What is the definition of Market Rent?
- Market rent: estimated amount for which an interest in property should be leased on a valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arms length transaction after proper marketing and where both parties have acted knowledgeably, prudently and without compulsion
What is the definition of Market Value?
- Market value: estimated amount for which an asset or liability should exchange for on the valuation date between willing buyer and a willing seller in arms length transaction after proper marketing and where both parties have acted knowledgeably, prudently and without compulsion
What is the definition of Investment Value?
- Investment value: value of an asset to a particular owner or prospective owner for individual investment or operational objectives
What is the definition of Fair Value?
- Fair value: 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
What is the difference between an assumption and a special assumption?
Assumption: made where it is reasonable for the valuer to accept that something is true without need for specific investigation or verification. Assumption must be reasonable and relevant having regard to the purpose for which valuation is required
Special assumption:
* Made my valuer where an assumption either assumes facts that differ from those existing at valuation date or that would not be made by a typical market participant
* Special assumptions where they are necessary to provide valuation, must be expressly agreed and confirmed in writing before report issued
* Only made if they can be reasonably regarded as realistically relevant and valid
What sources of information would you consider when preparing a valuation report?
- Competence, independence, terms of engagement
- Gather information: lease, title documents, planning information, OS plans
- Inspect and measure
- Due diligence - research market and assemble, verify and analyse, draft value and report, peer review
If you have previously valued an asset, do you need to make any additional disclosures and what might they be?
Where valuation of an asset has been previously valued by the valuer or valuers firm the following disclosures must be made:
* Relationship with client and previous involvement
* Rotation policy
* Time as signatory
* Proportion of fees
If your firm is too small to have a rotation policy or valuation panel, what else can you do to ensure objectivity?
If valuation is undertaken on a regular basis then an arrangement could be made to have valuation periodically reviewed at intervals of not greater than seven years by another member would demonstrate objectivity
When might a conflict of interest exist in relation to a valuation instruction?
- Long standing relationship with borrower or owner
- Introducing the transaction to lender / borrower
- Acting for owner in property or related transaction
- Acting for borrower on purchase
- Retained to act in disposal or letting of completed development
- Recently acted in market transaction in property / asset
- Provided fee earning advice on property before and / or development consultancy for previous owners
- Risk of disclosure of confidential information i.e. disclose details of the valuers involvement
What is a restricted valuation service and can you provide one?
- Restricted service might be a short timescale for reporting without inspection or time for thorough investigation
- Restricted service will include limitations on assumptions of VPS 2
- Valuer should consider if restriction reasonable with regard to the purpose of valuation might be subject to conditions like no disclosures to third parties
- If not possible to value on restricted basis then should decline
- Valuer should make clear restrictions and assumptions and accuracy of report
How do you deal with limitations on inspection or analysis?
- Limitations on inspection or restrictions on the inspection, inquiry or analysis for the purpose of valuation must be identified and recorded in Terms of Engagement
- If relevant information not available due to restrictions then assumptions or special assumptions must be identified and recorded in ToE
Can you revalue a property without inspecting?
- A revaluation without inspecting previously valued must not be undertaken unless the valuer is satisfied that there has been no material changes to property or nature of its location since time since last inspection
- This must be confirmed in writing in ToE
What RICS guidance relates to the use of comparable evidence?
RICS Comparable Evidence in Real Estate Valuation 2019 - GN
What is an internal valuer?
- Employed by a company to value the assets of a company / enterprise
- Valuation for internal use only
- No third-party reliance
Can an external valuer provide an internal purposes valuation?
- Internal valuations are provided without liability, communication to third party
- Needs to be stated in ToE
- Possible yes for external valuer to do internal valuation if exclusion of liability and non-disclosure to third party
What happens if market conditions change between the valuation date and the report date?
- If there has been a change in market conditions or in circumstances of a property, asset or portfolio between valuation date of report, valuer should draw attention to this
- Prudent to draw attention to the fact that values change overtime and a valuation on a given particular day might not be valid earlier / later
Is special value from a special purchaser reflected in MV?
No - market value ignores any price distortions caused by special value or marriage value
When is fair value used?
- Adopted by the International Accounting Standards Board
- Required if IFRS is adopted by the client
What is the Valuer Registration Scheme?
Introduced October 2011. Aims:
* Improve quality of valuation and ensure highest professional standards
* Meet RICS requirements to self-regulate
* Protect and raise status of valuation profession
What is the basis of value under UK GAAP FRS 102?
Fair Value
When would you use EUV?
Used to form benchmark land value in FVA
What is the definition of EUV?
Market or other value assuming the property remains in its existing use with no exception of that use changing in the future
What purchaser’s costs do you deduct from a valuation?
Usual market practice to deduct likely cost of purchase from gross market value to provide net market value of a property as a purchaser will have to pay
* SDLT - Prevailing rate
* Agents fees
* Solicitors fees
What is the hierarchy of evidence?
RICS Comparable Evidence in Real Estate Valuation 2019 - GN
* Category A - Direct Comparables: contemporary completed transactions with full or sufficient reliable data can be found, real estate where offers not completion made = asking prices)
* Category B - General Market Data: indirect evidence e.g. yields. Historic evidence, supply / demand data
* Category C - Other Sources: (transactional evidence, background data)
