Valuation Flashcards
(49 cards)
Define fair value
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market particulates at the measured date
typically accounting purposes (IFR13)
Typically same figure as MV
Define investment worth
The value of an asset to a particular owner or prospective owner for investment or operation objectives
May differ from MV
sometimes used to measure worth against clients own investment criteria
Explain a Dunn and Bradsteet report
shows financial strength (net worth) 5A to H
and risk indicator 1 (low) to 4
What was the EPC rating at Chiswick High street
D
How did you measure Chiswick and what size was it?
NIA, 1,400sq ft
What is the Red Book?
Framework for uniformity and best practice
Purpose: impose mandatory obligations for consistency, objectivity and transparency
What are the 3 steps to carry out before accepting an instruction?
-competent
-conflict
-ToE
What were the recommendations from the valuation review?
-increase focus of ESG
-increase focus on diversity
Valuer rotation scheme
-10 years within a firm
-5 years at a time by valuer
UK national supplement?
-Val review
-Valuer rotation
How would valuing a leasehold compared to freehold matter?
a leasehold is depreciating in value
What is the recent Red book update?
-ESG (take into consideration and in ToE)
-AI (use prof judgement when using)
Accuracy with valution?
10%
Sigha v. Aardvark (2005)
What is equitable value?
estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties
Can you explain the major changes in the Red Book update effective from 31st January 2025?
-ESG (ToE)
-AI
What are the main purposes of valuations that you have identified, and can you provide a brief explanation of each?
- Loan security, this is a redbook valuation – banks / financial institutions used for lending
- Agency – leasing and sale
- Stat functions – eg tax, ratings, court or litigation
- Financial statements – eg accounts
- Internal purposes – asset management plans etc
Can you clarify what is meant by a ‘Red Book Valuation’ and the role of a Registered Valuer in this process?
Established framework for uniformity and best practice
purpose, impose mandatory obligations to ensure transparency, objectivity and transparency
Valuer - must be registered
Could you explain the comparable, investment, and residual methods of valuation that you have primarily used?
- Comparable method, is the primary method I have used this consists of collecting comparable, converting to a metric typically price per sq ft, use hierarchy of evidence, and make adjustments
- Investment: valuing based on an income stream which is capitalised at an appropriate yield (YP)
- Profits: trade related eg pubs, hotels. 3-5 years accounts, annual turnover – costs associated – operators remuneration = fair maintainable operating profit x capitalise at appropriate yield
- Residual: site value
GDV-costs-profit = site value - Discount replacement cost: eg lighthouse. Land value + costs to rebuild (allowance for depreciation)
How do the RICS Valuation – Global Standards align with the International Valuation Standards and how do these standards ensure transparency and consistency in valuation practice?
- The Red Book incorporates IVS as the foundation for valuation standards while also providing additional RICS-specific guidance.
- It follows IVS-defined valuation bases, such as Market Value, Fair Value, and Investment Value.
What kind of desktop research did you conduct and what were the details you sought in the lease?
Desktop: initially looking at location, transport and the general area.
Summarised the lease: tenant, length of lease, break date, end date, current rent, inside or outside Act, premises, alterations, user, alienation, SC
Can you explain more about the due diligence checks post inspection, and how did you verify data such as the rateable value, planning consent, EPC and flood risk rating?
Rates – VOA
Planning consent – checked the local authority (Hounslow)
EPC – Gov website
Flood risk – gov website
Dunn and bradstreet: shows two elements; company financial strength (tangible net worth) 5A to H and then risk 1 (min) to 4 (highest)
Could you detail how you conducted the market value assessments based on the requirements of the client, and how were local trends, and specifics incorporated into the report?
The client wanted two market values, with the tenant in occupation and one with vacant possession, this was done via the comparable method which we then used the investment method to capitalise the rental figure.
Comps method, to determined ITZA to give overall rental figure of £72,000pa. using term and reversion the term was valued at the passing rent of £52,000 at 7.5% equivalent yield and reversion at market rent at a slightly higher yield at 8.5%.
Another elements was the local trend of void periods, this was relatively low at 6 months.
Describe the process of capitalizing the rental value to determine the leasehold value, and how did you adjust the yield to reflect the risk associated with vacant possession?
Term and reversion as under rented
term 3 years, passing rent £54k at equivalent 7.5%
reversion in PY at 8.5% at MR of equivalent £71k, then PV this
CV £800k
Valued as vacant at a higher yield of 8.5% to reflect risk
£720k
What are the exclusions from red book valuations?
-agency
-statutory functions
-internal
-expert witness or dispute
-negotiation or litigation
