Valuation Methods Flashcards
(12 cards)
What is the income approach as per VPS 5?
Capitalisation of present and predicted income - investment and profits method
What is the cost appraoch as per VPS 5?
Purchaser will pay no more than what it costs to build the property - DRC and residual methods
How do you do a comparable valuation?
1) Look at the subject property ( sale and letting evidence)
2) Select comparable properties (verify info)
3) Analyse comparables
4) Display comparables and subject in summary matrix
5) Value property
6) Stand back and look
How do you analyse comparables?
Research if the transaction is open market, transaction amount, size, location, date of transaction, specification, condition and layout
What is the profits method of valuation?
Used for valuing trade related properties.
Used where the value of the property depends on trading potential.
Basic principle is the value of the property depends on the profit generated from the business not the building or location.
Whats is the investment method of valuation?
Used when there is an income stream.
4 techniques:
1) Term and reversion
2) Hardcore and layer
3) Hardcore and top slice
4) DCF
What is the T&R technique and what are the steps to carry it out?
Investment method used wen property is under-rented.
Steps are:
1) Capitalise passing rent using YP at discounted yield for remaining years
2) Capitalise reversion using market rent into perpetuity using YP at market rate using present value
3) Add together
What is the Hardcor and Layer technique and what are the steps to carry it out?
Investment method of valuation
Steps are;
1) Capitalise term into perpetuity at equivalent yield
2) Capitalise top slice at equivalent yield deferred until reversion
3) Add together
What yield is used for Hardcore and layer?
Equivalent Yield
What is the hardcore and top slice technique?
Investment method of valuation used for investments where the subject is over-rented.
Talk me through the steps of valauing an over-rented shop from start to finish
1) Establish market rent by comparable analysis
2) Establish passing rent by reviewing the lease
3) Establish market yield using comparables and risk analysis
4) Capitalise market rent into perpetuity using market yield
5) Capitalise top slice (rental amount above market rent) until next review if rent can go down or lease ends if not, using market yield uplifted to reflect risk
6) Add together hardcore and top slice
7) Stand back and look
How would you carry out a DRC?
1) Establish repacement cost of modern equivalent property
2) Depreciate for age and obsolescence (functional, technical & economic)
3) Add land value = capital value
4) Depreciate at statutory decap rate for rating valautions (4.4% or 2.6% for health) = Annual Rental Value
