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Valuation Pt 2 Flashcards

(45 cards)

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1
Q

Explain the method behind the Profits Method valuation and when it is used?

A

Used when the profitability of the running businesses is the key driver, over and above the bricks and mortar (e.g. hotel)

Annual Turnover
LESS costs/purchases = Gross profit

LESS working expenses = Unadjusted Net Profit (earning before interest, tax, depreciation, tax, amortisation (EBITDA))
The EBITA is also considered as the Fair Maintainable Operating Profit (FMOP)

LESS tenants share = Adjusted net profit

Capitalise at yield to achieve Mv, check with comparable evidence if possible

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2
Q

What variables can impact value?

A
  • Topography and elevation
  • Tenure
  • Development
  • Access/responsibilities
  • National Parks and designations
  • Location and accessibility to amenities
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3
Q

Identify some reasonable ‘assumptions’ you could make during a Valuation inspection?

A
  • No Structural defects
  • No hazardous materials
  • Mains services
  • Tenant status
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4
Q

What is the IVS and when was the most recent version published?

A

International valuation standards which is a framework designed to ensure parity in delivering valuation services

released 31 January 2024

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5
Q

Who created the IVS and what is the relationship with the RICS red book?

A

The International Valuation Standards Council
The IVS is fully incorporated into the RICS red book global standards

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6
Q

When will the next updated version of the RICS red book global standards take effect?

A

31st January 2025

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7
Q

What are the main changes the RICS global standards 31st January 2025?

A
  • 6 IVS rather than 5
    -More alignment with IVS
    -More emphasis of ESG in the IVS
    -VPGA11 introduced
    -VPGA1 (financial reporting) has been re-written
    -Adaption to evolving practices including environmental, social and governance (ESG)
  • reference to AI and useful Valuation models
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8
Q

What year was the RICS red book first published?

A

1976

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9
Q

What are the mandatory valuation ‘Professional Standards’ in the RICS red book?

A

PS 1 – Compliance with standards where a written valuation is provided and VRS
PS 2 – Ethics, competency, objectivity and disclosures

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10
Q

What are the mandatory valuation ‘technical and performance standards’ in the RICS red book?

A

VPS 1 – Terms of engagement (scope of work)
VPS 2 – Inspections, investigations and records
VPS 3 – Valuation reports
VPS 4 – Bases of value, assumptions and special assumptions
VPS 5 – Valuation approaches and methods.

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11
Q

Where would I look within the RICS red book for guidance on unique or specific valuation assignments?

A

VPGAs - Valuation Practice Guidance Applications where there are 10 different guides/specialist examples

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12
Q

What is your firms professional Indemnity insurance and what purpose does it serve?

A

£5 million per valuation, but varies depending on value

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13
Q

What does the word ‘probate’ mean?

A

The word Probate means ‘proving’, as it involves proving that the Will in the Executor’s possession is the last Will of the deceased.

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14
Q

When do you date a probate valuation?

A

The date of death

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15
Q

When is the current RICS red book version effective from?

A

31st January 2025

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16
Q

Define the ‘investment value’ and which VPS would this fall under?

A

The value of an asset to a particular owner or prospective owner for individual investment purposes

VPS 2: Basis of value and assumptions

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17
Q

Define the ‘Fair value’ and which VPS would this fall under?

A

‘The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.’

VPS 2: Basis of value and assumptions

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18
Q

What are the 5 methods of Valuation?

A

P.R.I.C.C

  1. Profits
  2. Residual
  3. Investment
  4. Comparable
  5. Contractors (DRC)
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19
Q

What is VPGA and what is covered in VPGA 2?

Study These Flashcards
A

VPGA is within the RICS red book and provides Valuation Practice Guidance
e.g. VPGA 2 = valuation of interests for secured lending

20
Q

What is the All Risks Yield (ARY)?

Study These Flashcards
A

Expressed as a %

Rate of interest used in the valuation of let property at market rent reflecting all risks attached to the investment

21
Q

What valuation technique involves the Gross Development Value? Give an example?

Study These Flashcards
A

Residual Method - When valuing land with development value. Basic understanding is the GDV (minus) costs = land value

22
Q

Identify some generic costs you would deduct from the GDV?

Study These Flashcards
A

Construction cost
Acquisition cost (cost of land, legals, etc)
Contingency
Planning cost
Professional Fees (engineers, architects, planning consultants)
Developers profit **

23
Q

What is the purpose of the IVS?

Study These Flashcards
A

International valuation standards provides an effective, regulatable framework for the delivery of valuation services to clients. It is composed/regulated by the International valuation standards council (IVSC).

24
Q

When was IVS published?

25
What is another name for a Probate Valuation?
'Confirmation of Estate' valuation
26
What is the comparable method approach?
Comparable method provides an indication of value by comparing the subject asset with identical or similar assets
27
What is the Investment Method and when is it used?
Investment Method is used when there is an income stream to value with a sitting tenant for the purpose of an investment Yield in Investment is calculated by Income/Value x 100 YP then calculated by 100/yield
28
What is Hierarchy of evidence and what are the categories?
Category A – direct transactional evidence Category B – general market data providing guidance rather than a direct indication of value Category C – other sources, such as transactional evidence from other property types and locations
29
What makes a good comparable?
Comprehensive, i.e. ideally a valuer needs more than one transaction Very similar or identical Recent Result of an arm’s length transaction Verifiable Consistent with local market practice Result of underlying demand, i.e. sufficient bidders to create active market
30
How would you value an investment if there was a freehold factory being let on the Open Market for £100,000 per annum; comparable evidence indicate ARY is 8%?
YP = 1/ARY (e.g. 8%) YP = 1/0.08 YP = 12.5 Value = Market Rent x YP = 100,000 x 12.5 = £1,250,000 Value = £1,250,000
31
What do you need to take into account when applying an All Risk Yield to an Investment?
- Take into account factors which will impact the risk, and resultantly the ARY e.g. Take into account location, nature of the property, strength of the tenant covenant, and any important lease terms/clauses - ARY reflects all the risks, uncertainties -Review comparable data to help compose ARY,
32
What version of the RICS are we on and when was it effective from?
31 January 2025
33
What changes are we expecting to see from 31 January 2025 in the layout of the RICS red book?
They anticipate that they will restructure/re-order the VPS (1-5) to cross reference with the IVS
34
Are VPS mandatory or Voluntary?
Mandatory
35
Why do we, as surveyors across the globe, require the RICS red book?
1. Provide consistency, objectivity and transparency in valuations 2. Build public confidence and trust in RICS members' valuations 3. Ensure valuers are working to the latest international standards 4. Provide an essential quality control check without the need for legislation.
36
What is the RICS black book?
The ‘Black Book’ is a collection of technical practice documents relating to construction Typically used by quantity surveyors
37
What is the RICS key measurement practice and when was it introduced?
International Property Measurement Standard (IPMS) January 2023
38
What do you think you need to take into account when valuing land with a 1991 AHA tenancy and you are looking at future Vacant Possession? How would you calculate this?
1. The tenants age, how much longer do they realistically have before they retire? 2. Do they have any children, or close family who are clearly working on the farm and show an interest? Calculate this using the Parry's Table which is used for complex valuations
39
You say you were involved in a valuation for Secured Lending. What special assumptions did you make in this valuation?
We made the special assumption of Vacant Possession as requested by the bank; all properties were tenants at the time of Valuation inspection
40
What headings would you specifically see in a Secure Lending Valuation, and not in others?
1. Lending considerations: - information on the proposed loan and term -Marketability of the properties -Property performance - Due diligence recommendations -Confirmation that they are suitable properties for loan security - Active Management i.e. is there anything the owner needs to do to maintain value 4. Insurance reinstatement cost Estimate (using BCIS)
41
What were the Key changes to the UK national Supplement in 2023 and when did they take effect?
1st May 2024 -UK VPGA 15 valuations for CGT, IHT, Stamp Duty on enveloped dwellings and residential property developer tax -Residential valuation guidance refined -New financial and governance reporting standards introduced -Valuation for public sector accounting guidance amended
42
What is the purpose of the International Valuation Standards and who Developed the standards?
The International Valuation Standards Council (IVSC) The IVS are internationally agreed, high level standards which promote transparency and consistency in the valuation practice. The IVS provides a unified framework worldwide
43
What are the requirements to be a RICS registered valuer?
- Be an RICS qualified member - Take valuation to L3 in your APC or complete a max. 100 days valuation experience signed off by an RICS Registered Valuer. - Be registered on the VRS - Undertake valuations in accordance with the RICS red book - Maintain a CPD record
44
What is VPGA and can you give an example?
Valuation Practice Guidance Applications VPGA 11 - Valuation of UK Residential Property - outlines basis of value, assumptions, inspection requirements
45
What is Gross Development Value (GDV)
Used in Residual Valuations GDV is the value of a property development once it is completed.

Valuation (3 decks)

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