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Valuation PB > Valuation L1 > Flashcards

Valuation L1 Flashcards

1
Q

What are the five methods of valuation?

A

Profit (Income)

Residual (Income)

Investment (Income)

Comparable (Market)

Depreciated Replacement Cost (Cost)

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2
Q

What 3 things should you consider before undertaking a valuation?

A
  1. Your professional competence
  2. Your independence
  3. Terms of engagement
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3
Q

Why might a valuation need to be carried out?

A

Valuations may be carried out for the following purposes:
- Loan security
- Accounts
- Tax (CGT/IHT)

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4
Q

When would you use the Investment Method?

A
  • When valuing an income stream
  • Capitalise the rental income to produce a capital value
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5
Q

When would you use the profit method?

A
  • Valuing a property that depends of the profitability of the business?
  • Operating profit capitalised as a yield
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6
Q

When would you use the residual method?

A
  • Find market value of site based on market inputs
  • Inputs taken at time of valuation
  • GDV-COSTS = LAND VALUE
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7
Q

When would you use the depreciated replacement cost method?

A

When valuing specialist properties. e.g lighthouse

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8
Q

When would you use the comparable method?

A
  • Most common valuation e.g lone security
  • search or comp
    -Adjust comps using hierarchy of evidence
  • Form opinion of value
  • Report value
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9
Q

What is the purpose of the Global red book?

A

Consistency, Objectivity, Transparency

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10
Q

What is the latest Redbook?

A

Global Standards 2021

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11
Q

What are the key points of IVS?

A
  • Promote transparency and consistency in global valuation practice
  • Terms of engagement
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12
Q

What is the definition of market value?

A

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.

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13
Q

What is the definition of Market Rent?

A

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 market terms, in an arms length transaction,

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14
Q

What elements of the redbook are most relevant to the work you carry out?

A
  • Ethics
  • Valuation performance standards (VPS)
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15
Q

What are some of the ethical considerations from the Red Book (2021)

A

-Conflict of Interest

  • Terms of engagement
  • Accuracy of valuation
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16
Q

What is enfranchisement?

A

Cost of increasing Lease

17
Q

What valuations are exempt from the Red Book?

A
  • Purely for internal purposes, without liability, and without communication to a third party.
18
Q

How many minimum terms must be included in the TOE and can you name a few?

A

18 minimum terms
- Identification and status of valuer
- Identification of client
- Identification of any other intended users
- Identification of the asset/liability being valued
- Purpose
- Basis of value

19
Q

What are the principles of the comparable method?

A
  • Multiple comps
  • Similar as possible
  • Recent
  • Verifiable

Challenges
- Challenging market
- no comps

20
Q

What is the RICS Guidance note on Comparable evidence in Real Estate (2019)

A
  • Advice on how to use comps
  • Encourage consistency in the use of comparable evidence globally
  • Address issues of availability and use of comparable evidence, especially in challenging
  • Hierarchy of evidence
21
Q

What is the time line of a valuation?

A
  1. Instruction
  2. Terms of Engagement
  3. Inspection
  4. Comparable evidence
  5. Value - Methods
    6 Draft Report
  6. Report to Client
22
Q

What does VPGA stand for?

A

Valuation Practice Guidance Application

23
Q

Name a few VPGA’s

A

VPGA 2 - Valuation for secured lending

24
Q

What does VPS stand for?

A

Valuation Performance Standards

25
Q

What are some important VPS?

A

VPS1 = Terms of engagement

VPS 2 = Inspections

VPS 3 = Valuation Reports

26
Q

What is a yield?

A

Measure of annual return expressed as a percentage
reflects risk

27
Q

What is an all risks yield?

A

Shows the rental revenue of an investment as an annual percentage of the property cost.

28
Q

What is a true yield?

A

Assumes rents are paid in advance not in arears

29
Q

Nominal Yield?

A

Initial yield assuming rent is paid in arrears

30
Q

Equivalent yield?

A

Is a weighted average of the Net Initial Yield and Reversionary Yield

31
Q

Running Yield?

A

The yield at one moment in time

32
Q

What is the IRR?

A

Initial rate of return

The annual rate of growth that an investment is expected to generate

33
Q

What are the proposed changes to the Investment methods?

A

More focus on Discounted Cash Flow which is more growth explicit

34
Q

What are the 5 VPs?

A

VPS1 - Terms of engagement

VPS2 - Inspection

VPS3 - Reports

VPS4 - Bases of value

VPS5 - Valuation method

35
Q
A

Valuation PB (4 decks)

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