Valuation (Level 2) - SOE Specific Flashcards

Question

Describe how Departure from the Red Book mandatory requirements may be possible?

Answer 1

Easy to get confused between Red Book exception and Red Book departure   Exception = Red Book doesn’t apply  Departure = Red Book does apply, but valuer does not comply with mandatory requirements   Can depart if there are special circumstances where it is inappropriate to comply with VPS 1 - VPS 5 and client agrees. EG client says ‘just want quick valuation, but not a Red Book valuation’ - can’t do this, valuer should decline   EG client says ‘do valuation without going inside the property’ - again, can’t do this, valuer should decline   IF there is good reason for not going into the property, then could depart e.g. if you might be met with hostility and violence, say in terms of engagement due to relationship between landlord and tenant I have been instructed not to enter the property- got to be confirmed in terms of engagement and it has got to be reported that this may impact the valuation. Can only depart if there are circumstances that justify departure  

Answer 2

It is advisory, not mandatory.

Answer 3

- Competancy check - Check for a conflict of interest - Agree to terms of engagement

Answer 4

PS 1: The Red Book applies to all valuations unless the purpose is specifically listed as an Exception: Agency or brokerage work in anticipation of disposal or acquisition instructions Acting or preparing to act as an expert witness Performing statutory functions Purely for internal Purposes Preparation for or during negotiations or litigation NOTE: A Replacement cost for insurance purposes is not a “valuation” - therefore don’t say its an exemption!

Answer 5

This must be confirmed and agreed with the client as a departure and a clear statement to that effect must be included in the terms of engagement, report , and any published reference to it.

Answer 6

VPS 1 - The main Terms of Engagement are: (a) Identification and status of the valuer (b) Identification of the client(s) (d) Identification of the asset(s) or liability(ies) being valued (f) Purpose of the valuation (g) Basis(es) of value adopted (h) Valuation date (i) Nature and extent of the valuer’s work - including investigations - and any limitations thereon (k) All assumptions and special assumptions to be made (o) The basis on which the fee will be calculated

Answer 7

1. Client instructed me to value a industrial unit for internal purposes 2. I underwent a competency check, conflict of interest check and agreed terms of engagement before undergoing the valuation. 3. To determine the Market Rent, I used the comparable method to establish the Market Rent. - This involved compiling and weighing a table of comparable recent lettings into a table based on key factors such as location, size, specification, and lease terms to ascertain the market rent. This outlined that the property was under-rented. 4. As the property was under-rented, to determine the market value, I used a term and reversion method. - This involved capitalizing the passing rent (£45,790) by YP 3 yrs @ 6% to get the value of the term - Then capitalizing the Market Rent (£63,655) by YP into Perpetuity, deferred for 3 yrs @ 6.5% to get the value of the reversion - Adding the term and reversion values together gave the Gross Acquisition Price - Then taking away acquisition fees and stamp duty land tax gave Market Value

Answer 8

The better the evidence, the more weight it will carry.

Answer 9

- Physical Characteristics - Location - Time Scale - Use - Tenure

Answer 10

After gathering comparable evidence a valuer must weight and rank each piece, some may be disregarded. This is subjective depending on what the valuer thinks.   Attach the greatest weight to those transactions which are most similar to the subject property

Answer 11

letting boards, speaking with agents, EGI, CoStar Focus, own/office records, Land Registry

Answer 12

Used to value shops, offices, industrial and warehouse properties that are: Let with an income stream Owner occupied Vacant

Answer 13

Market Rent (Net of Outgoings) X Years Purchase (YP) = Market Value

Answer 14

A reversionary investment is where a property is let at a rent other than the Market Rent.

Answer 15

the net income (or passing rent) at the date of purchase expressed as a percentage of the Purchase Price

Answer 16

the Market Rent expressed as a percentage of the Market Value (or Purchase Price)

Answer 17

The yield is a measure of investment return expressed as a percentage of capital invested.

Answer 18

YP in perpetuity = 100/yield

Answer 19

- The physical characteristics - The tenants covenant strength - The unexpired lease terms - The other lease terms including rent - Anticipated rental growth (may not have been made explicit in the valuation)

Answer 20

- The residual method is used to value land and properties with: - Development, redevelopment and refurbishment potential - When it is not possible to value by comparison

Answer 21

Value of Completed Development - Development Costs - Developers Profit = Land Value

Answer 22

Demolition/site prep Cost of construction (Building cost) Construction fees (architects, engineers etc.) Cost of finance Contingency to allow for fluctuations in these costs Agent and legal fees (in disposing the development) Acquisition costs - Fees and stamp duty land tax on acquisition when you buy the site  (GIVE ANSWER IN THIS ORDER AS IT IS LOGICAL) 

Answer 23

Developers profit can be calculated by either a percentage of total cost (22-25%) or a percentage of Gross Development Value (15-17%) *Depends upon risk The riskier the development, the greater the percentage Would say ‘I used 15% because there was only a moderate risk’

Answer 24

Stamp duty land tax  Acquisition agents fees  Legal fees  VAT on the agent and legal fees  1.8%= 1% lettings fees 0.5% for sols fees + 20% VAT= 1.8%

Answer 25

0% on the first £150K 2% on the next £100K 5% above £250K For purchases above £250K the SDLT can be calculated from the Gross Acquisition Price net of agent and legal fees.