Valuation

Question 1

What are the five METHODS of Valuation?

Answer 1

Comparable
Investment
Residual
Profits
Depreciated Replacement Cost

Question 2

When do you use the Investment method?

Answer 2

When there’s an income producing property

Question 3

When do you use the Residual method?

Answer 3

When you are valuing land

Question 4

When do you use the Profits method?

Answer 4

For trade related properties where the value is derived from the business and its trading potential

Question 5

Talk me through a Residual valuation

Answer 5

Build Costs
-
Professional Fees
-
Profit (20%)
=
Residual Land Value

If the value is negative. The site is not viable.

Question 6

What are the different PURPOSES of Valuation?

Answer 6

Financial Reporting
Loan Security

Question 7

What is the definition of Market Value?

Answer 7

The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion

Question 8

What is Market Rent?

Answer 8

The 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.

Question 9

If you were to carry out a valuation for accounting purposes, what value would you use?

Answer 9

Fair Value

Question 10

What purposes of valuation are exceptions of the Red Book?

Answer 10

Internal purposes
Agency purposes
Statutory purposes
Litigation purposes
Expert witness

Question 11

What are the bases of value in the Red Book?

Answer 11

Market Value
Market Rent
Fair Value
Investment Value

Question 12

What is proper marketing?

Answer 12

For the appropriate amount of time and selling it via the correct method of sale

Question 13

What is the Red Book?

Answer 13

Set of global valuation standards created to achieve best practice guidance when undertaking valuations

Question 14

When was the new Red Book effective from?

Answer 14

January 31st 2025

Question 15

What are the key changes in the new Red Book?

Answer 15

In alignment with the new International Valuation Standards
An increased focus on ESG and technology factors

Question 16

Where does the Red Book apply?

Answer 16

Globally

Question 17

What is the definition of Fair Value?

Answer 17

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

Question 18

What is a Special Assumption?

Answer 18

A scenario or condition that is not known to be true at the valuation date

Question 19

What is the definition of Investment Value?

Answer 19

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

Question 20

What is the hierarchy of evidence?

Answer 20

1. Direct comparable evidence
2. Indirect comparable evidence
3. General Market Data
4. Other sources

Question 21

What is a yield?

Answer 21

The annual return on an investment shown as a percentage

Question 22

How do you calculate a yield?

Answer 22

The annual income divided by the property value times by 100

Question 23

What is a Net Initial Yield?

Answer 23

An initial yield after deducting purchasers costs.

Question 24

What must happen if you have Assumptions or Special Assumptions

Answer 24

Must be agreed with the client

Question 25

What is an Equivalent yield?

Answer 25

The average weighted yield over the net initial yield from the current income and the reversionary yield for all future income

Question 26

How do you calculate a yield?

Answer 26

The annual income divided by the property value times by 100

Question 27

How do you calculate a Net Initial Yield?

Answer 27

The passing rent, minus purchasers costs divided by the property value times by 100

Question 28

What is a reversionary yield?

Answer 28

The future yield based on the rent increasing to the estimated rental value at the next lease event

Question 29

Why would you use an Equivalent yield?

Answer 29

Because it's a more accurate representation of the potential return on a property, as it takes into account future rental income potential

Question 30

What approach would you use if the property was under-rented?

Answer 30

Term and Reversion

Question 31

What is included in Purchasers costs?

Answer 31

1. Agency fees (1%) 2. Legal Fees (0.5%) 3. Stamp Duty Land Tax

Question 32

What approach would you use if the property was over-rented?

Answer 32

Hardcore and top slice

Question 33

What is Term and Reversion?

Answer 33

Where the passing rent is below market rent with the "term" representing the income received until the next lease event, and the "reversion" representing the income from that point onwards at the market rent

Question 34

When is Term and Reversion used?

Answer 34

When the property is under-rented (passing rent is lower than ERV)

Question 35

When is Hardcore and Top Slice used?

Answer 35

When the property is over-rented (passing rent is higher than ERV)

Question 36

What is the Discounted Cashflow (DCF) method?

Answer 36

It calculates how much a property is worth today by estimating how much it will earn in the future and then discounting those future earnings back to their present value

Question 37

When would you use the DCF method?

Answer 37

To determine the value of an investment today

Question 38

What are the three approaches under VPS3?

Answer 38

1. Market approach 2. Income approach 3. The cost approach

Question 39

When would you use the DRC method?

Answer 39

As a last resort when there are no direct comparables. Unusual buildings e.g a dilapidated castle

Question 40

When would you use the comparable method?

Answer 40

When there is sufficient comparable market evidence

Question 41

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

Answer 41

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

Question 42

What is the structure of the Red Book?

Answer 42

1. Introduction 2. Glossary 3. Professional Standards (PS) 4. Valuation Technical and Performance Standards (VPS) 5. Valuation Practice Guidance Applications (VPGA) 6. Internal Valuation Standards (IVS)

Question 43

How do you get your Build Costs?

Answer 43

Through the BCIS