Valuation Level 2 and 3

Question 1

Tell me why terms of engagement are important.

Answer 1

Terms of engagement are important because they are a mandatory requirement set out the Red Book. They include identification, address, scope and extent of works, valuation dates, restrictions, fees etc.

Question 2

What checks do you undertake before accepting a valuation instruction?

Answer 2

Compliance checks, if it is within your competency, purpose of valuation, conflict of interest checks

Question 3

How do you ensure you know who your client is when undertaking a valuation instruction?

Answer 3

Through terms of engagement and having a conversation with the client prior to the instruction.

Question 4

Are there any additional requirements when undertaking a valuation in which the public has an interest, or third parties may rely?

Answer 4

Interested parties must be identified and disclosed and circumstances for the valuer e.g., fee must be provided. Conflicts of interest checks must be carried out.

Question 5

Are there any additional requirements for loan security valuations?

Answer 5

VPGA 2 Ð loan security valuations. The lender can sometimes have additional requirements for the valuation, which may include assumptions if they are not in places.

Question 6

Talk me through an example of when you have agreed terms of engagement with a client.

Answer 6

When taking on instruction I have agreed terms of engagement via identifying what the client wants and sending out terms of engagement to be agreed e.g., a level 2 with valuation etc.

Question 7

What are the key elements included within terms of engagement?

Answer 7

Terms of engagement set out basic facts of an instruction including purpose of valuation, interest to be valued, identification used, date of valuation, assumptions etc

Question 8

What does the Red Book say about terms of engagement?

Answer 8

VPS 1 = Terms of engagement. It is mandatory for all valuations unless exempted. The Red book sets out general principles and terms of engagement. Terms of engagement should convey a clear understanding of the valuation requirements and process. The format and detailed of the proposed valuation report is a matter to be agreed in writing in the terms of engagement. Firms may have a standard form of terms of engagement or standing terms of engagement in place that may include several of the minimum terms required by this global standard.

Question 9

What does the Red Book say about inspections?

Answer 9

VPS 2 = Inspections, investigations and records. Inspections and investigations must always be carried out to the extent necessary to produce a valuation that is professionally adequate for its purpose. Any limitation must be identified, and assumptions made if relevant information is not available.

Question 10

What does the Red Book say about reporting requirements?

Answer 10

VPS 3 = Valuation reports. Clearly and accurately set out the conclusions of the valuation in a manner that is neither ambiguous nor misleading, and which does not create a false impression. If appropriate, the valuer should comment on uncertainty, of the valuation under item. Deal with all the matters agreed between the client and the valuer in the terms of engagement

Question 11

What are the differences between a desktop and a full valuation report?

Answer 11

Desktop valuation is done from the appraiserÕs desk, the appraiser does not have to go for the physical inspection of the property he is about to value whereas, the appraiser will have to physically visit the property take pictures, closely examine all the features of the property, measure and evaluate the property to perform a full valuation. Assumptions have to be made on a desktop valuation.

Question 12

Tell me about how you ensure that information relied upon in your valuation is appropriate and reliable?

Answer 12

By using the hierarchy of evidence as highlighted by the RICS guidance note Comparable Evidence in Real estate 2019 e.g., Direct comparable, general market data and other sources

Question 13

Talk me through the stages of an investment valuation.

Answer 13

Establish if over/under rented = Term and revision. 1. Capitalise passing rent using YP at a yield discounted from market rate. 2. Capitalise reversion using market rent into perpetuity using a YP from market rate discounted using present value. 3. Add together. 4. Stand back and look. Value property with vacant possession on comparable basis Ð lower market value will be close to valuation figure.

Question 14

Talk me through stages of a development appraisal.

Answer 14

Valuation of development property 1st edition 2019. Development appraisal = Viability assessment. Instruction.

Question 15

If you were undertaking a development appraisal, what inputs would you use?

Answer 15

Build Costs. Fees. Marketing/Disposal costs. Contingency. Financial costs. Fixed land cost. Other site costs.

Question 16

How would you go about calculating build costs for a development appraisal?

Answer 16

BCIS or Spons

Question 17

You identify significant settlement in an older building how do you reflect this in your valuation?

Answer 17

Depending on the valuation. You may put a retention on a MV or a nil value until further investigations are carried out from a chartered structural engineer.

Question 18

You identify significant subsidence in a property do you provide a valuation to the lender?

Answer 18

Retention or Nil value.

Question 19

You identify an apparently active outbreak in a property do you provide a valuation to the lender?

Answer 19

No, you would put a retention on the property until further investigations or works had been carried out.

Question 20

If asked to value a portfolio of properties in a relatively small area, would you make any special assumptions

Answer 20

Depending on the client you could make assumptions that all properties were of similar title, condition, services etc

Question 21

Alder Lane: Tell me what is a staircasing valuation?

Answer 21

A staircasing valuation involves shared ownership. When you staircase a property you increases your equity percentage in your property and your rent reduces.

Question 22

Alder Lane: Tell me how you applied the principles in the RICS Guidance Note Comparable evidence in Real Estate Valuation.

Answer 22

I used the hierarchy of evidence and verified the evidence inline with the guidance note.

Question 23

Alder Lane: How did you narrow the 5 comparables down to 3?

Answer 23

Through analysis I ranked the comparables and narrowed the comparables down to the best 3 suited comparable properties e.g., closest in terms of location, type, size condition and date sold.

Question 24

Alder Lane: How did you rank the comparables?

Answer 24

In order with the most similar and recent comparable to the least similar and oldest sold

Question 25

In a staircasing valuation is the value of a part share of say 50% always identical to half the full open market value?

Answer 25

No, it changes dependent on the market conditions.

Question 26

Parkinson Terrace: How did you make suitable adjustments to the comparables? What are they?

Answer 26

Adjustments are made to try and match the properties. Suitable adjustments include date sold, size, condition, type, bedroom, plot. These all have impact on a value and therefore adjustments must be made to reflect the market value.

Question 27

Parkinson Terrace: How did you advise the client of the further investigations which needed to be addressed?

Answer 27

I advised the client that further investigations were needed as there were legal matters which could impact the market value of the property for example the right of way to the rear, ownership and any repairing liabilities.

Question 28

Parkinson Terrace: Can you explain the rationale behind your advice that the comparables did not support the purchase price?

Answer 28

There was a lack of direct market evidence to match the subject property. The comparable evidence all suggested that the property was overpriced at its asking price and there was no evidence to justify the agreed price. I extended the search radius and sill could not find market evidence to back up the value which indicated that the property was overpriced.

Question 29

Mill Lane: What advice did you give to the client regarding the market conditions between the first valuation and the updated desktop?

Answer 29

I advised the client that market conditions had risen in the months between the first valuation and this has increased the value by a couple of percent.