Valuation Flashcards
(24 cards)
What common purposes are there for Red Book Valuations?
Any valuation provided either written or orally by an RICS Registered Valuer, with the exceptions outlined in PS1.5.
Examples include:
Financial Reporting
Loan Security
Advising third party reliance.
What purposes for valuation do not need to be provided in a Red Book format?
PS1 (PART 5) States there are 5 exceptions to VPS 1-6:
A.N.E.S.I.
A – Agency or brokerage service (excluding purchase reports)
N – Negotiations/Litigation support (expressly for, or during)
E – Expert Witness work
S – Statutory functions
I – Internal purposes (without communication to third parties)
Where can the exceptions be found in the Red Book 2025?
PS1 - Part 5.
What are the basis of value?
Market Value
Market Rental Value
Fair Value
Investment Value
Equitable Value
Synergistic Value
Liquidation Value
What is Market Value?
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 property marketing
- Where parties had each acted knowledgeably, prudently and without compulsion.
What is Market Rental Value?
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
- when the parties had each acted knowledgeably, prudently, and without compulsion
What is Fair Value?
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.
What is Investment Value?
The value of an asset to a particular owner, or prospective owner, for an individual investment or operational objectives.
What are the five methods of valuation?
- Comparable
- Investment
- Residual
- Profits
- Costs
What is the RICS Valuation - Global Standards (Red Book)?
What is the structure of the Red Book?
Other than the Red Book, are you aware of any other RICS documents relating to Valuation?
International Valuation Standards
UK National Supplement.
What are the changes to the Red Book Global Standards from the 2022 edition to the 2025 edition?
What is Marriage/Synergistic Value?
This is the value created by the merger of interests. It can be physical or tenurial.
If you had 10 comparable for a property and one is really high and one is really low and you have 8 similar comparable, which of those comparable would you use?
You use all the comparable evidence and weigh the importance of each accordingly. You do not ignore any evidence, but just weigh the evidence appropriately.
For your example, Industrial, Aldridge, you did a market valuation based upon the recently achieved rental income - was the income full market value?
Yes, I assessed it, and the passing rent was the current full market rent, and therefore, there was no reversionary element, so I valued it into perpetuity at the passing rent.
In your example, Industrial, Aldridge, how did you confirm passing rent equalled market rent?
I completed an assessment of market comparable data and my understanding of the market to confirm that the passing rent equalled market rent.
I completed the letting 12 months prior on the open market, so I know all the figures were confirmed and the property achieved a full market rent, but I also assessed the conditions of the market and any transactions completed in the interim to ensure I can safely assess that the passing rent and market rent equalled each other.
When completing a Term and Reversion example, how do you factor in a void period?
I would factor this into the all risks yield being applied to the reversionary element of the calculation.
As part of selecting my all risks yield I would assess factors such as what the market is like, if the tenant is likely to vacate the premises and if they did how quickly I would reasonably see the property letting on the open market. This would all be considered in assessing yield.
In your Office Sutton Coldfield example, when were the tenants ‘ improvements completed?
- The ground floor extension was completed in November 2019.
- The loft conversion to offices was completed in March 2015.
As they were within the last 25 years and completed with the landlord’s consent, I excluded them as per the terms of the lease agreement.
I understand that where a lease states tenants improvements are excluded, the date of the improvements are key, because you can begin to take consideration of the tenants improvements once 25 years has passed.
Did the tenant in your Office, Sutton Coldfield example obtain the landlord’s permission to carry out the improvements?
Yes, the landlords permission was obtained.
How long can you exclude tenant improvements from a lease?
There is a 25-year maximum before you can start taking them into consideration again.
How did you deal with the tenant’s improvements part of the market valuation? - Office, Sutton Coldfield.
Answer to be discussed. T&R
What was the remaining term on the lease? What were HOT’s - Office, Sutton Coldfield
What factors effect the yield used?
- Comparable data
- The market behaviour
- WAULT
- Tenant covenant
- Rent Review mechanisms
