per VPS 5?
A
Based on comparing the subject asset with identical or similar assets or liabilities, where price information is available, and you can compare similar market transactions within an appropriate time period.
I.e. The comparable method
21
Q
What does VPS 1 relate to?
A
Terms of Engagement
22
Q
What does VPS 2 relate to?
A
2022: Inspection
2025: Bases of value
23
Q
What does VPS 3 relate to?
A
2022: Valuation reporting and methods
2025: Valuation approaches and methods
24
Q
What does VPS 4 relate to?
A
2022: Basis of valuation
2025: Inspections, investigations, and records
25
What does VPS 5 relate to?
2022: Valuation approach
2025: Valuation models
26
What does VPS 5 relate to?
2025: Valuation reports
27
Name at least 10 headings you would expect to find in a terms of engagement
1) Identification and status of valuer.
2) Identification of client
Identification of any other intended uses.
3) Identification of asset or liability being valued.
4) Valuation currency.
5) Purpose of the valuation.
6) Basis of value adopted.
7) Valuation date.
8) Nature and extent of the valuer’s work.
9) Investigations and limitations
10) Nature and source of information which the valuer will rely.
11) All assumptions and special assumptions to be made.
12) Format of report
Restrictions on use, distribution and publication of report.
13) Confirmation that the valuation will be undertaken in accordance with the IVS.
14) Basis on which the fee will be calculated.
15) For RICS regulated firms, reference to complaints handling procedure.
16) A statement that compliance with these standards may be subject to monitoring under RICS conduct and disciplinary regs.
17) Statement setting out agreed limitations.
28
Name at least 10 headings you would expect to find in a red book valuation report
1. Identification and status of valuer
2. Identification of client and other intended uses
3. Purpose of valuation
4. Identification of asset or liability to be valued
5. Basis of value adopted
6. Valuation date
7. Extent of investigation
8. Nature and source of information relied upon
9. Assumptions and special assumptions
10. Restrictions on use, distribution and publication of report
11. Confirmation the assignment is in accordance with the IVS
12. Valuation approach and reasoning
13. Valuation amount
14. Date of valuation report
15. Commentary on any material uncertainty in relation to the valuation
16. Statement setting out any agreed limitations on liability
29
What would be in Terms of Engagement but not in the Valuation Report?
Fees
30
What's the income approach based on?
Capitalisation or conversion of present and future incomes to a single capital value. Two methods:
1.) Capitalisation of a conventional market based income.
2.) Discounting a income projections
E.g. investment and profits method
31
What is the cost approach based on?
Gives an indication of value using the economic principle that a buyer would pay no more for an asset than the cost to get an equal asset by construction or purchase. E.G. Residual method and Depreciated replacement cost method.
32
What is the document “RICS Sustainability and ESG in commercial property valuation and strategic advice?
A Professional Standard released in 2023.
Covers definitions of ESG, role of sustainability and the role of the valuer.
Explores sustainability characteristics, considerations and risk
33
Have there been any valuation reviews conducted recently?
Yes, Peter Gray’s independent review of real estate investment valuations in December 2021.
34
Can you name two recommendations commissioned by RICS, standards and regulation board following Gray’s independent review of real estate investments?
I - Independent panel
C - Creation of compliance officer
E- Expectation of culture and behaviours
A.K.A ICE
35
Not including the red book are there any other RICS documents on valuation standards?
RICS valuation – global standards UK national supplement
The UK national supplements the Global Red Book for valuations subject to UK jurisdiction.
36
How do you execute a valuation using the comparable method?
1. Look at subject property (sale and letting evidence)
2. Select comps (verify info)
3. Analyse comps
4. Display comps and subject in summary matrix
5. Value property
6. Stand back and look
LSA-DVS
37
Why do we make adjustments to comparables when valuing using the comparable method?
To express the comparable in like terms to the subject.
E.g. if the comparable has a poorer location the valuer attempts to estimate how much more the property would have sold for had it been in the same position as the subject property.
38
How do you analyse comparables?
Review price per area rate.
Display key findings in a table.
Research if the transaction is open market, transaction amount, size, location, date of transaction, specification, condition and layout
39
Did you provision affordable housing in your Residual valuation?
No.
The Affordable Housing contribution threshold for residential development sites is for residential sites of 11 units or more.
40
What was the GDV of the bungalow appraisal?
£600,000 - one detached two bedroom in good condition.
41
What costs did you deduct for the bungalow valuation?
- Build costs off BCIS,
- Profit 15% - 15-20% is quoted in Valuation of Development Property Professional standards - 1st edition October 2019
- CIL - community infrastructure levy - charge authorities can place on new developments to raise funds to help fund infrastructure.
- Risk of no planning 10%
- Contingency - 7.5% - RICS guidance 5-10%/
- Marketing costs and fees - 1% of GDV
- Professional fees 7.5% - guidance suggests 10-15% but single site scheme and based on similar developments in the area.
- Finance - Assumed 100% debt financed on a straight-line basis using compound interest over length of development at 6% - BoE rate plus 1%
- SDLT - Assumptions
- Purchasers Costs 2% - standard for market
- Sensitivity used on construction costs / sales
- Deduct costs from GDV for land value.
42
Tell me about the profits method of valuation?
* Used for valuing trade related properties in markets where there is a monopoly position
* Used where the value of the property depends on the profitability of the business and trading potential
* Used for pubs, petrol stations, hotels, day nurseries, leisure and healthcare properties.
* Basic principle is the value of the property depends on the profit generated from the business not the building or location.
* Need accurate accounts for 3 years if possible
43
What is the term and revision technique and what are the steps to carry it out?
An Investment method of valuation used for reversionary investments where the subject is under-rented.
1. capitalise passing rent using YP at discounted yield for remaining years
2. capitalise reversion using market rent into perp using YR at full market rate discounted using present value.
3. Add together
4. Stand back and look
44
Talk me through the steps of valuing a over rented shop from start to finish.
* Establish market rent by comparable analysis
* Establish passing rent by reviewing the lease
* Establish market yield using comparables and risk analysis
* capitalise Market rent into perpetuity using market yield
* capitalise top slice (rental amount above market rent) until next review if rent can go down or lease end if not, using market yield uplifted to reflect risk.
* Add together hardcore and top slice.
* Stand back and look
45
Describe how a hardcore and top slice valuation technique graph would look?
* Hardcore layer of market rent along whole of x axis
* Horizontal Top slice of amount of excess rent on top that starts from the onset.
46
What valuation technique might you use to value a shop that is under-rented?
Term and reversion
47
Name five factors that can affect a yield
Risk
Growth potential
Quality of location
Quality of covenant
Property use
Lease terms
Voids
Liquidity
Obsolescence / Repair
48
How can you check the covenant of a tenant?
Dun and Bradstreet report
49
Why would a surveyor complete a discounted cash flow?
For a new property where growth is not yet stable.
New project where occupancy is not at peak levels.
To establish the internal rate of return.
To consider each rental growth separately.
SORG
Stable. Occupancy. Return. Growth
50
What can a DCF look like, talk me through the different parts it will have?
* Time period on left hand side
* Net income (rent)
* YP @ cap rate (exit rate)
* Growth rate £1 @ say 2%
* Discount rate PV £1 @ 10%
* DCF total
* Remark/comment section at end
51
Talk me through the steps of valuing an over rented shop from start to finish.
-Establish market rent by comparable analysis
-Establish passing rent by reviewing the lease
- Establish market yield using comparables and risk analysis
-capitalise Market rent into perpetuity -using market yield
capitalise top slice (rental amount above market rent) until next review if rent can go down or lease end if not, using market yield uplifted to reflect risk.
-Add together hardcore and top slice.
-Stand back and look
52
How would you carry out a DRC or contractors?
ERC - modern equivalent
Depreciate for age and obsolescence (functional, technical + economic) - flat roof
Add land value
Depreciate at statutory decap rate for rating valuations (4.4% or 2.6% for health)
Stand back and look - adjustments if necessary
53
How would you carry out an investment method of valuation?
* Establish if property is over or under rented
* If it is under rented complete a term and reversion
* Capitalise passing rent using YP at discounted yield to end of term
* Capitalise market rent into perpetuity using yp at market ratee
* Add together
* Stand back and look
CCAS
54
What is YP?
Years purchase is the number of years it would take for the annual income to pay for the value or purchase price of the property.
55
What does VPGA stand for?
Valuation practice guidance applications
56
Are you aware of any VPGA’s
VPGA 4 - Profits valuations
VPGA 8 - Real property interests
VPGA 15 - Capital taxation
VPGA 16 - Compulsory Purchase Orders
57
Can you run me through how you would do a profits valuation
Obtain 3 years accounts showing income, purchases, expenses
Determine fair maintainable turnover (for a reasonable occupier)
Deduct costs and expenses to calculate Fair maintainable operating profit FMOP
CAPITAL VALUE = FMOP X YP
RENTAL VALUE = FMOP = Divisible balance (50/50 Landlord and tenant)
58
What is fair value?
Amount which would be paid for an asset or to transfer a liability in an orderly transaction between market participants at the measurement date.
59
What is marriage value?
The increase in the value of the property following the completion of the lease extension, reflecting the additional market value of the longer lease.
Difference between old value and new value is split 50:50 between landlord and leaseholder
60
What is functional obsolescence?
Where design or specification of the asset no longer fulfils its purpose.
61
What is economic obsolescence?
Due to changing market conditions for use of the asset.
62
What is physical obsolescence?
Result of deterioration/wear and tear over the years.
63
What is professional scepticism?
Having a questionable mindset in regard to information and evidence.
PS 2
64
Who is to be named in a Red book report?
Anyone with a material supporting role in the valuation
65
Name the guidance note for comparative valuation methodology
Comparable evidence in Real Estate Valuation (1st edition) 2019
66
What different yields are you aware of? Name and describe at least 3
All risks yield - reflects all risks, returns and growth
Initial yield - ARY applied to passing rent
Gross initial yield - yield on investment before deducting expenses
Net initial yield - yield on investment after deducting annual expenses. Expressed as a percentage of capital value plus purchaser costs (used in hardcore and top slice)
Reversionary Yield - applied to the reversion (market rent) to reflect risk. Yield that should be achieved if passing rent adjusts to market rent
Equivalent yield - weighted average between term and reversion (used in hardcore and layer institutional market)
Equated yield - internal rate of return with explicit growth
67
What is a yield?
Yield refers to the earnings generated and realised on an investment over a particular period of time and is expressed asa percentage based on the invested amount.
Income/price x 100 = yield
Basically what is the return for the investor after say 1 year
68
What is included within the global Red Book?
Professional standards (PS) 1 & 2 which are MANDATORY
Valuation technical and performance standards (VPS) 1-5 which are MANDATORY
Valuation Practice Guidance (VPGA’s) 1-10 ADVISORY
69
What professional fees are considered in a residual valuation?
Costs related to the hard construction costs of the scheme
May include environment/planning consultant, architect, QS, Civil engineer, Mechanical and electrical engineer and project managers.
They vary depending on the complexity of the development.
70
What is the difference between gross & net yield?
Gross yield is when the total rental income divided by the capital of the property without accounting for purchaser cost, whilst net yield will include purchaser cost such as SDLT and legal fees. Typically 5.8% of Gross Yield
71
What is a discount rate?
Rate of interest selected when calculating the present value of a future cost or benefit.
72
Define what a Basis of value is?
Set of assumptions that guide how a valuation is done
73
Define what a method of valuation is?
The techniques and approach that a valuer will carry out to value a property or land interest.
74
Do you undertake any environmental checks before valuing?
Yes
Ground contamination
Previous site use
Asbestos
Flood risk
Overhead power lines
Invasive species
75
If you were to value a multi-let office how would you approach that?
Investment method – establish MR and PR and calculate values using term and reversion or hardcore approaches.
Cross-check with comparable method
DCF also good approach as can manipulate different icnomes as appropriate
76
Would your valuation change if the interest was held leasehold as apposed to freehold?
Depends on the situation.
The price difference between a long leasehold vs freehold may not be substantial but the price difference between a short leasehold vs freehold property can be extremely significant.
The same property, in the same location, is likely to be more expensive if it is sold with a freehold title than if it is sold with a leasehold.
77
What is hope value and how would you reflect in a valuation?
An element of market value in excess of the existing use value, reflecting the prospect of some more valuable future use.
Could be reflected by an uplift in the £ per acre dependant on the likelihood of a new alternative use becoming more certain.
Palliser v HMRC (2018)
78
What is Estimated realisation price?
Estimated Realisation Price”, (“ERP”) a basis of valuation to be used solely for loan valuation purposes.
ERP is identical to OMV in representing an exchange price in the market place, but it differs on a number of points, two of which are fundamental.
79
When can you take account of hope value?
Can be included in OMV if it would have been known to someone in open market.
80
What does a RICS HomeBuyer Survey include?
Inspection
Concise report based on inspection
Valuation
81
Where would you find guidance for uncertainty in valuation?
Cat A - direct
Cat B - general market data
Cat C - other sources and different property types
82
What guidance is there on DCF?
RICS DCF information papers (2023)
RICS aim to support use of DCF but traditional still used
83
When could you adopt the DCF approach?
When there are multiple income streams and rent reviews.
when you want to show explicit inputs
Can be used for appraisal purposes to calculate worth / INV value
84
Can you explain a typical DCF calculation?
Break the rent into income streams
apply growth by % to income stream
capitalise at a YP deferred by amount of years until the income is recievable
then apply PV multiplier to bring back to valuation date
total of NPVs is value or worth
85
What are some pros and cons of DCF?
Pros:
more info provided
cross investment analysis
specific cash flow issues can be considered
transparency
Cons:
Don't always have info to complete DCF.
Not widely used yet
86
Why should a property with a shorter unexpired term be adjusted downwards?
Typically the shorter the lease term the lower the value, because it is further departed from owning the freehold or virtual freehold of the property. The lease term refers to the amount of years the property is in your possession so the shorter the lease term the sooner you would lose possession of the property.
87
Why did you use Savills Analysis of Relativity?
Sloane Stanley Estate v Mundy (2016) - Relatively recent table
88
How would a landlord gain VP from the L&T Act 1954?
s.30 L+T Act 1954
a) breach of repairing covenant
b) Persistent delay in paying rent
c) Breaches of other obligations
d) Availability of alternative accommodation
e) possession required for letting or disposing of whole of property
f) Landlord intends to demolish or reconstruct
g) Landlord intends to occupy the premises themselves
89
What is AVM and what is the RICS view to it?
Introduced VPS 5 - Valuation models as part of new Red Book (2025). No model without the valuer applying professional judgement can produce an IVS compliant valuation
90
What are assumptions and special assumption?
Assumptions: Reasonable for the valuer to accept that something is true without the need for specific investigation or verification.
Good title
Clearly state that the inspection will not amount to a full building survey. Assume building is in good repair aside for any minor defects specifically noted
Services are functional and free from defect.
Special Assumption - Made by the valuer where an assumption either assumes facts that differ from those existing at the valuation date, or that would not be made by a typical market participant in a transaction on that valuation date.
Must be expressly agreed and confirmed in writing
- Works had been completed after permission to develop land
- Anticipated change in mode and category
- Where property has been damaged (insurance claims)
91
Name 5 things you would include inline with VPS 3 (Valuation Report) that wouldn't be in VPS 1 (ToE)?
* Opinion of Value
* Market Commentary
* Property Description
* Material uncertainty
* Sources relied upon
* Limitations on liability
* Anyone involved in case
92
What are the 3 steps to consider before a valuation?
Competence
Independence
Terms of Engagement
93
Talk me through your DRC valuation of the police custody suite for rating?
GPCR - Owners, occupiers, or agents identify a valuation scheme they wish to challenge.
Five steps:
1) Estimated Replacement Cost
Location factors 1.14 for Kingston
2) Age and obsolescence scale in rating manual a percentage of 58.5% to reach an Adjusted Replacement Cost.
3) Land value - developed land measured at 1 hectare agreed as part of GPCR at £10,500,000.
4) Decap rate - 4.4% - specified in legislation at each revel
5) End adjustments - not required
94
What is the assumption for DRC and what is the latest guidance?
Market will pay no more for the existing property than the amount it would pay to buy an equivalent site, plus the cost of constructing an equivalent building.
Establish estimated replacement cost for land and buildings with a modern equivalent, before making deductions for depreciation and obsolescence.
Contractor's Basis of valuation for rating purposes (2023)
95
Name some things you'd fine on an inspection template that is VPGA 8 compliant?
VPGA 8 -
Characteristics of locality and surrounding area
Age construction and nature of building
Accessibility
Fixtures and fittings and improvements
Potential for redevelopment
Sustainability
96
Tell me about your IHT valuation for the three-bed property in Tooting?
- Mid terrace Edwardian era
- Inspected and measured to GIA, noting value significant factors.
-Next door boarded up and derelict
-Required modernisation (original features remained), split bathroom with a disabled friendly bath.
- Three comps on same street - two similar condition but no split bathroom/disable features/next door not derelict were valued at £680,000 - £690,000
- Valued subject in line with this at £660,000
-Negotiation, agreed £650,000 with exec
97
Tell me about the Term and Reversion valuation for the ground floor retail in Islington?
- Capitalised the passing rent to the next lease event using YP at a yield discounted from market rate - 6%
- Capitalised reversion using market into perpetuity using a YP from market rate. 6.5%
- Added together and stood backed and looked
98
If you had adopted a softer yield of say 8%, how would this have affected your valuation?
A higher yield indicates a riskier investment and therefore the capital value would have been lower.
99
Why did you adopt a yield of 6% for this term and reversion?
The comparables showed a range of 5.5% - 7% gross yield. The subject had a longer unexpired term than some of the comparables, but in an inferior part of the parade than the others, hence why I adopted a sharper yield. I increased this by .5% for the reversionary to reflect for the increased risk of the unknown.
100
Why did you use Gross Yields?
IHT valuation - Duke of Buccleuch v IRC (1967) - sets out that the price the property might reasonably be expected to fetch was defined as the gross sale price for the property without deducing any selling costs.
101
Tell me about your Red Book lease extension in Reading?
- Confirmed competence - could carry out valuation under supervision of registered valuer.
-Issued ToE
- Inspected and measured in line with VPS 2 and IPMS 3B
Valued long lease
-- Assessed how long was left on lease - 80 years 6 months - approaching marriage value.
- Comparables of flats also on long leases - stand back and look
- Valued flat as if it was on a long lease then adjusted using Savills graph of relativity table. £240,000 - 91% - advised Registered valuer of value of £215,000 short lease.
- Comparables of flats also on short leases.
102
How did you calculate the leasehold premium to extend?
- Capitalised Ground rent for the remaining lease years @ 7% as set out in Leasehold tribunal service.
- Deferred the freehold vacant possession at 5% for the length of the term - Sportelli case law.
- I then calculated the value of the landlords interest after the granting of a new lease by deferring the future interest for an added 90 years at 5% and deducted this off of the existing freehold value.
- No deduction for marriage value required.
£5100 freeholders share.
103
What is the Sportelli case?
Landmark ruling in leasehold enfranchisement, established a deferment rate of 4.75% for houses and 5% for flats.
104
Tell me about the Residual valuation in East Acton?
Comparable valuation
- Used EIG to source transactional evidence of garages/land with approved planning for residential conversion
Residual valuation
-Established GDV using comparables of sold bungalows in good condition, adjusted and analysed.
Deducted for costs:
- Build costs off BCIS
-Profit 15% - 15-20% is quoted in Valuation of Development Property Professional standards - 1st edition October 2019
- CIL - community infrastructure levy - charge authorities can place on new developments to raise funds to help fund infrastructure.
- Risk of no planning 10% - Spence v Cobrin (2005)
- Contingency - 7.5% - RICS guidance 5-10%
- Marketing costs and fees - 1% of GDV
- Professional fees 7.5% - guidance suggests 10-15% but single site scheme and based on similar developments in the area.
- Finance - Assumed 100% debt financed on a straight-line basis using compound interest over length of development at 6% - BoE rate plus 1%
- SDLT - Assumptions
- Purchasers Costs 2% - standard for market
- Sensitivity used on construction costs / sales
Deduct costs from GDV for land value.
105
What are the disadvantages of the comparable method/
Can be difficult to establish a reliable valuation in a rapidly moving market
Limited or infrequent transactions
Lack of up-to-date evidence
Special purchasers
Lack of similar or identical evidence
Lack of market transparency
106
What does the Comparable Evidence in Real Estate Valuation (2019) set out that comparables should be?
1) Very similar
2) Arm's length
3) Verifiable
4) Result of underlying demand
5) Comprehensive - several comparables
107
What comes under Cat A/B/C in the Comparable Evidence in Real Estate Valuation (2019)?
Category A: Direct comparables of contemporary:
- Completed transactions of near identical with full and accurate details
- Completed transactions of similar with full and accurate details
- Completed transactions of similar but without full but enough details
- Similar properties being marketed with offers but no binding contract
- Asking prices (with careful analysis)
Category B: General market data
- Information from public sources,
- Other indirect evidence such as indices
- Historic evidence
Category C: Other sources
Interest rates and stock markets - give indication of real estate yields.
108
What is the hierarchy of evidence?
1: Open Market Lettings
2: Lease Renewals
3: Rent Reviews
4: Third Party Determinations
5: Sale and Leasebacks
6: Inter-Company transactions
109
What is a ransom strip?
Is a parcel of land which in some way restricts the development of another parcel of land.
A ransom strip is an area of land which provides the key to unlock the development potential of adjacent land.
How is such a ransom strip - often only a small area - to be valued? The answer is "one-third of the increase in value of the adjacent land provided by the ransom strip" in accordance with Stokes v. Cambridge Corporation (1961)
110
What are some of the proposed changes under the Leasehold and Freehold Reform Act (2024)/
Standard lease extension term to 990 years
Removing marriage value from the premium calculation for extension
Making it easier for leaseholders to take over the management of their building
March 2025 update - reinvigorate commonhold and make it default tenure for new build flats.
111
How do you qualify as a tenant for a lease extension?
Long lease - at least 21 years - s.7 of the 1993 Act
No subtenancy which is also a long lease
The tenant has held the lease for at least two years, and owns fewer than three flats in the relevant premises
Westbrook Dolphin Square limited - lessee of 1229 flats - created 612 companies and granted 1223 sub-leases - became qualifying tenants
112
What is an ATED?
Annual Tax on Enveloped Dwellings - Taxation on residential properties owned by buildings
113
Other changes in Red Book (2022 to 2025)
Stronger ESG integration - consideration of Environmental Social and Governance (ESG) factors is now mandatory at every stage of the valuation process, including inspection, investigation recording, and report. Revised ESG definition and new guidance have been added
New ESG definition
States that ESG criteria form a framework for assessing how sustainability and ethical practices impact a company's financial performance and operations
Emphasis three core pillars - environmental, social, and governance
Expands on ESG considerations in valuation, particularly for commercial property:
Integrates sustainability related risks such as physical climate risks - e.g flooding, storms, etc)
Enhanced Role of Technology
Use of AI, automated valuation models (AVMS), and advanced technology is acknowledged, but professional judgment remains essential when using these tools.
114
Did you carry out a sensitivity analysis on your residual valuation?
Yes - to allow for fluctuations in construction costs as well as sale price.
115
You mention BCIS, what is this?
Building Cost Information service - source of construction costs etc.
Free but limited use without subscription.
116
Can you tell me what are the methods of valuations?
P - Profits
R - Residual
I - Investment
C - Comparable
C - Depreciated Replacement Cost (Contractors)
117
What is the difference between a development appraisal and residual valuation?
Development Appraisals are used to determine whether profit levels are obtained at an acceptable level whereas Residual methods are used to determine market value.
118
Are you aware of the hierarchy of evidence?
Yes - Cat A / B/ C
Open Market Letting
Lease Renewal
Rent Review
119
What is a Group Pre-Challenge Review?
GPCR - Owners, occupiers, or agents identify a valuation scheme they wish to challenge.
120
How did you come to the conclusion that this property required modernisation?
Original features in places. Visibly tired.
121
What yield did you adopt for Islington investment valuation and why?
Gross Yield - IHT so all costs included.
Adopted 6% for term. The comparables showed a range of 5.5% - 7% gross yield. The subject had a longer unexpired term than some of the comparables, but in an inferior part of the parade than the others, hence why I adopted a sharper yield. I increased this by .5% for the reversionary to reflect for the increased risk of the unknown.
122
What do you consider when ascertaining the yield?
Market evidence.
Tenant covenant strength.
Risk - how like is the tenant going to default.
Lease terms.
Voids.
Use.
Property specific / wider market.
123
How can you check covenant strength?
Dun and Bradstreet - A report to advise on covenant strength. Two scales with ranks.
124
What was your fee basis for your Red book report?
Fixed fee agreed with client for lease extension reports. I contributed 4 hours towards it at £94 p/h
