VALUATION

Question 1

What are the 3 types of comparable

Answer 1

1) direct transactional evidence
2) General market data
3) Data from other property types and other locations

Question 2

What is comparable evidence

Answer 2

Item of information used during a valuation to support the value of another similar item

Question 3

What is the investment method

Answer 3

Capitalisation of rental evidence to find the capital value of an asset

Question 4

What is a yield

Answer 4

How much annual return you are likely to receive in comparison to the capital value of the property

Question 5

How is residual value calculated

Answer 5

GDV - (cost + profit)

Question 6

How is viability calculated

Answer 6

GDV - (Cost + profit + cost of land) to find residual value and then compare this with EUV+

Question 7

What are the stages of depreciated replacement cost

Answer 7

1) market value of land
2) BCIS cost of rebuilding
3) include professional fee and finance cost
4) Deductions for obsolescence
5) Final adjustment
6) Stand back and look
7) Decapitalise to find rent

Question 8

Name the 3 types of obsolescence

Answer 8

1) Economic, due to changing economic conditions and demand
2) Physical, to reflect ware and tear created from the premises
3) Functional, removing areas that were needed to accommodate a process no longer needed

Question 9

When is a DRC method used

Answer 9

Market with no comparable evidence and is not occupied in the pursuit of profit

Question 10

When is a profits method used

Answer 10

Used where there is some form of monopoly due to type or use of property

Question 11

How do you value using the profits method

Answer 11

1) Establish fair maintainable trade of a reasonably efficient operator
2) calculate fair maintainable profit by deducting expenditure (wages and operating cost) and costs
3) capitalise fair maintainable operating profit by an all risks yield
4) to find rent net profit is split by the divisible balance in order to find the rent a landlord would charge. Net profit is found by deducting expenses for the business

Question 12

What are the five methods of valuation

Answer 12

Comparable 
Investment 
Profits 
Residual 
Depreciated replacement cost

Question 13

What types of valuation are exempt from a Red Book report

Answer 13

Agency 
Statutory 
Expert witness 
Advocate 
Internal valuation

Question 14

Under what section of the global standards contains valuation report writing

Answer 14

VPS3

Question 15

What do you need to do first when taking on a valuation instruction

Answer 15

1) Check you are competent enough to take on the work
2) Check for any conflicts of interest
3) Issue terms of engagement
4) Due diligence check to see that no material matters will impact value e.g. flooding, asbestos etc.

Question 16

Are you liable for oral advice given

Answer 16

Yes

Question 17

What is the hierarchy of evidence for leased properties

Answer 17

1) Open market sale
2) Lease renewal
3) Rent review
4) Third party determination
5) Sale and Lease back
6) inter company transaction

Question 18

When is the investment method of value used

Answer 18

Where there is an income stream to value

Question 19

What is years purchase

Answer 19

number of years required for an assets income to yield its purchase price

Question 20

How is market rent defined in VPS 4

Answer 20

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 21

What sections of the Red Book are mandatory for members?

Answer 21

PS 1-2 and VPS 1-5

Question 22

Which section of the VPS provides standards for report writing?

Answer 22

VPS 3

Question 23

What forms of valuation are exempt from the Red Book?

Answer 23

Agency, statutory purpose, expert witness, advocate, internal purposes

Question 24

What is a yield?

Answer 24

The return on an investment based on the annual rent in comparison to the capital value of the property

Question 25

What does the present value formula indicate?

Answer 25

The PV formula is used to reflect the time value of money

Question 26

How is an investment approach to valuation conducted?

Answer 26

Capitalisation of rental incomes over a term and reversion.

Question 27

When would you use an investment method?

Answer 27

Typically used where a tenant is providing the landlord with an investment return on his capital cost

Question 28

When would you use a DRC method of valuation?

Answer 28

Market with no comparable evidence and is not occupied in the pursuit of profit

Question 29

What is a reasonably efficient operator?

Answer 29

An operator that conducts their business in a manor expected of the average occupier of such a unit.

Question 30

What are the stages of a comparable valuation

Answer 30

- Search for comps - Analyse rate per m2 - Collate evidence in matrix or schedule - Adopt common measurement for comparison - Form opinion of value - Stand back and look

Question 31

Name and explain the different types of yield

Answer 31

All Risks Yield A yield which accounts for all of the risks of owning the property such as inflation, obsolescence and void periods Equivalent Yield It is the overall yield between the term and reversionary incomes. Growth and risk are not reflected in this yield Equated Yield This is the IRR for a cash flow and reflects growth and risk of an investment Reversionary Yield The yield likely to be achieved when the passing rent is adjusted in line with market values

Question 32

What are the rates for industrial, shops and offices in your area

Answer 32

Industrials - Prime rent £15-16 sq ft - Supply increased 64% - Fall in prime space around the centre Offices - £40 sq ft - 4.75% yield - 50% of office take up has been science and technology related - Epicentre for COVID research Shops - £300 ITZA - 4% yield (2017)

Question 33

How is marriage value calculated

Answer 33

For Leasehold Extensions Value of old interest is subtracted by the value of the new interest and split 50/50 with the landlord and tenant in line with the Leasehold Reform Act. Marriage value is only considered for properties with leases of less than 80 years remaining For Freehold Looking at the residual land value if planning permission is granted

Question 34

On what basis of value are local authority and central government asset valuations conducted and why?

Answer 34

Existing use value is used for operational property e.g. those being used by the local authority Fair value is used for assets which are held for sale e.g. surplus property These are requirements set out in the UK Red Book National Supplement

Question 35

What is basis of value?

Answer 35

Nature of the assumed transaction based on the relationship and motivation of the parties

Question 36

What is the hierarchy of direct comparable evidence outlined in the RICS Comparable evidence in real estate valuation, 2019?

Answer 36

* Contemporary, completed transactions of near-identical properties for which full and accurate information is available (may include the subject property) * Contemporary, completed transactions of other, similar real estate assets for which full and accurate information is available * Contemporary, completed transactions of similar real estate for which full data may not be available * Similar real estate being marketed where offers have been made but a binding contract has not been completed * Asking prices (with careful analysis)

Question 37

What were the main takeaways from the RICS 'Beyond Covid-19' practice statement

Answer 37

- Valuers may have to use a greater reliance on knowledge of local market - Material uncertainty is at the discretion of valuer - Consideration of security of future income streams when conducting an investment method valuation

Question 38

What are the recent changes made to the EPC standards

Answer 38

All domestic lettings must have a rating of E or above as of 01-APR-2020 regardless of it being a new or current lease. All let non-domestic properties are set to increase to an E rating from April 2023

Question 39

How would you analyse a premium in a rental valuation

Answer 39

Find the capital value of the property, add that to the premium received and then decapitalise back to a rental figure

Question 40

For private sector assets on what basis are they valued for financial reporting under the UK National Supplement?

Answer 40

Fair value which is the sale of the property in an orderly manner If the asset is highly speciaised then the property will be valued on an investment approach or depreciated replacement cost

Question 41

What is the difference between a growth implicit and growth explicit yield

Answer 41

Growth implicit means that growth is implied in the value Growth explicit means that growth is explicitly stated.

Question 42

What did the Sportelli case find

Answer 42

Established that a deferment rate of 5.25% should be applied to South East leasehold extensions. Stated that hope value was excluded from the valuation and that marriage value was the additional value added through the merger of the existing lease and the extension of the lease.

Question 43

How do you know what a reasonably efficient operator is?

Answer 43

It depends on what comparable properties in the area indicate in regards to income

Question 44

How would you value a pub which is currently trading at a loss?

Answer 44

Turn to comparables in the locality as this may indicate that the property is currently under trading and indicate what a reasonably efficient operator would trade at.