Valuation Flashcards
(14 cards)
What is the RICS Red Book?
> Comprehensive set of global valuation standards and guidance
> Applies the latest international valuation standards (IVS) supplemented by additional requirements and best practical guidance
> Consistency, accuracy, objectivity and transparency are fundamental to building and sustaining public confidence and trust in valuation
What is a Red Book Valuation?
> Formal Property Valuation conducted by a RICS registered valuer following the standards outlined in the RICS Red Book
Formal and evidence based valuation
When is a Red Book Valuation required?
> For tax purposes and legal proceedings
Not required for internal valuations
What are the 3 valuation approaches?
1. Market Approach: Based on finding comparable evidence
2. Income Approach: Capitalising net rental income (or operating income) at an appropriate yield to produce a capital value
3. Cost Approach: Based on principle of substitution. Asset valuation is based on the Land value + cost to build an asset minus depreciation
What is a years purchase?
> Reciprocal of a yield (1 divided by the yield)
The number of years needed for the income to equal the capital value
What are the five methods of valuation?
- Comparative
- Investments
- Profits
- Residual
- Depreciation Replacement Cost
Walk me through the Comparative method of Valuation
- Search and select comparable evidence
- Confirm/verify the details and analyse the headline rents to give a net effective rent
- Assemble a comparables schedule
- Adjust the comparables using a hierarchy of evidence
- Analyse the comparables to form an opinion of value
- Report the value and prepare a file note
What is an hierarchy of evidence?
The relative weight attributed to different types of evidence
Direct Comparables
- Contemporary, completed transactions for near identical properties
- Contemporary, completed transactions for similar properties
- Contemporary, completed transactions for which full data may not be available (but enough reliable data is available)
- Similar real estate where bids have been received but no contract exchanged
- Asking Prices
General Market Data (Agency reports etc.)
Other Sources (Stock market movements)
What are bases of value?
A statement of the fundamental measurement assumptions of a valuation.
- Market Value
- Market Rent
- Investment Value
- Fair 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 proper marketing where both parties had *acted *knowledgeably, prudently and without compulsion.
What is Market Rent?
The estimated amount for which an interest in real property should be leased on a 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 both parties acted knowledgeably, prudently and without compulsion.
What is investment value?
The value of an asset to a particular owner or prospective owner for individual investment or operational objectives.
What is Fair Value?
The price that would be received to sell and asset or paid to transfer a liability in an orderly transaction between market participants at the measurement (valuation) date. (Similar to Market Value)
What is the profits method of valuation?
> Valuation used for operational assets such as an hotel, pub restaurant
Value is derived from the profits generated form the business not the physical building
