Valuation Q&A Flashcards
(37 cards)
What are the definitions (Types?) of a valuer?
Confirm if this is the correct way to be asking this question.
- Internal Valuer (Employeed by the company to value the assets of the company/enterprise. Valuation for Internal use only, with no third party reliance.)
- External Valuer (Has no material links with the asset to be valued or the client)
When commencing a valuation, what are the three important first steps to undertake?
- Compentence: Do you have the correct level of skills, understanding and knowledge (SUK)? If not, refer to the RICS Find a Surveyor service on the website.
- Independance: Think first and then check for any conflicts or personal interests - WHO & WHY?
- Terms of Engagement: Set out in writing your full confirmation of instructions to the client prior to starting work and receive written confirmation of instruction. (In the ToE, you must confirm the competence of the valuer, and the extent and limitations of the valuer’s inspection must be stated)
What statutory due diligence did you undertake?
This is required to check that there are no material matters which could impact upon the valuation.
This could include:
1. Asbestos register
2. Buiness rates/Council Tax
3. Contamination
4. Equality Act 2010 compliance
5. Environmental matters (high voltage power lines, electricty substations, telecoms mats etc.
6. EPC rating
7. Flooding
8. Fire Safety
9. Health and safety compliance
10. Highways (check if roads are adopted by local highways agency)
11. Legal title and tenure (check the boundaries, ownership, any deeds of covenant, wayleaves etc.)
12. Public rights of way (from an OS sheet)
13. Planning history and compliance (check any onerous planning conditions, whether the property is in a conservation area/listed and subject to a s.106 agreement or CIL)
What is the timeline of a Valuation Instruction?
It is a 16 step process
- Receive instructions from the client
- Check competence (SUK)
- Check independence so that there are no conlficts of interest or personal interests
- Issue terms of engagement to the client (CIT)
- Receive terms of engagement signed by the client
- Gather information - leases/lease packet, title documents, planning information, OS plans etc.
- Undertake due diligence - to check there are no matters which could adversely impact upon value
- Inspect and measure
- Research market and assemble, verify and analyse comparables
- Undertake valuation
- Draft report
- HAve valuation and report considered by another surveyor for checking purposes
- Finalise and sign
- Report to client
- Issue Invoice
- Ensure valuation file is in good working order for aechiving
I don’t need to learn this list off by heart just have an idea of the process.
Can I Really Pick Correctly?
What are the five methods of valuation
- Comparative method
- Investment Method
- Residual Method
- Profits
- Contractors Method (Depreciated replacement cost).
Three approaches that encompase the five methods
What are the IVS105 Valuation Approaches and methods?
- Income Approach: Converting current and future cash flows into capital value (Invesment, Residual and Profits methods)
- Cost Approach: Referance to the cost of the asset whether by purchase or construction (DRC/Contractors method)
- Market approach: Using comparable information (Comparative method)
6 steps
What are the steps to the compartive valuation method?
- Search and select comparables
- Confirm/verify details and* analyse headline rent to give a net effective rent as appropriate * -(confirm this)
*3. Assemble comparables in a schedule - Adjust comparables using the hierarchy of evidence
- Analyse comparables to form opinion of value
- Report value and prepare file note*
What document outlines the principles in the use of comparable evidence?
RICS Professional Standard: Comparable Evidence in real estate valuation, 2019.
It provides advice in dealing with situations where there is limited availability of evidence and sets out a non-prescriptive hierarchy of evidence, not that “the valuer should use professional judgement to assess the relative importance of evidence on a case-by-case basis”.
What is the Hierarchy of evidence?
RE: Comparable Evidence.
The relative weight attached to different types of evidence.
1. Category A: direct comparables of contemporary
2. Category B: general market data that can provide guidance
3. Category C: Other sources.. (transaction evidence or other background data to advise on yeilds etc.)
What is ‘Category A’ in the Hierarchy of evidence?
Direct comparables of contemporary:
* Completed transactions of near identical properties for which full and accurate information is available; this may include data from subject property itself.
* Completed transactions of other, similar real estate assests for which full and accurate information is available
* Completed transactions of other similar real estate assets for which full data may not be available, but for which enough reliable data can be obtained to use as evidence
* Similar real estate being marketed where offers may have been made but a binding contract has not been completed, and
* asking prices (only with careful analysis)
What is ‘Category B’ in the Hierarchy of evidence?
General market data that can provide guidance, e.g.:
* Information from published sources or commercial data bases; its relative importance will depend on the relevance, authority and verifiablity.
* Other indirect evidence (e.g. indices)
* Historic evidence, and
* demand/supply data for rent, owner-occupation or investment
What is ‘Category C’ in the Hierarchy of evidence?
Category C is other sources after having used Category A & B data. E.g.
* Transactional evidence from other real estate types and locations, and
* other background data (e.g. interest rates, stock market movements and returns which can give an indication for real estate yeilds)
How do you find relevant comparables?
- Inspection of an area to find recent market activity by seeking agents’ boards
- Visit/speak to local agents
- Auction results (beware that these are gross prices)
- In-house records/databases and websites, such as Egi and Focus.
- Care needs to be taken when using auction comparables as there may be a special purchaser or an insolvency sale. The sale price is gross of costs.
- Market sentiment can be important when there is a lack of transactional evidence (what does this mean?)
- The date of the evidence in crucial, hency the focus on “contemporary” in the hierarchy.
What is an all risks yield?
The remunerative rate of interest used in the valuation of fully let property let at market rent reflecting all the prospects and risks attached to the particular investment.
What is a True yield?
Assumes rent is paid in advance, not in arrears (traditional practice assumes rent is paid in arrears).
What is a nominal yield?
Initial yield assuming rent is paid in arrears
What is a Gross yield?
The yield not adjusted for purchasers’ costs
What is a net yield?
The resulting yield adjusted for purchasers’ costs.
What is an Equivalent yield?
Average weighted yield when a reversion are property is valued using initial and reversionary yield
What is an Initial Yield?
Simple income yield for current income and current price
What is a Reversionary yield?
Market rent (MR) divided by current price on an investment let at a rent below MR.
What is a running yield?
The yield at one moment in time.
What is the definition of ‘Market Value’?
“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 and where the parties had each acted knowledgeably, prudently and
without compulsion” - IVS 104 paragraph 30.1
What is the definition of ‘Market Rent’?
“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 lease terms in an arm’s-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
