Valuation Techniques and issues

Question 1

Issue - review of real estate investment valuations - Dec 2021 made 13 recommendations (Peter Pereira Gray)

Answer 1

1. They should be governance arrangements for high risk and regulated valuations.
2. Valuation and advisory activities should be separated between firms.
3. Time specific mandatory procurement and rotation processes for valuers
4. A valuation compliance officer role should be developed within firms
5. Processes to raise concerns about ethical conduct, including improper pressure places on the valuers
6. A valuation regulatory quality assurance panel should be established.
7. DCF should become the principal model applied to in preparation of investment valuations
8. Review of real estate investment valuations
9. Review of postcode location requirements for valuers and regular revalidation of valuers
10. promote diversity and inclusiveness evaluation profession.

Question 2

What is the latest guidance note on ESG and sustainability?

Answer 2

Sustainability and ESG in commercial property, valuation and strategic advice, 3rd addition effective, January 2022

Question 3

What is an acceptable of margin of error in a valuation?

Answer 3

It varies between cases. If it is a straightforward evaluation, it should be no more than 10 %. However, for complex matters, it could be 15%.
Residential properties should be 5% .

Question 4

What is hope value?

Answer 4

The value arising from an expectation that future circumstances affecting the property may change, for example, securing planning permission

Question 5

What’s to consider when valuing for charities?

Answer 5

Must refer to UK VPGA 8
Trustees of the charity must obtain a section 119 of the charities act 2011 valuation when seeking to buy or to sell property.
Must follow the act requirements

Question 6

What is marriage value?

Answer 6

It is created by a merger of interest, i.e. two properties next to each other form a higher value together and when they are individual assets

Question 7

What are the SDLT brackets?

Answer 7

Commercial:
£0-150k =nil
£150,001 - £250,000 = 2%
£250,001+ =5%

Resi:
£0-125k = nil
£125-250 = 2%
£250-£925k = 5%
£925k - 1.5m = 10%
Over £1.5m = 12%

SDLT also charged on NPV of leases (i.e total rent over term reduced by annualised discount rate)

Question 8

How to value a long leasehold interest

Answer 8

Rent received - ground rent = net rent
Net rent capitalised at approporate yield for remainder of the lease

Question 9

What are the typical purchasers costs?

Answer 9

SDLT - depending on rate
Agents - 1.0% + VAT
Lawyer - 0.5% + VAT

Question 10

Zoning principles?

Answer 10

6.1m (20ft) halving back each time
Basements are normally A/10