Please explain your understanding of the RICS Practice Information on Discounted Cash Flow Valuations (2023)?
DCF adopted an explicit method of valuation which tries to be explicit concerning the future benefits generated by a property asset.
It is deemed evidently more advantageous than the implicit all-risks yield method.
Please provide an overview of the current market trends at play within the Office Sector?
- 60% of office workers prefer to work in hybrid.
- Shift of space utilisation with hot desking, breakout spaces etc.
- 70% of commercial space in London falls below the EPC B rating.
- Cost of upgrading to EPC B to reach 2030 sustainability standards is extensive.
What is the profit method and how is it undertaken?
- Derived from trade related properties where value is from the business and trading potential.
- Common characteristics is where the property is designed for a specific use and the value is linked to what the owner can generate.
- Includes the property interest, business and location goodwill, fixtures and fittings all reflected as a single figure.
What is the residual method and how is it applied?
- Establish how much a purchaser should pay for a development site i.e., how much a developer can afford to pay for a site from an expected return.
- Establish GDV and then deduct costs of development = residual value.
- Special assumption that the development is complete at the date of valuation.
- Costs include site preparation, construction, sales and marketing, contingency, financing, developers profit.
What is the Depreciated Cost Replacement (DCR) method of valuation and how does it work?
- Provides a value based on the buyer paying no more or no less than the cost to obtain the asset based on the current equivalent.
- Replacement cost of asset with its modern equivalent. Deducts physical deterioration and other obsolescence.
- Includes cost of the site and construction of replacement.
What is the comparable method and how does it work?
- Uses recent transaction with similar size, location, condition, features, and specifications.
- Schedule of evidence with details of the property. Hierarchy of evidence.
- Should be comprehensive, recent, and representative of current market conditions.
What are the five methods of valuation?
- Comparable
- Profits
- Investment
- Depreciated Replacement Cost (DRC)
- Residual
What does VPS stand for?
Valuation Performance Standards.
These are mandatory.
What does VPGA stand for?
Valuation Practice Guidance Applications
These are advisory.
What are the Valuation Performance Standards sections?
- VPS 1 Terms of Engagement
- VPS 2 Inspections
- VPS 3 Valuation Reports
- VPS 4 Bases of Value, Assumptions and Special Assumptions
- VPS 5 Valuation Approaches/Methods
What can you tell me about the proposed changes to the Red Book in 2024?
Change has been driven by evolving areas of importance being ESG and technology. Come into effect in 2025.
- Align with other standards such as IPMS the measuring standard.
- Restructure of the standards to align with the International Valuation Standards.
What are the three approaches to valuation?
Market
Income
Cost
What are the four bases of value?
Market Value
Market Rent
Fair Value
Investment Value
What is Fair Value and when is it used?
The price that would be received to sell an asset, or paid to transfer liability, in an orderly transaction between market participants at the measurement date.
Often used on company financial statements and auditing.
What is 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 have acted knowledgeably, prudently and without compulsion.
What is 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.
What are the exemptions to VPS 1-5?
- internal valuations
- litigation
- agency/brokerage
- statutory valuations
- expert witness
How do you calculate a yield?
Income / Price x 100
How do you calculate Years Purchase?
100 / yield
What are the steps of a valuation?
- Competence.
- Conflict of Interest.
- Terms of Engagement.
- Read the Lease.
- Due Diligence i.e., statutory checks.
- Measure and Inspect the Site.
- Gather Comps.
- Valuation Approach and Calculations.
- Valuation Report.
- Valuation check by colleague and signed.
What are the main sections of the RICS Valuation - Global Standards?
- Introduction.
- Glossary.
- Professional Standards.
- Valuation Technical and Performance Standards.
- Valuation Applications.
- International Valuation Standards
What is the UK National Supplement?
- Guidance for local market practice in the UK.
- Example is preparing financial statements in line with GAAP.
Tell me about the RICS Professional Standard on Comparable Evidence in Real Estate Valuation (2019)?
- Provides hierarchy of evidence.
- Guidance where comps are limited.
- Principles of comparable evidence.
What makes good comparable evidence?
- Comprehensive.
- Similar or identical.
- Recent.
- Arms length transaction.
- Verifiable.
- Result of underlying demand.
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Ethics70
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Landlord and Tenant29
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Leasing and Letting3
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Data Management21
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SREC2
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Health and Safety21
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Inspection11
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Measurement13
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Valuation25
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Conflict Avoidance, Management & Dispute Resolution Procedures10
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