Valuation Flashcards
1
Q
Regarding the Leamington Spa development, what did you include within your ToE?
A
Included terms set out in previous version of the red book from VPS 1 (a - r)
Proceeded with instruction when ToE was signed by both parties
2
Q
How did you calculate the GDV?
A
Adopted comparable method of valuation
Searched for finished converted barns within 10 mile radius
Made adjustments to comps based on size, number of bedrooms, location + specification, in line with hierarchy of comparable evidence
Compiled evidence in excel spreadsheet + arrived at opinion of Market Value
3
Q
Talk me through your valuation at Leamington Spa
A
After inspecting property, carried out comparable analysis to determine the GDV of the property on the special assumption was complete
Then subtracted the outstanding build costs provided by the borrower, contingency, professional fees, acquisition costs, disposal costs + profit from GDV to arrive at opinion of MV
4
Q
What were the inputs to your valuation in Leamington Spa?
A
GDV
Build costs + contingency
Professional fees
Acquisition fees
Disposal fees
Finance
Developers’ profit
5
Q
What build costs did you adopt and why at Leamington Spa?
A
Adopted remaining build costs provided by borrower - checked against BCIS (slightly higher which reflected modern spec)
+ 10% contingency allowance on build costs to reflect unforeseen circumstances
6
Q
What professional fees did you adopt?
A
Would normally adopt 10-15%, however adopted 8% of build costs
Reflected that some professional fees would have already been expended
We assumed this included warranties
7
Q
What acquisition fees did you adopt?
A
1% agent fees
0.5% legal fees
SDLT
8
Q
What disposal fees did you adopt?
A
1% sales agent fees
0.25% sale legal fees
9
Q
What project timescales did you adopt?
A
Pre construction - 1 month
Outstanding construction period - 3 months
Sale period commencing at end of construction - 6 months
10
Q
Did you consider the S-curve?
A
Yes - adopted an S-curve pattern of spend in terms of cost + finance draw-down, with the predominant costs being expended in the middle of the build period
11
Q
What was your advice with regards to contingency at Leamington Spa?
A
Adopted 10% to reflect unknown risks
12
Q
Were you concerned about build costs at Leamington Spa?
A
No because I checked the outstanding costs with BCIS + were broadly in line despite being slightly more expensive (this reflected the high spec)
13
Q
What did you recommend as the potential profit for this model at Leamington Spa?
A
15% of GDV
Reflected planning consent had been obtained, the level of GDV + substantial part of development works had already been completed
14
Q
What profit would you normally adopt?
A
15 - 25% of GDV
15
Q
What are typical finance costs for a scheme in your submission at Leamington Spa?
A
16
Q
When did you undertake the valuation for Leamington Spa?
A
October 2024
17
Q
For your Leamington Spa example, what finance rate did you adopt? And what would the finance rate be today?
A
Adopted 8%
Have regular conversations with bank who is one of my client, who
18
Q
Did you complete a sensitivity analysis at Leamington Spa?
A
19
Q
Did this impact on your advice at Leamington Spa?
A
20
Q
Who was your client for this example at Leamington Spa?
A
They are a well known bank
21
Q
Did you cross check your valuation with any other method?
A
Would normally cross check with comparable method
However, as development was part way through, could not compare with any other developments
22
Q
Talk me through your advice at Leamington Spa
A
Advised my client of the MV of the property (£2m)
Advised that my property was suitable for loan security purposes
Advised client to monitor + verify outstanding build costs with building surveyor throughout remainder of project
23
Q
Why was your advice for the valuation at Leamington Spa good advice?
A
Recommended building surveyor to provide ongoing assessment to ensure costs remain accurate, viable + are broadly in line with market rates
Regular monitoring would ensure that project remains viable + security of value is maintained
24
Q
Talk me through your valuation for the apartments in Nottingham
A
Adopted investment method as property was income generating + considered it would be most likely purchased as an investment
Searched for recent lettings in area to provide an opinion of MR (used lettings at subject property + similar apartment block opposite but had parking facilities + waterside location)
To calculate MV, searched for recent investment sales of comparable schemes + established a GIY of 7%
Capitalised passing rent into perp at 7% to arrive at MV (£2.4m)
25
How did you decide on an appropriate yield for the Nottingham apartments?
Adopted GIY of 7%
Extended search to 20 mile radius as limited investment schemes in local area
Used 7 comps - made adjustments for property's strong location, high spec + high rental demand
26
Please can you give me more details on the comparables used to arrive at your opinion of MV for the Nottingham apartments?
Apartments in Bicester provided good evidence. 6.5% GIY. Superior location, inferior condition. One of flats vacant - yield skewed downwards slightly.
Apartments in Tipton. 8.4% GIY. Inferior location + inferior spec
Subject property recently sold in June 2024 for £2.4m
27
What would you advise your client as to the potential risks of this site for the Nottingham apartments?
28
You offered advice with regards to the tenancy management for the Nottingham apartments - what steps would you advise a landlord to take to sustain tenancies?
29
Can you think of a time when It wouldn’t be in the landlords Interest to retain tenants?
30
At what point In time would you seek to renew the tenancies for the Nottingham apartments?
31
What would the potential marketing period be for a property like this (the Nottingham apartments)?
If apartments let, would expect good demand from perspective tenants with marketing period of 1-3 months (confirmed this with local agents)
If sold, would expect good demand from investors with marketing period of 6 months
32
What would your fee be to complete this valuation for the Nottingham apartments?
33
What would the fee be to renew the tenancy for the Nottingham apartments?
34
Why did you adopt the investment method for the Nottingham apartments?
Property was income generating + most likely to be purchased as an investment
35
Why did you use a Gross Initial Yield rather than a Net Initial Yield?
I was led my comparable evidence
All comps were analysed on a GIY so this is what I adopted
36
What range of yields were there in your analysis?
6.5% - 8.4%
37
What yield did you adopt at Nottingham and why?
Adopted 7% GIY to capitalise the passing rent into perp
Based yield off property's strong location, good spec, good rental demand, all units were let at val date
38
How do you complete a Red Book valuation?
1. Receive instruction + agree ToE with client (include terms a - s of Red Book)
2. Conduct inspection + measurements of property
3. Conduct due diligence + gather comparable evidence
4. Analyse comparables using appropriate valuation method
5. Prepare detailed report that complies with VPS 6 of Red Book
6. Ensure report is peer reviewed + signed off by a qualified RICS member
39
Who can complete a Red Book valuation ?
A registered valuer
40
On the Sutton Coldfield example how did you decide the comparable method was the most appropriate methodology?
Borrower had recently purchased unit with the intention of owner occupancy so adopted comparable method on the special assumption of vacant possession
41
What would a good comparable look like in this example (Sutton Coldfield apartment)
Recent transaction ideally within last 6 months
Similarity in terms of age, type, size, condition + location
Info should be verifiable
Transaction should be reflective of open market conditions + not influenced by any special factors, e.g. special purchaser or if seller needed a quick sale
42
What sort of property were you valuing at Sutton Coldfield?
Residential apartment
Dated spec, slightly historic interior
Located in gated community with well-maintained grounds + large lake
4 bedrooms, 1 ensuite, 1 bathroom
2000 sq ft
Chandelier lighting, sash single glazed windows
Allocated garage
43
Please explain the property's distinctive characteristics at Sutton Coldfield
Had a dated spec + slightly historic interior with chandelier lighting
Located in a gated community with well-maintained grounds + large lake
Unique property
44
How did you adjust your search to account for the property's distinctive characteristics at Sutton Coldfield?
Extended search radius to 15 miles
45
Please give some examples of comparable evidence you obtained for Sutton Coldfield resi
Limited evidence of similar 4 bedroom apartments in close proximity to subject property so extended search area to 15 miles
Comps had similar character but slightly better spec. All 3 bed comps However, did not feature extensive grounds like the subject.
46
How did you apply the hierarchy of comparable at evidence at Sutton Coldfield?
Placed most emphasis on recent comps that were as similar as possible to the subject
Placed least emphasis on more historic comps
47
Can you further explain how you made adjustments for this type of property in Sutton Coldfield?
48
What was your final opinion of market value at Sutton Coldfield?
Valued it at £800,000
49
How long would it take for the Sutton Coldfield resi apartment to sell?
Approx. 9 months at MV
Spoke to local agents - confirmed that there is a strong demand for owner occupiers
50
What was included in your SWOT analysis for the valuation of the resi apartment in Sutton Coldfield?
Strengths - well presented property, good location
Weaknesses - borrower has to find alternative method of repaying loan as not income producing
Opportunities - opportunity to let apartment
Threats - high interest rates
51
Why did you advise that the Sutton Coldfield property was suitable for loan security purposes? What factors made you come to this conclusion?
52
As the Sutton Coldfield property apartment is a resi property, how did you approach any service charge payments?
53
What are service charges? Is there any RICS guidance in place?
Payments tenants make to the landlord for the upkeep + maintenance of the building, incl. repairs, insurance + property management
Code of Practice - Service charge residential management code (3rd edn), 2016 (applies to long leasehold resi properties)
Professional Standard - Service charges in commercial property (1st edn), 2018 (sets out best practice for management/administration of service charges in commercial property)
54
If the resi apartment was tenanted at your valuation, how would've your approach changed?
Considered that majority of purchasers would acquire property for owner occupation - therefore would apply 5% reduction to opinion of MV
55
How do you explain the difference between an assumption and a special assumption?
Assumption - assuming something is true without need for specific investigations
Special assumption - assuming something is true when it is not
56
When valuing Industrial space what impacts on value?
If vacant - location, spec, condition, yard space, proximity to motorways
If occupied - tenant covenant strength, location, spec, condition, proximity to motorways
57
In this example what was demand for the industrial unit?
High demand from owner occupiers due to strong location. Confirmed this with local agents
Also considered it to be high in demand from investors as well as perspective tenants after works had been done to it
58
How has demand for industrial units changed in the past 2 years (Sutton Coldfield)?
Demand has been consistent + has increased due to factors including growth of e-commerce + need for distribution centres
Rental rates have seen moderate growth - reflective of broader trend in UK
Availability of space has increased slightly, with more Grade B + refurbished Grade A offices coming onto the market
59
60
How did you satisfy yourself that the owner was not a special purchaser?
Spoke to the selling agent who confirmed that the property was transacted in the open market. Also mentioned that there was lots of interest + multiple offers
Confirmed this in writing
61
What specific methods did you use to determine the Market Value of the industrial unit in Sutton Coldfield?
Adopted comparable method as the borrower had recently purchased the unit with the intention of owner occupancy
62
Were there any difficulties or challenges associated with using the comparable method for the industrial unit in Sutton Coldfield?
63
Why was the assumption of vacant possession important?
The owner had recently purchased the property with the intention of owner occupancy
Current tenant was vacating in 3 months' time
64
During your inspection, what were some specific factors affecting value that you noted for the industrial unit?
Unit was in a strong location in established industrial park. Close proximity to motorway connections
Condition - basic spec + in need of refurb. However, did not impact on value. Confirmed with agent that there was lots of interest + multiple offers. Condition did not deter potential purchasers
65
What particular aspects of the property's location and condition were most pertinent to the valuation of the industrial unit?
Unit was in a strong location in established industrial park. Close proximity to motorway connections
Condition - basic spec + average condition. However, did not impact on value. Confirmed with agent that there was lots of interest + multiple offers. Condition did not deter potential purchasers
66
What sources did you use to find recent local sales for the industrial unit?
Mainly relied on Co Star, EG Radius + speaking with local agents
Also relied on recent transaction of the property itself bought by the borrower
67
Why did you place significant weight on the recent sale of the property as a comparable for the industrial unit?
It was a recent sale + had transacted 4 months before the valuation date
68
What measures did you take to ensure you accounted for all factors affecting value in your analysis for the industrial unit?
Conducted thorough inspection - surrounding area, external + internal
Also spoke to local agents who informed me of the strong demand for similar properties due to the desirable location
69
How did you come to your final opinion of Market Value for the industrial unit?
Searched for similar comparables in the local area (5 mile radius)
Compiled evidence into excel spreadsheet + analysed in line with hierarchy of comparable evidence
Placed most emphasis on direct comparable evidence - concluded that subject property was the best evidence as it was reflective of the current condition + was recent in terms of its transaction date (approx. 4 months of val date)
70
How did your valuation report address the client's concern for security of lending for the industrial unit?
Concluded that property was suitable for loan security purposes
Perceived strong demand from owner occupiers, not affected by planning constraints, good location
However - did note that property will not be income producing + therefore borrower would have to find alternative solution to repay loan
71
What is the purpose of the Red Book?
Promotes high standards in valuation delivery globally
Provides framework for RICS members to follow when undertaking vals
72
What is the Red Book?
Document that sets out mandatory requirements for valuations globally
73
Which do you follow - the latest IVS or the Red Book Global?
The Red Book Global - this incorporates the latest International Valuation Standards (IVS)
74
What is the full name of the Red Book?
RICS Valuation - Global Standards (Red Book)
75
What type of advice does the Red Book cover?
Mandatory practices + best practice guidance
76
What is the current version of the Red Book + when did it become effective from?
RICS Valuation - Global Standards (Red Book)
Published in December 2024
Effective from 31 Jan 2025
77
Why was the Red Book updated?
To reflect changes to latest version of IVS
Incorporate changes from RICS Valuation review
Future proof valuations, e.g. updates relating to ESG + technology
Simplify + clarify guidance for valuers
78
Does this differ from when IVS were last updated?
79
Tell me about the key changes to the Red Book
PS 1 + PS 2 remain broadly the same
Key changes to VPS + VPGAs
VPS 1 (no change)
VPS 2 - Bases of value, assumptions + special assumptions (former VPS 4)
VPS 3 - Valuation approaches + methods (former VPS 5)
VPS 4 - Inspections, investigations + records (former VPS 2)
VPS 5 - Valuation models (new in 2025)
VPS 6 - Valuation report (former VPS 3)
80
Tell me the structure of the Red Book
PS1 - Compliance where a written valuation is provided
PS2 - Ethics, competency, objectivity + disclosures
VPS 1 - ToE
VPS 2 - Bases of value, assumptions + special assumptions
VPS 3 - Valuation approaches + methods
VPS 4 - Inspections, investigations + records
VPS 5 - Valuation models
VPS 6 - Valuation report
81
What does PS 1 say about the provision of oral advice?
States that standards should still be observed
Covered in section 1.8 of PS 1
82
What does PS 2 say?
Valuers must have appropriate experience, skill + judgement
Must always act in professional + ethical manner free from undue bias + COI
83
What are the main exceptions to VPS 1-6 under PS2?
1. Providing agency or brokerage service
2. Providing valuation advice expressly in preparation for or during negotiations or litigation
3. Acting or preparing to act as an expert witness
4. Performing statutory functions
5. Providing valuations for internal purposes
84
What is the definition of Market Value?
Estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer + willing seller in an arm's-length transaction, after proper marketing + where parties had each acted knowledgably, prudently + without compulsion
85
What is the definition of Market Rent?
Estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor + willing lessee on appropriate lease terms in an arm's-length transaction, after proper marketing + where parties had each acted knowledgeably, prudently + without compulsion
86
What is investment value?
The value of an asset to a particular owner or prospective owner for individual investment or operational objectives
87
What is fair value?
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
88
What is equitable value?
Estimated price for the transfer of an asset of liability between identified knowledgeable + willing parties that reflects the respective interests of those parties
89
What is synergistic value?
Result of a combination of two or more assets or interests where the combined value is more than the sum of the separate values
90
What is an assumption?
Made where it is reasonable for the valuer to accept that something is true without need for specific investigation or verification
E.g. if couldn't inspect room in a house, assume that in good condition, assuming no asbestos is present
91
What is a 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
E.g. value on the assumption that planning permission exists, or value something on special assumption of vacant possession
92
What are the minimum matters under VPS 1 Terms of Engagement?
a) Identification + status of valuer
b) Identification of client
c) Identification of any other intended users
d) Identification of asset or liability being valued
e) Valuation (financial) currency
f) Purpose of valuation
g) Basis adopted
h) Valuation date
i) Nature + extent of valuer's work - incl. investigations + limitations
j) Nature + source of info which valuer will rely on
k) Assumptions + special assumptions
l) Format of report
m) Restrictions on use, distribution + publication of report
n) Confirmation val will be undertaken in accordance with IVS/Red Book
o) Basis on which fee will be calculated
p) Where firm is registered for regulation by RICS, reference to CHP with copy available on request
q) Statement that compliance with standards may be subject to monitoring under RICS' conduct + disciplinary regs
r) Statement setting out limitations on liability agreed
s) Consideration of ESG factors
93
What are terms of engagement?
Fundamental terms that are agreed between client + valuer
94
Do you need to have terms of engagement for every instruction?
No as there may already be a service agreement in place with client
95
What do valuers have to do for special assumptions?
Expressly agreed + confirmed in writing to client before report is issued
96
What are the three valuation approaches
Market - based on comparing subject asset with identical or similar assets for which price info is available
Income - based on capitalisation or conversion of present + predicted income, to produce a single current capital value. Conventional or dcf
Cost - based on economic principle that a purchaser will pay no more for an asset than the cost to obtain one of equal utility, whether by purchase or construction
97
Tell me about the requirements if a valuation was desktop only
Must state in ToE:
- Nature of restriction
- Possible value implications confirmed
- Whether restriction is reasonable with regards to purpose
Must refer to restriction in report
(Included in VPS 4)
98
When should a revaluation without a reinspection be undertaken?
If the valuer is satisfied that there has been no material changes since last inspection
99
What is a valuation model?
Quantitative implementation in whole or in part that converts inputs into outputs used in the development of a value
100
When can a valuation model be used?
If it is suitable for the purpose of the valuation
Should be agreed with client
If valuer also supports calculation with their own professional judgement
101
What are the minimum matters that must be included in a valuation report under VPS 6?
a) Identification + status of valuer
b) Identification of client + other intended users
c) Purpose
d) Asset or liability
e) Basis of value
f) Valuation date
g) Nature + extent of investigations
h) Nature + source of information
i) Assumptions + special assumptions
j) Restrictions on use
k) Confirmation that val has been done in accordance with Red Book / IVS
l) Approach + reasoning
m) Amount of valuations
n) Date of report
o) Commentary on material valuation uncertainty
p) Limitations on liability
q) ESG factors considered
102
What does VPGAs stand for + how many are there? Are they mandatory?
Valuation Practice Guidance Applications
11
Not mandatory but advisory in nature
103
What VPGAs are relevant to your area of practice?
VPGA 2 - Valuations for secured lending
- Provides guidance on how to approach vals when purpose is to secure a loan
- Report should assess risks associated with property, incl. location, condition + marketability (helps lenders understand risks + make informed decisions)
104
Tell me about loan security valuations
Assessment of propertys value to determine if it can adequately secure a loan, ensuring lenders can recoup their investment if the borrower defaults
105
What information should you specifically request for a secured lending valuation?
- Loan amount
- Purpose of the loan
- Property details
- Tenure
- Income details
- Inspection access, i.e. details of borrower
106
Tell me about any other valuation guidance
Red Book UK National Supplement (Professional Standard)
Oct 2023, effective May 2024
Purpose - intended to sit alongside the global Red Book, does not replace Red Book
107
Why is independence and objectivity important when valuing?
108
If your firm is too small to have a rotation policy or valuation panel, what else can you do to ensure objectivity?
109
Tell me about the structure of the Red Book UK National Supplement (Professional Standard)
UK PS 1 - Compliance with valuation standards in the UK (mandatory)
UK VPS 1 - ToE + reporting (UK)
UK VPS 2 - ToE + reporting (Scotland)
UK VPS 3 - Regulated purpose valuations
17 x VPGAs
110
When do you deduct purchaser’s costs from a valuation?
111
What impact will the Right to Rent Bill have on value?
Would normally apply 5% discount to a resi property if had a tenant in
However, would now apply 10% discount to resi property if had a tenant in to account for changes in legislation + SDLT
112
Tell me about the EWS1 form
Used to assess fire safety of external wall systems on resi buildings
Introduced after Grenfell Tower incident to ensure buildings with cladding are safe
Properties without a valid EWS1 form may face difficulties in selling, buying or remortgaging. Many lenders require an EWS1 form before approving mortgages on properties with cladding
113
How would you value a property on a short lease?
114
What effect does the new SDLT have on vals?
115
How can you take sustainability into account during valuations?
Valuers should consider ESG factors, e.g. energy efficiency, carbon footprint + social impact
Should evaluate LT value implications of sustainability features, including cost savings from energy efficiency measures
116
How would you distinguish limitations on liability in your valuations?
117
Where in your valuation report do you state any limitations on liability?
118
What relevance does Hart v Large have on your valuation practice?
119
What would you do if you received a notice of a PII claim from a client or their solicitor?
120
What is your duty of care as a surveyor when undertaking a valuation and who is it to?
121
What are the 5 methods of valuation?
1. Comparable
2. Investment
3. Residual
4. Contractors (depreciated replacement cost)
5. Profits
122
Tell me about the comparable method of valuation
1. Search + select comps
2. Confirm/verify details
3. Assemble comps in schedule
4. Adjust using hierarchy of comparable evidence
5. Analyse to form opinion of value
6. Report value + prepare report
123
Tell me about the investment method of valuation
Used when there is an income stream to value
Involves capitalising rental income to produce capital value
Growth-implicit approach (growth wrapped up in yield) + explicit approach (i.e. DCF)
124
What is the difference between a growth explicit and a growth implicit yield?
125
What is a YP/PV/YP in perpetuity?
126
What is a years purchase multiplier?
Factor used to estimate the capital value of an income-generating asset
Represents no. of years worth of income that would need to equal the asset's value
Calculated by dividing 1 by the capitalisation rate
127
Give me an example of a good covenant and how this might impact a valuation
128
Tell me about term & reversion
Used when passing rent is lower than MR (under rented)
1. Capitalise term until next review/expiry using YP single rate multiplier at appropriate yield
2. Reversion to MR valued in perp using YP in perp multiplier at appropriate yield + defer using PV of £1 for appropriate no. of years at appropriate years
4. Apply higher yield on reversion to reflect increased risk (approx. 1-2%)
3. Add value of term & reversion to reach capital value
129
Tell me about the layer/hardcore method of valuation
Used when passing rent is more than MR (over rented)
Income flow divided horizontally
Bottom slice = MR, top slice = passing rent less MR until next lease event
1. Capitalise bottom slice using YP in perp at appropriate yield
2. Capitalise top slice using YP in perp at appropriate yield, deferred at appropriate timescale + yield
3. Apply higher yield to top slice to reflect additional risk
130
How would you value a commercial building using the investment method of valuation?
131
How would you value a residential building using the investment method of valuation?
132
Tell me about yields
133
What is an All Risks Yield?
Remunerative rate of interest used in valuation of fully let property let at MR. Reflects all risks + rewards to particular investment
134
What is a true yield?
Assumes rent is paid in advance, not arrears
135
What is a nominal yield?
Assumes rent is paid in arrears
136
What is a gross yield?
Yield not adjusted for purchaser's costs
137
What is a net yield?
Yield adjusted for purchaser's costs
138
What is an equivalent yield?
Average weighted average yield when reversionary property is valued using an initial + reversionary yield
139
What is an initial yield?
Simple income yield for current income + current price
140
What is a reversionary yield?
MR divided by current price of investment let below MR
141
What is a running yield?
Yield at one moment in time
142
What is an equated yield?
143
What is DCF?
Growth-explicit method of valuation
144
How would you undertake a valuation using the DCF method?
1. Estimate cash flow (income less expenditure)
2. Estimate exit value at end of holding period
3. Select discount rate
4. Discount cash flow at discount rate
5. Value = sum of completed DCF to provide net present value
145
When can DCF be used?
Can be used to model variety of scenarios or where comparable evidence is limited
146
What are the advantages + disadvantages of using DCF?
147
What methods are available to value the leasehold interest in a property?
Dual rate - calculate profit rent, capitalise profit rent using dual rate YP multiplier for appropriate time, add 1% to yield to reflect risk, assume 3% for sinking fund, 30% for tax. Method generally outdated
DCF - apply explicit growth rate to rent, discount profit rent for each income tranche, add sum of each income tranche's value for capital value
148
Tell me about the profits method of valuation
Used to value trade related property where value depends on business' profits (rather than physical building)
Used for pubs, hotels, petrol stations, care homes, etc.
Must have accurate + audited accounts for 3 years
Use estimates/business plan if new company
149
How would you undertake a valuation using the profits method?
1. Annual turnover (income) - costs = gross profit
2. Gross profit - reasonable working expenses = unadjusted net profit
3. Unadjusted net profit - operator's remuneration = adjusted net profit
4. Capitalise profit rent for freehold capital value
150
What is turnover / gross profit / net profit?
151
What is intangible goodwill?
152
What is Fair Maintainable Turnover?
153
What is a Reasonably Efficient Operator?
154
Does the assessment of the REO include personal goodwill and trading potential?
155
What is trading potential?
156
How do you calculate the tenant’s proportion of rent in a profits valuation?
157
What is EBITDA?
158
What is Fair Maintainable Operating Profit?
159
How do you calculate the divisible balance?
160
What accounts information would you want to review for a profits valuation?
161
Tell me about the residual method of valuation
Used to calculate land value at a specific point in time
GDV - costs - profit = land value
162
What is GDV?
Gross Development Value
= MV on special assumption development is complete at valuation date
163
What are typical development costs?
Site prep
Planning
Build costs
Professional fees
Contingency
Finance
Marketing + letting fees
Acquisition costs
164
Tell me about the developer's profit
Developer's reward for completing scheme
Commercial = based on % of costs
Resi = based on % of GDV
165
How does a residual land valuation vary to a development appraisal?
166
What are the 2 methods of finance?
1. Debt finance (lending money from bank)
2. Equity finance (selling shares in company)
167
168
169
170
What is sensitivity analysis?
Required for key variables, e.g. GDV, build costs + finance rate to show range of values
Simple sensitivity testing + Monte Carlo simulation (probability testing)
171
Is there any guidance available regarding residual land vals?
RICS Professional Standard - Valuation of development land, 2019
172
Tell me about the RICS Professional Standard Valuation of development land 2019
Requires valuer to check residual vals with comparable method
Should use DCF for more complex schemes
Best practice requires sensitivity analysis
173
Tell me about the contractor's method of valuation
Use when there is limited direct market evidence
Use for specialist properties, e.g. lighthouses, oil rigs, schools
174
How would you undertake a valuation using the contractor's method?
Value land in existing use (assume planning permission)
Add current cost of replacing building + fees less a discount for deterioration (use BCIS + judgement)
175
Which method of valuation is not suitable for Red Book compliant valuations for secured lending purposes + why?
Depreciated Replacement Cost method
It does not reflect MV which is a key requirement
(DRC relies on cost estimates + depreciation rather than market transactions as there is no active market)
176
How do you decide which valuation method to apply?
177
How do you deal with limitations on inspection or analysis?
178
What is the difference between an internal + external valuer?
179
What is the Valuer Registration Scheme?
180
Which sections of the Red Book are mandatory and which are advisory?
181
How would you value a property in uncertain market conditions - does the Red Book give any guidance?
182
What might a statutory valuation relate to and what would the basis of value be?
183
How would a yield reported from auction differ from a Net Initial Yield?
184
If you provide preliminary advice / draft valuation report, what should you state in writing to your client?
185
What type of valuations might be relied upon by a third party?
186
What is EUV + when would you use it?
187
What is a regulated purpose valuation?
188
Can you include hope value in a secured lending / mortgage valuation?
189
What are the key things you need to consider when appraising / inspecting a development site?
190
Tell me about your due diligence when undertaking a RLV.
191
What sources of information do you use when undertaking a RLV?
192
When do you apply VAT when assessing development costs?
193
What would you apply finance costs to and on what basis?
194
What is an S curve?
195
What factors influence the decision to use an S curve when applying finance costs?
196
What do holding costs typically include?
197
How do you typically calculate developer’s profit?
198
What other criteria might be assessed in terms of performance measurement for a RLV?
199
What are the advantages/disadvantages of a RLV?
200
What are the differences between CIL and S106?
201
What factors affect sensitivity of a development appraisal?
202
Tell me about your understanding of incorporating affordable housing into development appraisals.
203
Tell me about software you have used to provide a RLV
Give me a limitation of this software
204
What is viability?
205
How might onerous lease terms, e.g. restrictive user, break clause, impact upon capital or rental value?
206
In a scenario where rents are static and the capital value increases, would you expect yields to increase or decrease?
207
What are current mortgage rates (on a BTL mortgage)?
How have they changed over the past few years?
208
What are current LTV ratios?
209
How could you value an HMO using the investment method?
210
How can you establish if a property is a HMO?
211
Tell me about any other legislative requirements relating to HMOs you are aware of
212
Is there generally a premium attributable to HMO use over and above value as a single family house?
213
What planning use are HMOs?
214
How might gross and net yields differ for HMOs?
215
What RICS guidance are you aware of relating to HMO valuation?
216
How can rental incentives impact on HMO valuation?
217
How can Market Rent impact upon the underwriting of a loan?
218
How can maintenance costs impact upon valuation and what does the Red Book say about these for HMOs?
219
When is it reasonable to adopt the income approach when valuing HMOs under the Red Book?
220
What is shared ownership/shared equity scheme?
221
How would you value a shared ownership / shared equity scheme property?
222
What is a trustee mortgage valuation?
223
What is affordable/market rent?
224
What liability do you have to the borrower when advising a lender client?
225
Does this vary depending on whether the valuation is disclosed by the mortgagee?
226
What is reinstatement cost + how do you calculate it?
227
How would you deal with suspected hidden defects?
228
How would you treat incentives?
229
Tell me about the application of the RICS Residential Mortgage Specification in relation to a specific purpose, e.g., re-inspection or valuation without internal inspection.
230
What are the 3 categories of BTL investments?
231
Have you valued a historic building?
232
What RICS guidance were you aware of?
Tell me a key principle of this guidance
233
What type of RICS surveys include a valuation?
234
What level of valuation advice does a Level 2 Home Survey include?
What guidance does the RICS provide in relation to this?
235
Tell me about the RICS guidance relating to the valuation of individual new-build homes.
236
What is the new build premium?
237
How would a valuation of new build home differ to a second hand home?
238
Tell me about your use and understanding of AVMs.
239
Does the RICS provide any guidance on this?
240
What is an AVM?
241
What is an advantage and a disadvantage of using an AVM?
242
What are the three key pieces of legislation which have impacted the UK residential market (and purpose built valuation)?
243
What valuation considerations would you take into account when valuing a purpose built for renting property?
244
How might the release of a large number of new build properties impact the local market?
245
Is there a set discount for a new build premium?
246
Should you reflect sales incentives in your valuation?
247
What are some of the ways that a home can be offered at a reduced price?
248
For houses with restrictions on occupancy, e.g., by income or job type, what is a typical discount used in the market?
249
What is a new build warranty?
How long would a typical warranty last for?
250
If a property was built in the last 10 years and does not have a professional certificate or guarantee/warranty, would this affect value?
251
What are the key differences between a lifetime mortgage and a conventional mortgage?
252
What are the bases of value for a registered social landlord’s housing stock for secured lending purposes?
253
What is the basis of value for Council Tax valuations?
254
What is the Right to Buy?
255
What legislation relates to Right to Buy?
256
When might a lender instruct a drive-by valuation?
257
Within what general distance of a dwelling might Japanese Knotweed have a material impact on value?
258
What is leasehold enfranchisement?
259
How could you value a long leasehold interest?
260
How could a mortgagee seeking remedy from a defaulting borrower serve a valid notice?
261
How would you value a long leasehold property with a rising ground rent which increases significantly in a fairly short period?
262
Do RICS publish any guidance on leasehold reform?
263
What right did the Leasehold Reform Act 1967 introduce?
264
How long is a ‘long tenancy’?
265
Which is the most favourable basis of valuation?
266
What right did the Leasehold Reform, Housing and Urban Development Act 1993 introduce?
267
What are the ways to calculate a modern ground rent?
268
What is collective enfranchisement?
269
What is the capitalisation rate?
270
What is leasehold relativity?
271
What is relative value?
272
What do you understand by a Graph of Relativity?
273
Who produces graphs of relativity?
274
Do these graphs vary with different types or locations of property?
275
What is the Parthenia Model?
276
What RICS guidance relates to residential leasehold properties and secured lending valuation?
277
What methods are available to value a leasehold property and when/why might you adopt each?
278
What assumptions might be made in this type of secured lending valuation?
279
When would you use a leasehold relativity graph?
280
How would you choose which leasehold relativity graph to use?
281
How would you value a property affected by Japanese Knotweed?
282
What valuation approach does the RICS recommend is taken when valuing property is affected by Japanese Knotweed?
283
What is the House Price Index and how would you use it when valuing a residential property?
284
What are some of the key drivers of demand for housing?
285
How would you assess and report on condition in an investment valuation?
286
How would you analyse a part-exchange comparable?
287
When analysing comparable evidence, how would you apply the concept of adjusted value?
288
What residential design features do you consider add value in your locality?
