Undertaking a Valuation

Question 1

What is an internal valuer?

Answer 1

• Employed by a company to value their assets
• Valuation for internal use only
• No third-party reliance

Question 2

What is an external valuer?

Answer 2

Has no material links with the asset to be valued or the client

Question 3

What are the THREE steps you should undertake prior to commencing a valuation?

Answer 3

CCT:
C. Competence - check you have the correct level of skills, understanding and knowledge (SUK)
C. Conflict of Interest - check you are able to act independently and objectively on the instruction (WHO & WHY)
T. Terms of engagement - receive written confirmation of the instruction, confirm competence of the valuer and the extent and limitations of the valuers inspection MUST be stated

Question 4

Why do you undertake statutory due diligence?

Answer 4

To check that there are no material matters which could impact the valuation

Question 5

What types of statutory due diligence checks would you undertake when valuing a property?

Answer 5

1. Asbestos register
2. Business rates / Council tax
3. Contamination
4. Equality Act Compliance
5. Environmental matters (high voltage power lines, electricity sub-stations, telecoms masts etc.)
6. EPC rating if available
7. Flooding
8. Fire safety compliance
9. Health and safety compliance
10. Highways (check roads adopted with the local highways agency)
11. Legal title and tenure (check boundaries, ownership, any deeds of covenant, easements, rights of way, restrictive covenants, wayleaves)
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)

Question 6

Explain the timeline of a valuation (basic 16 step process).

Answer 6

1. Receive instructions from the client
2. Check competence (SUK)
3. Check independence so that there are no conflicts of interest or personal interests (WHO&WHY)
4. Issue terms of engagement to the client (CIT)
5. Receive terms of engagement signed by the client
6. Gather information - leases / lease packet
7. Undertake due diligence - check there are no matters which could adversely impact upon value
8. Inspect and measure
9. Research market and assemble, verify and analyse comparables
10. Undertake valuation
11. Draft report
12. Have valuation and report considered by another surveyor for checking purposes
13. Finalise and sign report
14. Report to client
15. Issue invoice
16. Ensure valuation file in good order for archiving

Question 7

What are the 5 methods of valuation?

Answer 7

Profits, residual, comparable, investment and DRC.

Question 8

What are the THREE valuation approaches set out in IVS 105?

Answer 8

Income approach - converting current and future cash flows into a capital value (Investment, Residual and Profits methods)
Cost approach - reference to the cost of the asset whether by purchase or construction (DRC method)
Market approach - using available comparable evidence (Comparable method)

Question 9

How would you carry out a valuation differently if you were instructed during Covid-19?

Answer 9

Impact of Covid-19 on valuation:

• Would be unable to inspect the property so would have to make this restriction on information clear in the ToE and the report
• Include a material uncertainty clause in accordance with VPGA 10. Use wording recommended by the RICS
• Increase length of void periods as reletting is likely to take longer, particularly for retail and leisure uses
• Market rent and yield selection would be impacted, although unlikely to be the transactional evidence to support this. Would judge market sentiment from agents
• Ensure I had the correct PII in place that would cover valuation practice in the current environment and that I had capped liability

Question 10

What is a material uncertainty clause?

Answer 10

• Used when the degree of uncertainty falls outside any parameters that might normally be accepted
• Does not mean to suggest that the valuation cannot be relied upon
• Less certainty can be attached to the valuation that would otherwise be the case