1
Q
what are the 5 methods of valuation?
A
- comparable method
- Profits
- depreciated replacement cost
- investment
- residual
2
Q
what are the 3 methods of valuation for rating purposes?
A
- comparable method
- receipts and expenditure
- contractors
3
Q
Basis of value definition
A
The fundamental premises on which the reported values are or will be based
4
Q
Cost approach definition
A
An approach that provides an indication of value using the economic
principle that a buyer will pay no more for an asset than the cost to
obtain an asset of equal utility, whether by purchase or construction.
5
Q
When would you use the cost approach?
A
6
Q
Depreciated replacement cost definition
A
The current cost of replacing an asset with its modern equivalent asset, less deductions for physical deterioration and all relevant forms of obsolescence.
7
Q
What is fair value?
A
The 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
8
Q
What is the income approach?
A
An approach that provides an indication of value by converting future cash flows to a single current capital value
Includes profits and investment method
9
Q
What is investment value or worth?
A
The value of an asset to the owner or a prospective owner for individual investment or operational objectives
10
Q
What is the market approach?
A
This approach adopts the principle that the value of one property may be derived by
comparing it directly with market transactions for similar properties
11
Q
What is market rent?
A
An estimated amount for which an asset or a liability would let for on the valuation date between a willing lessor and willing lessee on appropriate lease terms in an arms length transaction, after proper marketing and where parties had acted knowledgeably, prudently and without compulsion
12
Q
Market value
A
An estimated amount for which an asset or liability should be sold on the valuation date between a willing buyer and willing seller in an arms length transaction, after proper marketing and where parties had acted knowledgeably, prudently and without compulsion
13
Q
Marriage value/ synergistic value
A
An additional element of value created by the combination of two or more assets or interests where the combined value is more than the sum of the separate values
14
Q
Special purchaser definition
A
A buyer that has a special interest in an asset be cause of advantages arising from its ownership that would not be available to other buyers in a market
15
Q
Special value.
A
An amount that reflects particular attributes of an asset that are only of value to a special purchaser
16
Q
What is PS 1?
A
Compliance with standards where a written valuation is provided
17
Q
What is in PS 2?
A
Ethics, competency, objectivity and disclosures
18
Q
How many VPs’s are there?
A
6
19
Q
What is contained within VPs 1?
A
Terms of engagement
20
Q
What is contained within VPs 2?
A
Bases of value, assumptions and special assumptions
21
Q
What is a special assumption?
A
A special assumption is made by the values where an assumption either assumes facts that differ from those existing at the valuation date
22
Q
What is in VPs 3?
A
Valuation approaches and methods
23
Q
What is in VPs 4?
A
Inspections, investigations and records
24
Q
What is in VPs 5?
A
Valuation models
25
What is in VPs 6?
Valuation reports
26
What are the bases of valuation?
Market value, market rent, investment value, fair value
27
What are the valuation approaches
1. Market approach
2. Income approach
3. Cost approach
28
What are the methods of valuation?
1. Comparable method
2. Investment method
3. Profits method
4. Depreciated replacement cost method
5. Residual method
29
What are the different purposes of valuation?
- For financial reporting
- for commercial secured lending purposes
- for residential mortgage purposes.
- for capital gains, inheritance tax, stamp duty land tax
- for compulsory purchase and statutory compensation
30
What is marriage value?
The extra value that arises from the merger of 2 physical or legal interests
31
What is hope value?
an element of market value in excess of the existing use value [EUV], reflecting the prospect of some more valuable future use
32
What is existing use value?
What the land / property is worth in its current form
33
What is the hard core and layer approach?
It is used as an alternative to the term and reversion method.
34
You state that the industrial was a ‘modern unit’, what are some of the value significant features you would expect in a modern industrial? Bradford L3
High eaves height to increase ability to store vertically
Modern build and design which would result in improved insulation etc
Reduced obsolete space as with increased modernity would come improve efficiency in terms of the building design
35
With this case being in Bradford and a different market, would you be competent enough to take on this instruction? L3 Bradford
Yes, I would review the rental evidence and discuss trends with local valuers to seek insight into desirable estates and whether the rents would reflect these trends.
36
Feeding into this, prior to your inspection you state that you ‘spoke with local valuers’, what rule of conduct would this follow and why? L3 Bradford
Rule 2 – centred on knowing your competence and seeking advice when necessary
37
You reference that the agent highlighted that there was a ‘special purchaser’, what is this? L3 Bradford
Someone who has a ‘special’ interest and to whom the property would hold higher value than the going rate in the market.
38
You state there was also a disagreement in the treatment of a rent-free period, why did you disregard 3 months? L3 Bradford
It was common in the market, when assessing comparable rents in the estate, for 3 months rent-free to be given on new lettings to account for fitting out. Therefore, this would be ignored and not included as an incentive. Additionally, it was clarified by the ratepayer within the form of return that 3 months was given for fitting out.
39
Would you always ignore 3 months for fitting out?
It would be on a case by case basis , and this would be dictated by the evidence.
40
Are you aware of any caselaw which explores the treatment of rent-free period and how to approach fitting out?
Robert Dyas Holdings Ltd v Moore
41
How did you negotiate your findings to the proposer?
Verbally and written
42
What was your negotiation style?
Collaboratively.
This allows both parties to come together and use the negotiation to discuss their opinions and work towards a positive solution.
43
What is the purpose of the Red Book?
The purpose is to provide valuers with consistent and transparent standards to adhere to.
44
What were some of the changes made to the Red Book last year?
- addition of ESG within VPS 4
- addition of AI
45
What section of the red book outlines the typical terms of engagement?
VPs 1
46
Why did you adopt residential development as opposed to a commercial development? L3 residual St Helens
Planning permission for residential dwellings??????
From the site inspection it appeared more reasonable to propose a residential development due to the surrounding residential properties. Additionally, there were explicit provisions within the local plan for residential expansion.
47
You state that there was no affordable housing required due to the size. Say there were provisions in the local plan and you were required to factor in affordable housing, how would this impact value? L3 St Helens residual
Taken at a percentage of market value which reduces the GDV. Therefore, this lowers the residual sum.
48
You state you used Argus software, what is Argus?
Licensed software which facilitates property valuations
49
What are the benefits of using Argus?
It enables phasing to be incorporated for large developments.
50
Where did you get your build costs from for the residual valuation?
Adopted figures from BCIS based on the property's location and type of development.
51
Why do BCIS costings differ based upon location?
This is based on the due to regional variations in construction costs.
52
What rate did you adopt for finance? For L3 residual St Helens
7% interest rate for 100% debt funded scheme
53
Why adopt 7% finance for the L3 residual St Helens?
Reflects realistic cost of borrowing
54
How was the financing spread? And When are the circumstances this could be different? L3 St Helens residual
Spread over the full development for my case
For example it may be different where, a larger developer may finance all the costs within the first 6 months or they could be split between the start and end.
55
What percentage did you take for developers profit? L3 residual st Helen’s
20%
56
Why this figure Of 20% profit for the developers profit ?
Based on profit levels adopted in other appraisals received where the District Valuer Services had assessed Planning Viability etc. Also, considered nature of the scheme and applied valuer judgement
57
You state you carried out a sensitivity analysis, what is the benefit of this and give me an example of what they could show?
Sensitivity analysis accounts for variations in the different inputs such as: GDV and build costs. A rise in build costs would reduce the residual sum
58
Why was the residual land value figure cross-referenced with land sales?
This general market data helped verify whether the residual sum proposed was reasonable.
59
What were some of the headings in your valuation report?
See VPS6 but here is a few:
- Identification of the client
- Identification of the valuer
- Purpose
- Basis of value
- Valuation date
- Assumptions
- Special assumptions
- Opinion of value
- Complaints handling
- Fee basis
60
What did the St Helens local plan say about affordable housing provisions? L3 residual
For my plan three was only 6 units on the site, therefore no affordable housing would be required
20% affordable housing for developments of 10 units or more
61
When would you use the term and reversion method?
It is implicit and used to value under rented properties
Term = current period during current lease
Reversion = potential income after lease or review into perpetuity
62
When is the investment method used?
When there is an income stream to value
63
What does rack rented mean?
That the property is rented at market rent
64
What is the purpose of the red book?
The purpose is to provide values with consistent and transparent standards to adhere to
65
What are the 4 approaches to the investment method?
1. Simple approach (when the property is at market rent)
2. Term and reversion (when the property is under rented)
3. Hardcore topslice appraoch (when the property is over rented)
4. Discounted cash flow method
66
What are some changes that were made to the red book last year?
Reordering of the Valuation technical and performance standards
Increased focus on ESG factors
Addition of AI
67
Why did you capitalise the rent into perpetuity? L2 investment
Because the property was rack rented
68
Why did you cross check you residualland value with land sales? St Helens
The general market data helped verify whether the residual sum adopted was reasonable
69
What is the benefit to carrying out a sensitivity analysis? Residual L3
What is the benefit to carrying out a sensitivity analysis? A sensitivity analysis accounts for variations in the different inputs such as GDV and build costs
A rise in build costs would reduce the residual land value
70
Examples of special assumptions?
Planning consent has been or will be granted
71
What would ideal comparable evidence?
1. Very similar to the subject
2. Recent
3. Arms length
4. Open market value
5. Verifiable
72
What is the hierarchy of rental evidence?
1. New lettings
2. Lease renewals
3. Rent reviews
4. Hird party determinations
73
Name some sources of comparable evidence?
1. Market evidence
Direct transactional evidence
Publically available information
Historical evidence
2. Indices
Can be used as a guide
74
Investment method of valuation
Simple approach
Used when the property is rack rented
Capitalise the rent after determining a yield from comparable market evidence and then using the appropriate multiplier or years purchase to capitalise the rent
75
What was you negotiation style?
A collaborative approach to allow both parties to come together and use the negotiation to discuss their opinions to work towards a solution
76
Why are the terms of engagement so important?
Because they are a written confirmation of the terms which have been agreed and will apply to the undertaking and reporting of the valuation
77
What is the market approach?
The market approach is based on comparing the subject asset with identical or similar assets for which price information is available.
Ie. Comaprison with market transactions in the same type of asset within an appropriate time frame
78
Retrospective and projected valuations comparable method
Values should only use:
1. Evidence that would have been available at date of valuation
2. Viewed with the benefit of hindsight
79
Value significant factors for rural
Strongly influenced by its ability to produce income
1. Soil fertility
2. Accessibility
3. Ease of cultivation
4. Development potential
80
Value significant factors residential
1. Location
2. Physical condition
3. Services
4. Energy efficiency
81
Value significant factors of offices
1. Location
2. Build quality
3. Layout
4. Service costs
5. Sustainability
82
Issues with the depreciated replacement cost method
1. Method of last resort
2. Inflexible
3. Subjective
4. Cost v value
83
DRC method steps
1. Estimated cost of construction
2. adjusted replacement cost Adjust for age and obsolescence
3. Add land value
4. Stand back and look
84
What are the steps for the contractors method of valuation? (Rating)
1. estimated Replacement cost (cost guide)
2. adjusted replacement cost Adjust for age and obsolescence (cost guide)
3. Add land value
4. Decapitalise
5. Stand back and look
85
Net profit
Turnover - direct + indirect costs = net profit
86
When would you use the DRC method?
- on certain specialised properties where there is no active market
Main guidance:
Depreciated replacement cost method of valuation for financial reporting 1st editor
87
With is a tenant covenant strength and how would you check?
- the financial position of a tenant when considering the likelihood they may default
Check on:
- Dunn and Bradstreet
- Experian
88
What factors would you consider when weighing a yield?
1. Tenant covenant strength
2. Age
3. Size
4. Location
5. Lease length
89
Are you aware of any invasive species? What does it look like and are you aware of any guidance?
RICS Professional Standard Japanese knotweed and residential property 2022
Bamboo like plant whatever flowers and reddish purple shoots
90
Guidance on asbestos
Asbestos 4th edition RICS professional standard
91
Types of asbestos where found + most dangerous?
1. Blue (most dangerous)
2. Brown
3. White
Found in insulating materials + decorative such as ceilings or floor tiles
Located on asbestos register
Made illegal in 1999 for all types of
92
Factors to consider using residual method?
1. Planning knowledge
- local plan + restrictions
2. Development market
- demand for land
- drive for certain properties
- available supply
3. Political influences
- government policies
- local government
- NPPF
93
L2 Valuation - IHT Retail
If you adopted a yield of say 9.5% instead of 8.5% how would this impact value?
Higher yield indicates riskier investment and therefore capital value would be lower
94
L2 IHT retail
What gross yield did you adopt?
8.5% - reflective of market comparables
95
What are the costs involved in a residual valuation?
- build costs
- fees
- finance
- statutory costs (S106)
- contingency
96
What is contained within the terms of engagement?
1. Identification of responsible valuer
2. Identification of the client
3. What is being valued
4. Purpose of valuation
5. Basis of value
6. Valuation date
7. Investigation and inspection
8. Assumptions + special assumptions
97
How many VPGA’s are there?
And name some important ones
11
VPGA 8 = inspection and ESG
98
Hierarchy of comparable evidence
Cat A = direct comparables
Cat B = General market data
Cat C = other sources
99
Value significant factors of real estate with development potential
- assumed GDV
- ground conditions
- development costs
100
What is the guidance on the comparable method?
Professional standard: comparable evidence in real estate valuation
- outlines principles of the use of comparable evidence
- addressed the availability of comparable evidence in challenging market conditions
101
What is an assumption?
An assumption is made where it is responsible for the valuer to accept that something is true without the need for specific investigation or verification
It must be reasonable and relevant having regard to the purpose for which the valuation is required
102
What is a special assumption?
- an assumption that differs from the actual facts
- that would not be made by a typical market participant
Must be contained within the terms of engagement
103
What is the definition of fair value?
Found in the international financial reporting standards (IFRS 13)
- 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
104
What is the definition of investment value?
Found in the international valuation standards
Also known as worth
- the value of an asset to a particular owner or prospective owner for individual investment or operational objectives
105
How many VPS’s are there and what are they?
6 VPS’s
VPS 1 = terms of engagement
VPS 2 = Bases of value, assumptions and special assumptions
VPS 3 = Valuation approaches and methods
VPS 4 = inspections, investigations and records
VPS 5 = Valuation Models
VPS 6 = Valuation reports
106
How many professional standards are there and what are they?
2 professional standards
PS 1 = compliance with standards where a written valuation is provided
PS 2 = Ethics, competency, objectivity and disclosure
107
What is a special purchaser?
A particular buyer for whom a particular asset has a special value because of advantages arising from its ownership that would not be available to other buyers in a market
108
What is special value?
An amount that reflects particular attributes of an asset that are only of value to a special purchaser
109
What is marriage/ synergistic value?
An additional element of value created by the combination of two or more assets or interests where the combined value is more than the sum of the separate values
110
What is the cost approach?
Based on the economic principle that a purchaser will pay no more for an asset than the cost to obtain one of equal utility, whether by purchase or construction
111
What is the income approach?
An approach that provides an indication of value by converting further cash flows to a single current capital value
112
Discounted cash flow
GROWTH EXPLICIT
Used to estimate the value of an investment based on its expected future cash flows
113
Pros of DCF
- good for verifying income flows
- when limited or no investment comps
- comparing investments
- good for analysis
114
Cons of DCF
More information required
Higher risk or error
115
What would you do to analyse comparable evidence
1. Establish a common measurement basis
2. Make adjustments ie, location, condition and FRI
116
What is contained within the RICS Valuation - Global Standards?
Part 1 = introduction
Part 2 = glossary
Part 3 = Professional standards
Part 4 = valuation technical and performance standards
Part 5 = valuation practice guidance applications
Part 6 = international valuation standards
117
When would you use the contractors method of valuation?
For rating.
It is the last method of resort, when there is little or no rental evidence to utilise the comparable method of valuation and where the receipts and expenditure method is not appropriate.
118
This there any RICS guidance on the contractors method?
RICS PS the contractors basis of valuation for rating purposes
119
What was the basis of measurement for the contractors university?
GIA
120
What are the stages of the contractors method?
1. Estimated replacement cost
2. Adjusted replacement cost
3. Value of land
4. Decapitalisation
5. Stand back and look
121
What is the difference between ERC and ARC? Contractors?
The estimated replacement cost has been adjusted for age and obsolescence
122
Where did you get the estimated replacement cost from?
I utilised BCIS and the VOA’s cost guide
123
What was the age of your property and what did you adjust for Age and obsolescence? Contractors uni building
1985
24.5%
124
Why did you reduce the external works?
The building footprint to land ratio was 80-90% and therefore as per the memorandum of agreement i adopted 2.5%
125
What is the memorandum of agreement?
126
What was the land value? And where did you get this data from?
£883k per hectare which was evidence derived from comparable market transactions and is expressed as a % of the development costs
127
What decapitalisation rate did you adopt?
I adopted 2.6% this is the statutory decapitalisation rate for education, health and defence
128
Are you aware of the changes to decapitalisation rates?
Retail, hospitality and leisure
Under £51k = 39.2p
£51 to £499,000 = 44.0p
£500,000 = 51.8p
All other properties
Under £51k = 44.2p
£51k to £499,000 = 49p
£500,000 = 51.8p
129
You state that the industrial was a ‘modern unit’, what are some of the value significant features you would expect in a modern industrial?
High eaves height to increase ability to store vertically
Modern build and design which would result in improved insulation etc
Reduced obsolete space as with increased modernity would come improve efficiency in terms of the building design
130
With this case being in Bradford and a different market, would you be competent enough to take on this instruction?
Yes, I would review the rental evidence and discuss trends with local valuers to seek insight into desirable estates and whether the rents would reflect these trends.
131
Feeding into this, prior to your inspection you state that you ‘spoke with local valuers’, what rule of conduct would this follow and why?
Rule 2 – centred on knowing your competence and seeking advice when necessary
132
You reference that the agent highlighted that there was a ‘special purchaser’, what is this?
Someone who has a ‘special’ interest and to whom the property would hold higher value than the going rate in the market.
133
How would the concept of a special purchaser apply to non-domestic rating and this case?
Would more so be that the tenant benefitted from a ‘favourable deal’ as opposed to being a special purchaser. Potentially had a unit adjacent and benefitted from a favourable deal on the next-door unit
134
Are you aware of any caselaw which explores the treatment of rent-free period and how to approach fitting out?
Robert Dyas Holdings Ltd v Moore
135
How did you negotiate your findings to the proposer?
Verbally, written etc
136
What is the purpose of the Red Book?
The purpose is to provide valuers with consistent and transparent standards to adhere to.
137
What section of the red book outlines the typical terms of engagement?
vps 1
138
Why did you adopt residential development as opposed to a commercial development?
From the site inspection and with the property being across the road and in the middle of a housing estate, it appeared more reasonable to propose a residential development.
139
You state that there was no affordable housing required due to the size. Say there were provisions in the local plan and you were required to factor in affordable housing, how would this impact value?
Taken at a percentage of market value which reduces the GDV. Therefore, this lowers the residual sum.
140
You state you used Argus software, what is Argus?
Licensed software which facilitates property valuations.
141
What are the benefits of using argus?
It enables phasing to be incorporated for large developments.
142
Where did you get your build costs from for the residual valuation?
Adopted figures from BCIS based on the property's location and type of development.
143
Why do BCIS costings differ based upon location?
This is based on the due to regional variations in construction costs.
144
Explain the process of carrying out a term and reversion
Assess market rent and determine under rented currently using comparable evidence
Review sales evidence, weight and adjust accordingly to determine yield
Term capitalises the passing rent at a lower yield to reflect increased security with a passing rent below market levels. Reduced likelihood of tenant default.
Reversion defers the higher market rent until lease event (end of lease/break etc) and capitalised into perpetuity at a higher yield.
Add the term and reversion together to provide the total capital value.
145
What factors would you consider when weighting a yield?
Tenant covenant strength, age, size, location, quality, lease terms (Length)
146
What is tenant covenant strength? and how to check it?
The financial position of a tenant when considering the likelihood they default.
Dunn and Bradstreet, Experian or view company's financial accounts
147
How would a poor tenant covenant strength impact your yield and in turn your value?
Poor tenant covenant strength would add more risk (likelihood of default) which in turn would be reflected in a higher yield. This would reduce the overall value.
148
What was in your terms of engagement?
for rating we dont have a TOE and the reason we don't is because we are acting on behalf of Ministry of Housing Communities and Local Government and we have a service level agreement in place to act on their behalf.
149
What case outlined the 5 stages of the contractors method for non-domestic rating purposes?
Gilmore (VO) v Baker Carr
150
What is the estimated replacement cost?
This requires you to establish what it would cost to construct all the buildings (including site work) on a cleared site. This can include actual costs, estimated costs of replacing the building or in appropriate circumstances replacing them with a modern substitute.
151
Why do you account for age and obsolesce in stage 2?
Age is physical obsolesce - property depreciates over time therefore higher maintenance costs are required and lower life span.
Functional obsolesce - reflects the fact the property may no longer be fully fit for purpose. Example, historically buildings were less open plan with corridors which may not be built in a modern equivalent.
152
How will this figure be agreed in the memorandum? What does it consider?
The % agreed within the memorandum will be based upon real costing which acknowledge the difference in external works and the value this would create. Therefore, the % figures are based on market evidence, and this is in turn agreed between the VO and professional representatives.
153
What does the decapitalisation rate take into account?
Reflects the level of risk. Takes into account the interest rate, the financial ability of the tenant to pay, the cost of borrowing.
154
Are you aware of any RICS documents on the contractors method
The contractor's basis of value for rating purposes
155
What is the difference between the contractor’s method and the depreciated replacement cost (DRC) method?
DRC used for financial reporting purposes primarily and contractors is used for non-domestic rating. Contractors applies stage 4 to produce a rental value whereas the DRC adopts a capital value.
156
When was the RICS Valuation - Global Standards last updated?
Published/applied from 31 January 2025.
157
What checks do you undertake prior to undertaking a valuation instruction?
Competence – do you have the correct Skills, Understanding, Knowledge (SUK)
Independence – check for any conflicts or personal interest
Terms of Engagement – set out in writing full confirmation of instructions
158
What are KPIs?
key performance indicators
These measure how effectively a company is achieving key business objectives/strategic goals.
159
What are the VOA’s KPIs?
Our performance measures cover four main areas:
Volume of cases cleared
Timeliness in dealing with our work
Quality of our valuations
Quality of our customer service
160
What is the depreciated replacement cost method?
‘The current cost of replacing an asset with its modern equivalent asset less deductions
for physical deterioration and all relevant forms of obsolescence and optimisation
161
How do I you assess land for a DRC?
Separately using the comparable method of valuation
162
What are the 3 types of obsolescence that could be applied to a DRC?
Physical deterioration
Economical obsolescence
Functional obsolescence
163
What is the profits method of valuation?
The profits method, or receipts and expenses or income and expenditure method, is also used for income-producing properties.
hotels, golf courses, petrol stations, care homes
164
How would you carry out a profits method?
This is based on assessment and analysis of fair maintainable turnover (FMT)
The profits method involves establishing a fair maintainable operating profit capable of being generated by a reasonably efficient operator
A market-based profit multiplier is then used to convert FMT into a capital value.
165
When would you use the DRC method?
The depreciated replacement cost (DRC) method is used for owner-occupied or specialised property that is rarely sold on the open market.
166
What are the assumptions of the DRC method?
The DRC method is based on the assumption that the market will pay no more for the existing property than the amount it would cost to buy an equivalent site, plus the cost of constructing an equivalent building.
167
Overview of the DRC method
The basic steps involved include:
assessing the cost to replace the land and the building – with a modern equivalent, including all associated costs –
before making appropriate deductions for depreciation and obsolescence
168
When is the residual method used?
The residual method is typically used for property or land with development potential. The output is market value of the land and it requires valuers to make a variety of assumptions around input costs
169
When would you use the investment method?
The investment method is used where there is an income stream to value,
i.e. the property is tenanted.
This can include commercial, residential, retail, industrial and agricultural properties.
170
Yield and Risk in the hardcore layer method
by increasing the yield above the market in the topslice to reflect the added risk of an above-market rent being paid for a specified period
171
Yield and risk term and reversion
by reducing the yield in the term to reflect that a below-market rent is being paid until the reversion is due
172
When using the traditional methods of investment these are growth implicit what does this mean?
meaning that rental growth is built into the choice of yield and not explicitly modelled within the calculation
173
What does growth explicit mean and what investment method would you use?
DCF Model
Explicit means that the rental growth is modeled separately, and a higher discount rate is typically applied to the cash flow. where the cashflow is explicitly modelled it incorporates a wide range of valuer-inputted assumptions.
174
What does a DCF model do?
DCF converts a series of future cash flows to a single current value, i.e., they are discounted back to the valuation date.
175
Limitations to the comparable method?
- limited transaction
- lack of up-to-date evidence
- existence of a special purchaser
- limited transaction
- Lack of similar evidence given the complex nature of real estate
- limited market transparency.
176
When would you use the comparable method?
It’s the most widely used valuation method, typically for assessing the market rent and market value of commercial and residential properties.
177
What is the market approach
Market approach relies on the use of comparables to ascertain a value. See the comparable method below for further details
178
What is the income approach
Income approach requires the conversion of future income streams into a present value, or the value of an asset in terms of project costs and cost savings. This incorporates the investment and profits methods
179
What is the cost approach
Cost approach is based on the economic principle that a purchaser will pay no more than the equivalent cost of a similar property. This incorporates the residual land valuation and depreciated replacement cost methods.
180
What are the international valuation standards?
They provide global guidance on valuation.
181
what was the passing rent on the IHT Retail?
£27,500 per annum which was at market rent
182
when finding comparables for the investment method what would make a good comparable?
1. covenant strength
2. unexpired lease terms
3. tenure
183
what was the final valuation of the IHT Retail investment property?
£325,000
184
how did you determine the capital value of the IHT Retail investment property?
capitalised the rent (£27,500) at 8.5% into perpetuity to come to a capital value of £325,000
the multiplier was 11.76
185
how would you establish the covenant strength?
dunn and bradstreet or experien
however in the VOS we dont have access to these so i used companies house and established if they were local or national company and how long they had been operating for.
186
what was the covenant strength of your IHT Retail investment?
low, it was a small company with only one store
187
how many unexpired years were on the subject term? IHT Retail liverpool
2 years UXT
188
if the Unexpired term was longer than 2 years what would this mean?
less risky and therefore a lower yield
189
what was the final RV for your Bradford industrial? L3 example
£83,500
190
what was the residual land value for the St Helens L3 example?
£283,000
191
how many properties were on your St Helens Residual land?
6 - 2 x detached 4 x semi detached
192
what was the GDV for the Residual site? St Helens
£1,650,000 total
for the detached 4 beds = £325,000
for the semi detached 3 bed = £250,000
193
what were the build costs for the st helens residual?
£771,999 total
£139.35/ft for the detached
£120.77/ft for the semi detached
figures from BCIS
194
what was the professional fees on the st helens residual?
6%
195
what was the external works on the st helens residual?
10% - site clearance due to trees
196
what should you be aware of when it comes to clearing trees?
tree preservation order
197
what is a tree preservation order?
A Tree Preservation Order (TPO) is a legal mechanism established by local planning authorities to protect specific trees, groups of trees, or woodlands from deliberate damage or destruction.
198
what contingecies were on the st helens residual land?
5%
199
what external works would you typically see for brownfield sites and greenfield sites?
greenfield typically higher because infrastructure needs to be build in so 15% and brownfield 10% because it is closer to infrastructure
200
what developers profit was adopted for the St Helens residual site?
20%
201
talk me through a term and reversion
Used for reversionary investments (property under rented)
Term capitalised until next lease event
Reversion to market rent into perpetuity capitalised at an appropriate yield which is deferred to the next lease event.
202
talk me through a hardcore layer
Used for over rented properties
Income flow divided horizontally
The bottom slice being market rent and
The top slice is the passing rent less market rent until next lease event. Higher yield applied to top slice.
Values of top and bottom slices added together = capital value.
203
DCF model
In summary, DCF explicitly models a set of future cash flows, over a finite period which are discounted back to the present value. The sum of individual cash flows is added together with an exit yield applied at the end to calculate the NPV. The NPV will inform whether an investment is profitable or not.
204
Internal rate of return
Rate of return which all future cash flows must be discounted to produce a NPV of zero
IRR used to assess total return from an investment making assumptions on growth, re-letting and exit value.
If NPV is more than zero, the target rate of return is met
205
What is the years purchase?
The relationship between rent and capital value expressed as a multiplier.
206
Residual method vs development appraisal
A residual gives you the site value whereas a development appraisal advises whether the development is viable given certain factors such as the level of developers profit required, the number of affordable housing and contributions such as S.106 agreements.
207
What is outlined in the RICS comparable evidence in real estate valuation professional standard?
- to outline the principles of the use of comparable evidence
- to encourage consistency in the use of comparable evidence globally
- to address issues of availability and use of comparable evidence, especially in challenging
market conditions and
- to consider potential sources of comparable evidence and their relative importance.
208
What purposes can a valuation be provided for?
1. Taxation purposes
2. Financial reporting
3. Business rates
4. Development
5. Investment
6. Buying and selling
209
where does the A and O figure come from and what was it for your contactors uni
24.5 % A&O allowance
agreed between rating agents & the VOA per list year. Outlined in the memorandum of agreement. Derived from market evidence and agreed per property class
210
what is the RICS guidance on contractors?
RICS PS The contractor's basis of valuation for rating purposes, 2nd edition
211
assumptions of the statutory definition of MV for IHT and CGT?
1. hypothetical sale
2. hypothetical vendor
3. hypothetical purchaser
4. prudent lotting
5. prior to valuation date
6. should reflect special purchaser
212
all risks yield definition
Growth implicit, standard calculation for yield and adjusts them to reflect the perceived risk of property investment.
213
are you aware of any rates mitigations and liabilities?
small business rates relief - new UBR 6 of them split into retail, leisure and hospitality and then other
transitional relief
and i am aware of the recent 15% for pubs and live venues
214
are you aware of any case law relating to the importance of AVD?
Kays shoe shop v brady
215
where does the land value for contractors come from?
DVS calculate the land value from market data at each revaluation. Developed / undeveloped land –
APC Revision
flashcards
Decks in class (21)
# Cards
-
Ethics, Rules of Conduct and Professionalism141
-
Client Care19
-
Communication and Negotiation14
-
Health and Safety21
-
Accounting Principles and Procedures23
-
Business Planning20
-
Conflict Avoidance, Management and Dispute Resolution Procedures13
-
Data Management40
-
Diversity, Inclusion and Teamworking12
-
Inclusive Environments16
-
Sustainability46
-
Measurement75
-
Inspection114
-
Local Taxation132
-
Valuation215
-
Legal and Regulatory Compliance78
-
Capital Taxation32
-
Case Study57
-
Red Book7
-
Development Appraisal93
-
Hot Topics + L1 SOE69
