Valuation

Question 1

The Global Red Book is being updated through 2024, what is being reflected in this?

Answer 1

• implementation of Valuation Review recommendations
• practice and process changes driven by evolving areas such as ESG and technology
• information related to developments in other relevant global standards and regulation such as IFRS and Basel 3.1
• administrative updates to align the standards with wider RICS objectives

Question 2

When will the new Red Book be effective from?

Answer 2

1 January 2025

Question 3

What type of valuations does the Red Book not apply?

Answer 3

1. Valuations for statutory purposes
2. Valuations for internal purposes, not to be relied on by third parties
3. Valuations for the purpose of activng as advocate
4. Valuations for the purposes of acting as expert witness
5. Valuations for the agency or brokerage

Question 4

What are the 5 methods of valuation?

Answer 4

1. Comparable
2. Investment
3. Profits
4. Contractor’s
5. Residual

Question 5

Red Book - PS 1

Answer 5

Compliance with standards where a written valuation is provided

Question 6

Red Book - PS 2

Answer 6

Ethics, competency, objectivity and disclosures

Question 7

Red Book - VPS 1

Answer 7

Terms of engagement

Question 8

Red Book VPS 2

Answer 8

Inspections, investigations and records

Question 9

Red Book - VPS 3

Answer 9

Valuation reports

Question 10

Red Book - VPS 4

Answer 10

Bases of value, assumptions and special assumptions

Question 11

Red Book - VPS 5

Answer 11

Valuation approaches and methods

Question 12

L2: Commercial, Guildford

What did you determine to be the market rent for the office space in your valuation?

Answer 12

£200/m2

Question 13

L2: Commercial, Guildford

What did you determine to be the market rent for the retail space in your valuation?

Answer 13

£600/m2 ITZA

Question 14

L2: Commercial, Guildford

What yield did you use and why?

Answer 14

10.5%

This was slightly higher than the market evidence to reflect the increased risk of the location of the subject.

Question 15

L2: Commercial, Guildford

Did you use NIY or GIY?

Answer 15

NIY (CHECK?)

Question 16

What’s the difference between NIY and GIY?

Question 17

L2: Commercial, Guildford

What did you determine the total market rent of the property to be?

Answer 17

£33,900 pa

Question 18

L2: Commercial, Guildford

What amount did you allow for refurbishment costs?

Answer 18

£55,000

Question 19

L2: Commercial, Guildford

How did you calculate refurbishment costs?

Answer 19

Using BCIS - default period, ‘rehabilitation/conversion’, ‘320. Offices with shops, banks, flats etc.’, lowest (£468/m2)

Question 20

L2: Commercial, Guildford

What was the final value?

Answer 20

£250,000

Question 21

L2: Commercial, Guildford

What value significant features did you note on inspection?

Answer 21

Poor condition and inferior location to comparables.

Question 22

L2: Commercial, Guildford

How did you account for value significant features noted on inspection in your valuation?

Answer 22

Market rent and yield adopted

Question 23

What RICS document relates to using the comparable method of valuation?

Answer 23

Comparable Evidence in Real Estate Valuation, 1st Edition (2019)

(Guidance Note)

Question 24

When would you use the investment method of valuation?

Answer 24

When valuing an income producing property i.e. a rented property.

Question 25

When would you use term and reversion?

Answer 25

When valuing under rented properties. The term income is capitalised to the next lease event. The reversion is capitalised into perpetuity at a reversionary yield. If the current rent is market rent no need for the term.

Question 26

When would you use the hardcore/top slice method?

Answer 26

When valuing an over rented property.

Question 27

How does the hardcore/top slice method work?

Answer 27

The income flow is divided horizontally with the bottom slice being market rent, and top slice rent passing minus market rent until the next lease event. A higher yield is used on the top slice to represent increased risk.

Question 28

What is hope value?

Answer 28

Valuing arising from the expectation of future circumstances e.g. development potential

Question 29

What is marriage value?

Answer 29

Created by a merger of interests - physical or tenurial.

Question 30

What is a yield?

Answer 30

The income returned on investment as a percentage of the purchase price.

Question 31

What's the difference between GIY and NIY?

Question 32

What's the ARY?