VALUATION Flashcards

Question

What investments is the layer/hardcore method used for?

Answer 1

Over rented investments.

Answer 2

Horizontally.

Answer 3

Market rent capitalised into perpetuity

Answer 4

Rest passing less market rent until the next lease event.

Answer 5

lower yiled than the top slice - look at yiled guide

Answer 6

A higher yield to reflect additional risk - due to only getting that income until next lease event. You only apply a higher yield to the part of the passing rent which is over rented.. (Net Initial Yield_ CHECK)

Answer 7

Comparable investment evidence and risk - covenant strength and length of the over rent

Answer 8

* Establish MR - Comparables * Establish PR - Lease * Establish Yield - market comps and risk analysis * Capitalise MR into perp using market yield * Capitalise Top Slice to next lease event using a higher yield to reflect risk

Answer 9

* Hardcore = for over rented properties * Term and Reversion = for market rent

Answer 10

Term and reversion- used for reversionary investment (market rent more than passing) e.g. underrented. Term capitalised until next review/ lease expiry at an internal yield. Reversion to market rent valued in perpetuity at a reversionary yield. Layer/hardcore method- used for over-rented investments (passing rent more than market rent). income flow divided horizontally. Bottom slice= market rent. Top Slice= Rent passing less market rent until lease event. higher yield applied to top slice to reflect additional risk. different yields used depending on comparable investment evidence and relative risk.

Answer 11

Percentage of capital invested = Yield

Answer 12

* Measure of investment return, expressed as a percentage of capital invested * Calculated as income divided by price x 100

Answer 13

* Number of years required for the income to repay the purchase price * Divide 1 by the yield

Answer 14

* Covenant. * Location. * Lease terms * Specification. * Rent levels. * Prospects for rental and capital growth * Security and regularity of income * Use of the property * Obsolescence - of the building * Voids

Answer 15

Performance of a property measured retrospectively

Answer 16

* Rate of return at which all future cashflows must be discounted to produce an NPV of zero * Used to assess total return from an investment opportunity making assumptions regarding: o Rental Growth o Re-Letting o Exit Assumptions

Answer 17

DCF calculation

Answer 18

* Input current market value as a negative cash flow * Input projected rents as a positive value * Input projected exit value as a positive value * Discount rate is the rate chosen for NPV of zero * If NPV is more than zero, target rate of return is met"]

Answer 19

Reflects risks between prime and secondary yields * It helps in evaluating investment opportunities.

Answer 20

* Yield which encompasses all the prospects and risks attached to a particular investment * Presents the rental value of a property as annual percentage of property cost * Calc = annual income/ property value x 100 * Rate of interest used in the valuation of fully let property at market rent

Answer 21

A Net Initial Yield is the percentage figure a property is paying in rent compared to its capital value

Answer 22

Annual rental income of a property - certain costs (like maintenance and management fees) / property's purchase price (plus acquisition costs, if applicable).

Answer 23

Is a weighted average of the net yield from current rental income and yield from all future reversionary income. * It helps in assessing properties with varying income streams.

Answer 24

* The yield on a property investment which takes into account growth of future income. * This is not applicable to reversionary situations, where the increase in income on reversion is to the market value as estimated at the present time

Answer 25

* Assumed rent is paid in advance (traditional valuation practice assumes rent is paid in arrears)

Answer 26

* Initial yield assuming rent is paid in arrears

Answer 27

* Yield based on the gross purchase price (i.e. not adjusted for purchasers' costs)

Answer 28

* Yield based on the net purchase price (i.e adjusted for purchasers' costs)

Answer 29

* Simple income yield for current income and current price

Answer 30

Market rent divided by the current price on an investment at a rent below MR * Indicates potential future income

Answer 31

* Yield at one moment in time

Answer 32

Growth explicit investment method of valuation - used where projected cash flows are explicitly estimated - rather than incorporating them in an ARY. * Form of income approach * Determine the value by examining its future net income and then discounting the cashflow to arrive at an estimated current claue It focuses on future cash flows to determine current value.

Answer 33

* Estimate cash flow for an agreed holding period * Estimate exit value at the end of the period * Select the discount rate (Disired rate of return) - that reflects the perviced level of risk * Discount cash flow at discount rate * Value is the sum of completed discounted cash flow to provide the NPV *

Answer 34

* Where there are no comparable market transactions, the explicit DCF model provides a rational framework for the estimation of Market Value. Used for a number of transactions where projected chashflows are explicitly estimated over finite period, such as; * short leasehold interests and properties with income void * phased development project * Some alternative investments * non-standard investments - eg 21 year reviews

Answer 35

RICS Practice Information: Discounted cash flow valuations

Answer 36

Sum of the discounted cash flows of a project * It is used to determine if an investment meets the target rate of return. * If positive = investment has exceeded target Rate of Return * If negative = investment has not exceeded target Rate of Return

Answer 37

To value trade-related properties where there is a monopoly position and the property's value depends on the business profitability * Method often used for pubs, hotels, nurseries, leisure and healthcare properties

Answer 38

The value of the property depends on the profit generated/ trading potential, not the physical building. * Trading potential = profit reasonably efficient operator would expect

Answer 39

Accurate and audited accounts for at least 3 years.

Answer 40

* Use estimates / business plan

Answer 41

* EBITDA is capitalised at an appropriate yield

Answer 42

* Cross check with comparable sales evidence if possible

Answer 43

* Annual Turnover less Costs= Gross Profit * Gross Profit less Reasonable Working Expenditure= Unadjusted Net Profit * Unadjusted Net Profit less Owners Renumeration = Adjusted Net Profit (FMOP) o Fair Maintainable Operating Profit o Then is capitalised at an appropriate yield (rate of return to reflect the risks and rewards of the property) * Capitalise by YP= Capital Value

Answer 44

Adjusted net profit is known as the Fair Maintainable Operating Profit (FMOP).

Answer 45

As EBITDA (earnings before interest, taxation, depreciation, and amortisation).

Answer 46

To financially assess the viability of a development scheme. * objective financial viability test of the ability of a development project to meet its costs, including the cost of its planning obligations, whilst ensuring an appropriate site value for the landowner and a market risk adjusted return to the developer in delivering the project.

Answer 47

Residual site value and profitability of a proposed scheme.

Answer 48

To find the market value of a property holding based on market inputs.

Answer 49

Market value of the completed proposed development at the date of valuation.

Answer 50

* Site preparation costs * Planning costs * Building costs * Professional fees * Contingency * Marketing costs & fees * Financing fees * Developers Profit

Answer 51

* Section 106 payments * Community Infrastructure Levy (CIL) * Planning application fees

Answer 52

* Site purchase * Total construction and associated costs * Holding costs.

Answer 53

Around 15%-20% depending on risk.

Answer 54

* Debt finance * Equity finance.

Answer 55

An arrangement for sharing any extra receipts over original expected profits.

Answer 56

Payable on all professional fees.

Answer 57

The length of time it takes for development profit to be eroded due to holding charges.

Answer 58

It does not consider the timing of cash flows.

Answer 59

* re-calculate the appraisal with different assumptions on inputs, for example an increase in build costs or a decrease in gross development value can identify what effect this has on the potential profit and the residual land value.

Answer 60

To show the range of values for key variables such as GDV, build costs, and finance rate.

Answer 61

* Simple sensitivity analysis * Scenario analysis * Monte Carlo simulation.

Answer 62

Fair Maintainable Operating Profit (FMOP)

Answer 63

Annual turnover - costs/purchases (= gross profit) Gross profit - reasonable working expenses (=unadjusted net profit) Unadjusted net profit - operators remuneration (=adjusted net profit known as the Fair Maintainable Operating Profit (FMOP)

Answer 64

To supplement International Valuation Standard (IVS) 410 Development Property which provides a detailed overview of valuing development property.

Answer 65

Interests where redevelopment is required to achieve the highest and best use or improvements are being contemplated/in progress at the valuation date.

Answer 66

* Construction of buildings * Undeveloped land being provided with infrastructure * Redevelopment of land * Improvement or alteration of existing buildings

Answer 67

Assumptions must be clearly identified in the valuation report.

Answer 68

Market Value

Answer 69

Residual method

Answer 70

Discounted Cash Flow (DCF) technique * DCF is useful for analyzing future cash flows

Answer 71

Risk analysis to assess different scenarios

Answer 72

As a single figure, except where there is potential for significant variation, which should also be reported.

Answer 73

Contractors method

Answer 74

Where direct market evidence is limited or unavailable for specialised properties - method of last resort

Answer 75

* Sewage works * Lighthouses * Oil refineries * Docks * Submarine bases

Answer 76

Capital Value = * Value of land in its existing use * Add current cost of replacing the building plus fees, less a discount for depreciation and obsolescence/deterioration

Answer 77

A statement that it is subject to profitability of the business.

Answer 78

A statement that it is subject to the prospect and viability of the continued occupation and use.

Answer 79

* Used for owner-occupied properties * For accounts purposes for specialist properties * For rating valuations of specialist properties

Answer 80

* Physical obsolescence - result of deterioration / wear and tear over the years * Functional obsolescence - where the design or specification of the asset no longer fulfils the function for what it was originally designed * Economic obsolescence - due to changing market conditions for the use of the asset

Answer 81

* Not suitable to be used for valuations for secured lending purposes * Can only be used for the calculation of Market Value for specialised properties for valuations for financial statements

Answer 82

* If higher value, the valuer must state the Market Value for any readily identifiable alternative use * If appropriate, they must state that the Market Value must be materially lower on cessation of the business

Answer 83

* RICS Depreciated Replacement Cost Method Of Valuation For Financial Reporting, 2018

Answer 84

* using evidential information

Answer 85

* The replacement build cost should be calculating using new and cost effective building materials and techniques.

Answer 86

* The residual method of valuation is used to establish how much a purchaser should pay for a development site.

Answer 87

* Inflexibility in dealing with the precise timings of costs and revenues * Single best estimates hide uncertainty and the main variables cannot always be estimated with accuracy. * Small changes in some variables can have a significant impact on the final residual value.

Answer 88

Development Appraisal - Red Book = No - takes into account time (phasing) - Client/ Agent input led - Determine whether profit levels are obtained at an acceptable level Residual valuation - Red Book = Yes - No account for timing/ phasing - Market input led - Determine market value

Answer 89

* Planning -10% of costs - CIL and S.106 * Professional -10%-15% costs- architecture etc. * Marketing -1%-2% GDV and 10% letting costs- Cost of EPC * Contingency - 5%-10% cost - depending on the size of the development

Answer 90

* Development Appraisal - Profitability of a proposed development * RLV -Value of the land

Answer 91

* Gross Development Value - The project value of a property once it is completed * Net Development Value - estimated value of a development project when building is completed less purchasers' costs (Stamp Duty and Legal Fees)

Answer 92

* SDLT * Up to £150,000 - 0% * £150,000 to £250,000 - 2% * £250,000 + - 5% * Agents Fees-1% of purchase price+ VAT * Solicitors Fees - 0.5% of purchase price+ VAT

Answer 93

* A form of sensitivity analysis - using probability theory - software such as 'Crystal Ball'. Other forms: o Simple sensitivity analysis of key variables -yield, GDV o Scenario Analysis - change of scenario for the development - such as phasing the scheme

Answer 94

Compliance with standards and practice statements where a written valuation is provided

Answer 95

* Terms of engagement required in all cases * Valuations are either compliant with the Red Book Global Standards or not * Members undertaking exceptions valuation work only, eg expert witness -- DO NOT need to be a member of the valuer registration scheme * If in doubt, comply with the Red Book

Answer 96

Ethics, competency, objectivity and disclosures.

Answer 97

* Members undertaking valuations must act with in accordance with the RICS Rules of Conduct

Answer 98

* Members must understand the client's requirements and comply with the minimum terms of engagement * Members must be able to demonstrate professional competence

Answer 99

Valuation technical and performance standards

Answer 100

Mandatory standards that include: * VPS1: Terms of engagement (scope of work) * VPS2: Bases of value, assumptions and special assumptions * VPS3: Valuation approaches and methods * VPS4: Inspections, investigations and records * VPS5: Valuation models * VPS6: Valuation reports

Answer 101

* Terms of Engagement (scope of works) * Minimum matters that must be confirmed in writing to the client prior to commencing a valuation

Answer 102

* Bases of value, assumptions and special assumptions

Answer 103

1. Bases of value 2. General principles 3. Basis of value 4. Market value 5. Market rent 6. Investment value 7. Fair value 8. Transactions costs - NEW 9. Assumptions 10. Special assumptions 11. Valuations reflecting an actual or anticipated market constraint, and forced sales 12. Assumptions and special assumptions related to projected values and property risk advice

Answer 104

* Many bases of value, represent the estimated price that would be agreed for the exchange in the market before adjustment for the seller's costs of sale or the buyer's costs of purchase, and any taxes payable by either party as a direct result of the transaction * These valuations must reflect the price that would be agreed, not the net receipt or the gross cost to the parties. If a client requires an estimate of such additional costs, these should be provided separately from the reported value. * This does not mean that any costs (or taxes) that a prospective buyer or seller would incur in an actual transaction should be ignored in the process of estimating market value or fair value. *The costs that market participants would incur in a transaction are material in determining the price they would be prepared to agree.

Answer 105

* Title * Condition of buildings * Services * Planning

Answer 106

* Vacant possession * Planning consent * Completed building works * Completed lease * Special purchaser

Answer 107

* Bases of Value not defined or incorrectly defined * Unexplained assumptions or irrelevant generic assumptions can be misleading * Special Assumptions not clearly defined * Statements in the report do not reflect those in the agreed terms of engagement

Answer 108

Fair value Market value Market rent Investment value Existing use value

Answer 109

* Valuation approaches and methods

Answer 110

* Valuation methods are typically implemented through a valuation model and therefore attention is also drawn to VPS 5.

Answer 111

* Inspections, investigations and records

Answer 112

* must keep a copy of the valuation report and all supporting documentation * Details of the inspection and any investigations must be clearly and accurately recorded * Valuers must request and seek to collect appropriate and sufficient sustainability and ESG data for the valuation's

Answer 113

* Write down everything you see and everything you don't see * Ensure your notes are legible * Photographs * Information provided by a third party - Verify the accuracy, reliability and record the source * Ensure all notes and records are saved to the file

Answer 114

* Valuation models

Answer 115

* Valuation reports

Answer 116

* Valuation Applications (Valuation Practice Guidance Applications)

Answer 117

Guidance applications that include: * VPGA 1: Valuations for financial reporting * VPGA 2: Valuations for secured lending * VPGA 3: Valuation of businesses and business interests * VPGA 4: Valuation of trade related properties * VPGA 5: Valuation of plant and equipment (including infrastructure) * VPGA 6: Valuation of intangible assets * VPGA 7: Valuation of arts and antiques * VPGA 8: Valuation of real property interests * VPGA 9: Valuing portfolios and groups of assets * VPGA 10: Material valuation uncertainty (MVU) * VPGA 11: Relationship with auditors

Answer 118

Valuation for inclusion in financial accounts

Answer 119

* Where the entity has adopted IFRS, the basis of value will be Fair Value

Answer 120

Valuations for secured lending.

Answer 121

* Loan Security Valuation - to establish whether the amount of the loan can be secured against the value of the property, and should you default on the loan, whether the lender can realistically recoup the amount. * Secured lending valuation are NOT regulated purpose valuations as they are not relied upon by third-parties or in the public interest.

Answer 122

* Any previous, current or anticipated involvement must be disclosed to the lender * "Previous involvement" is defined as normally being within the past two years but under certain circumstances it can be longer * If the valuer or the client considers involvement creates a conflict that cannot be avoided, then the instruction should be declined

Answer 123

* Longstanding relationship with the borrower/owner * Valuer gains fee from introducing transaction * Valuer gets instructed to/retained for letting Valuers responsibility to decide if to accept the instruction - with regards to RICS Rules of Conduct (2020) If client/vendor agree arrangements to manage COI - arrangements must be recorded in the TOE.

Answer 124

* Must be a comment on any material difference between the reported value with and without that special assumption

Answer 125

* Comment on the maintainability of the income over the life of the loan in a broader sustainability context (e.g. environmental risks, matters of design, accessibility)

Answer 126

Valuation of businesses and business interests.

Answer 127

Valuation of trade related properties.

Answer 128

Valuation of plant and equipment (including infrastructure).

Answer 129

Valuation of intangible assets.

Answer 130

Valuation of arts and antiques.

Answer 131

Valuation of real property interests.

Answer 132

* Locality and surrounding areas * Of the property and use * Of the site

Answer 133

Valuing portfolios and groups of assets.

Answer 134

Matters that may give rise to material valuation uncertainty (MVU)

Answer 135

* Misleading

Answer 136

* Valuer should clearly draw attention to, and comment on, any issues * A standard caveat should not be used

Answer 137

* Used when the degree of uncertainty falls outside any parameters that might normally be accepte

Answer 138

Relationship with auditors.

Answer 139

General Standards apply to all valuations and include: * IVS 100: Valuation Framework * IVS 101: Scope of Work * IVS 102: Bases of Value * IVS 103: Valuation Approaches * IVS 104: Data and Inputs * IVS 105: Valuation Models * IVS 106: Documentation and Reporting

Answer 140

Valuation Framework.

Answer 141

Scope of Work.

Answer 142

Bases of Value.

Answer 143

Valuation Approaches.

Answer 144

Data and Inputs.

Answer 145

Valuation Models.

Answer 146

* a) Support for the selection or creation of the valuation model * b) Description of the inputs and outputs * c) Significant inputs, * d) Limitations, * e) Quality control procedures and results * Documentation should be sufficient to describe why the valuation model(s) were selected and considered by the valuer applying professional judgement

Answer 147

Documentation and Reporting.

Answer 148

* For any member of RICS or RICS-regulated firm involved in undertaking or supervising valuation services by the provision of written valuation advice

Answer 149

Professional Standard 1

Answer 150

Professional judgement must be applied in all cases

Answer 151

* Automated valuation model (AVM) * Valuation modelling tool or valuation calculation software * Valuation process software tool or template automation tool * Model and/or process assisted or produced by artificial intelligence (AI)

Answer 152

* Professional judgement * Terms of engagement * Investigation records * Reporting * Proportionately considering confidentiality, intellectual property, data verification, etc.

Answer 153

* Agency or marketing advice * 'What if' valuations for negotiations or litigation * Expert witness * Performing statutory functions * Valuations for a clients internal purpose only * need to be written in TOE * Exclude liability and prohibit disclosure

Answer 154

* Failure to comply with the Red Book * Valuation activity without VRS membership where mandatory

Answer 155

Professional Standard 2

Answer 156

* Professional and ethical standards * Member qualification * Independence and objectivity * Maintaining strict separation between advisors * Disclosures where the public has an interest or upon which third parties may rely * Valuation review * Responsibility for the valuation

Answer 157

* Academic/ professional qualifications * Membership of a professional body * Sufficient current knowledge of the asset type and market, * Where applicable, compliance with the RICS Valuer Registration (VR) requirements.

Answer 158

1. Failure to carry out and/or record robust independence/previous involvement checks 2. Failure to demonstrate competence (specialist skills or geographic area) 3. Valuation reports carried out by non valuers but signed by a Registered Valuer without any sort of supervision

Answer 159

Significant environmental, social and governance (ESG) factors

Answer 160

Significant environmental, social and governance (ESG) factors

Answer 161

* Failure to issue terms of engagement * Generic terms rather than case specific * Amendments not recorded * Omission of responsible valuer's identity * No clear purpose of val

Answer 162

The price at which an asset would trade in a competitive auction setting

Answer 163

The price that would be agreed, not the net receipt or gross cost

Answer 164

* Bases of value not defined * Unexplained or irrelevant assumptions * Special assumptions not clearly defined

Answer 165

To adopt and justify the valuation approaches and methods used - regard for nature of asset, purpose of valuation and any statutory or other mandatory requirements

Answer 166

Discounted cash flow (DCF) for property investment valuations

Answer 167

* Failure to state approaches and methods * Incorrect valuation approach used * Wrong method leading to misleading valuation

Answer 168

* Carry out inspections and investigations to the extent necessary to produce a valuation that is professionally adequate for its purpose * No physical inspection may introduce an unacceptable degree of risk * Verify information

Answer 169

Keep a copy of the valuation report and all supporting documentation (inc inspections, investigtion and other key inputs)

Answer 170

* Illegible inspection notes * Brief notes of inspection * Externally sourced non-referenced material * Source of data not verified

Answer 171

A quantitative implementation of a method that converts inputs into outputs for value development

Answer 172

* Market * Income * Cost

Answer 173

* Comparable * Investment * Profits * Residual * Contractors (Depreciated replacement costs)

Answer 174

* Pen and paper * Calculator * Spreadsheet * Software

Answer 175

Where a complex or proprietary valuation model is used, valuers must make sure the model is suitable for the valuation purpose, using appropriate professional judgement. * Members and, where appropriate, RICS-regulated firms, must consider provisions of IVS 105 not repeated here.

Answer 176

The models must: * Be suitable for the intended use * Be tested for accuracy * Be 'fit for purpose' * Valuer must apply professional judgement and professional scepticism * Be analysed for accuracy * Users must understand how the model works

Answer 177

Reports must: * Deal with matters agreed in scope of work * Address all matters agreed in terms of engagement * Provide transparency on valuation approaches, methods, and models * Clearly and accurately set out conclusions * Be understandable to someone with no prior knowledge

Answer 178

Matters include: * Identification and status of the valuer * Identification of the client(s) * Identification of any other intended users * Identification of the asset(s) or liability(ies) * Valuation (financial) currency * Purpose of the valuation * Basis(es) of value adopted * Date * Extent of investigation * Assumptions and special assumptions * Nature and extent of inspection * Red Book compliance * Fee * Limitation of Liability *Consideration of any significant environmental, social and governance (esg) - **NEW**

Answer 179

The report must include: * Signature of the responsible valuer * Statement confirming the valuer's objectivity and competence RICS does not allow a valuation to be prepared by a 'firm'.

Answer 180

The report must include: * Valuation date * Nature and extent of the valuer's work * Nature and source of information * Assumptions and special assumptions * Format of report * Restrictions on use * Identification and status of the valuer * Client and any other intended users * Purpose of the valuation * Identification of the asset valued * Basis of value adopted * Confirmation that the valuation has been undertaken in accordance with the IVS * Valuation approach and reasoning * Amount of the valuation * Date of valuation * Commentary on material uncertainty

Answer 181

* "Valuers must identify, report and document the consideration of significant ESG factors and any impact on the valuation conclusion and/or rationale." * Recommendation: As with the terms of engagement, make it clear that any commentary relating to ESG factors in the consideration of the valuation, should not be regarded as an ESG risk assessment or for any other use beyond the scope of the valuation

Answer 182

* provide a description of the sustainability and ESG-related property characteristics and attributes that have been collected * assess the extent to which the subject property currently meets the sustainability and ESG criteria typically expected within the context of its market standing (there may be no expectation) * provide an opinion of the relationship between sustainability/ESG factors and valuation within the subject market (if any), including a comment on the current benefits/risks that are associated with these characteristics, or the lack of benefits/risks * arrive at an informed view on the likelihood of these impacting on value (if at all), e.g. how a well-informed purchaser would take account of them in making a decision as to offer price * provide an opinion on the potential impact of identified sustainability/ESG benefits and/or risks (if any) to relative property values over time.

Answer 183

Valuers must identify, report, and document the consideration of significant ESG factors and their impact on the valuation conclusion. And the basis on which the valuation is being undertaken. This includes assessing sustainability characteristics and their relationship to property values.

Answer 184

Valuers should: * Describe sustainability and ESG characteristics * Assess current compliance with sustainability criteria * Provide an opinion on the relationship between ESG factors and valuation * Comment on current benefits/risks * Provide opinion on potential impacts on value over time

Answer 185

Common failings include: * Identity of valuer omitted * Signed by unqualified valuer * Clear purpose of valuation not stated * Nature and extent of work undefined * Assumptions not clearly defined * Vague statements of valuation approach * Failure to amend errors from previous reports

Answer 186

[approaches]

Answer 187

* The Red Book Global contains mandatory rules and best practice guidance for members who undertake asset valuations. * Effective from 31 January 2025

Answer 188

Promotes high standards set by RICS. It underpins the financial market Can provides formal bank valuations to influence the property market.

Answer 189

* Valuation date * Extent of investigation * Nature and source of information to be relied upon * Assumptions and special assumptions * Report format * Restrictions for use * Confirmation of Red Book Global/ IVS compliance * Fee basis * Complaints handling procedure * Statement that the valuation may be subject to compliance by RICS * Limitation on liability agreed

Answer 190

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 * Where the parties had each acted knowledgeably, prudently and without compulsion

Answer 191

* The estimated amount for which an interest in real property should be lease * On the valuation date * Between a willing lessor and willing lessee * On appropriate lease terms * In an arm's length transaction * After proper marketing * Where the parties had each acted knowledgeably, prudently and without compulsion

Answer 192

* Refers to a property that is being rented out at its full market rent, meaning the highest possible rent that a tenant is willing to pay under current market conditions. * Essentially, it reflects the fair rental value of the property in an open market, without any discounts, concessions, or reductions.

Answer 193

* Introduction * Glossary * Mandatory Professional Standards (PS 1 & 2) * Mandatory Valuation technical and performance standards (VPS 1 -6)) * Valuation Practical Guidance Applications (VPGA 1-11) * The International Valuation Standard (IVS)

Answer 194

Supposition taken to be true and accepted as fact without the need for specific investigation

Answer 195

Supposition taken to be true and accepted as fact, even though it is not true

Answer 196

Supposition taken to be true and accepted as fact without the need for specific investigation

Answer 197

Supposition taken to be true and accepted as fact, even though it is not true - or that would not be made by a typical market participant in a transaction on the valuation date

Answer 198

* The comparable method primarily uses sales data of properties that have recently been sold focusing on assets that have a similar size, location, condition, features and specifications.

Answer 199

* Find comparables * Confirm details * Analyse to find NER * Comparables in schedule * Adjust comparables - using the hierarchy of evidence * Form option of value * Report value and prepare title note.

Answer 200

* Open market lettings * Lease renewals * Rent reviews * Third party determinations * Sale and leasebacks * Surrender and renewal * Inter-company transactions

Answer 201

* Borrower. * Property. * Purpose. * Conflicts. * Details of loan. * Who the report is to be addressed to. * Special Assumptions. * Details on where to get information * Requirements of the report

Answer 202

* The International Valuation Standards Committee. * It's principle interest is to publish valuation standards and procedural guides for valuation of assets for financial statements.

Answer 203

* The IVSC recognises two specific International Valuation Standards: o IVS1 - Market Value basis of Valuation. o IVS2 - Valuation bases other than Market Value. * The IVSC also recognises two applications: o IVA1 - Valuations for Financial Reporting. o IVA2 - Valuation for Lending Purposes.

Answer 204

Specialist - Trading properties where the property is designed to perform a specific purpose. - EG hotels, cinemas, pubs

Answer 205

Specialised - These types of properties are very rarely sold on the market except being exchanged within the industry or business they are a part of - EG chemical plants, places of worship.

Answer 206

Market Rent * Assumes Vacant Possession * The amount of rent anticipated for the use of the property, in comparison with similar properties in the same area. Estimated Rental Value * Takes into account further considerations about the property assuming the building is occupied. * For example there will be due consideration of the specific lease terms

Answer 207

* Goodwill is an intangible asset when property or real estate is being sold or purchased. * Special value within the transaction that is higher than the sum of the net fair value * EG brand name, local customer base and excellent reputation.

Answer 208

Purchased Goodwill: o Is created when an asset is exchanged for an amount above the fair market value. Inherent Goodwill: o Is created over time as a non-measurable asset held by a property or company. o EG favourable location, excellent reputation, solid local customer base, good brand image and brand name.

Answer 209

* Discounted cash flow

Answer 210

* Tenure. * Date of valuation. * Extent of inspection and who inspected. * Opinion of value in words and figures. * Allowance for VAT. * Third party references. * Clause prohibiting publication. * External or independent valuer. * Date of report. * Statement that the valuer is qualified.

Answer 211

* Draw clients attention to them. * Advise professional advise * Can't comment on area outside of expertise * Seek and obtain cost input to remediate and include within report.

Answer 212

* YES * Valuer must request and verify it. * If your valuation differs you must state why.

Answer 213

* Publication. * Confidentiality. * Deleterious Materials. * Planning. * Taxation. * Environmental matters.

Answer 214

* 50% if single tenant. * Not at all if multi-let

Answer 215

* Professional Fees

Answer 216

* Opinion of value. * Valuation approach. * Amount of valuation * Date of valuation * Commentary on any material valuation uncertainty (MVU)

Answer 217

* Valuation currency * Format of report * Basis on which the fee will be calculated * Statement that firms CHP is available

Answer 218

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

Answer 219

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

Answer 220

* Confirm that there are no material matters which could impact on the valuation

Answer 221

* Asbestos register * Business rates / Council tax * Contamination * Equality Act Compliance * Environmental matters * EPC * Flooding * Fire safety compliance * Health and safety compliance * Legal title and tenure (check boundaries, ownership, any deeds of covenant, easements, rights of way, restrictive covenants, wayleaves) * Public rights of way * Planning history and compliance

Answer 222

* Can be given but must be marked as a draft, for internal purposes only, which cannot be relied upon

Answer 223

* Yes, although the valuer is not to be influenced by the client in any way with respect to the final valuation figure stated in the report * must state that it is a draft and it is subject to the completion of the final report * Any changes made to a preliminary valuation must be noted on file and reasons provided

Answer 224

* RICS view that Fair Value is generally consistent with the definition of Market Value * Fair value relates to the actual worth of an asset and would be the mutually beneficial value between the buyer and the seller * Market value is the price which the asset will exchange between parties in the market and is influenced by market forces

Answer 225

* Valuations relied on by third parties who have not commission the valuation and are subject to valuation monitoring

Answer 226

* Financial Reporting (Company Accounts) * Stock Exchange Listings * Takeovers and Mergers * Collective Investment Schemes * Unregulated property unit trusts

Answer 227

* Inspections by RICS professional regulation team * Members must declare the length of time the valuer has acted for the client for regulated valuation purposes and the extent and duration of the firm's relationship with the client * Whether in the last financial year, the percentage of the fee income from the client is more or less than 5% of the total fee income * Whether this has changed since the end of the last financial year or will likely change

Answer 228

* Should be a policy in place on the rotation of valuers when the asset is regularly valued * RICS recommends a 7-year maximum rotation policy

Answer 229

* Where the property was acquired by the client within the last 12 months and the valuer's firm received an introductory fee or negotiated the purchase on behalf of the client

Answer 230

* Profit = yes * VAT = No

Answer 231

* The value arising form any expectation that future circumstances affecting the property may change - EG Planning permission

Answer 232

* Obtain a Section 119 of the Charities Act 2011 valuation

Answer 233

* Follow guidance contained in UK VPGA 8 * Comment whether the purchase or sale is in the charity's best interest * State whether the terms agreed are the best that can be reasonably obtained * Basis of valuation must be Market Value or Market Rent * Valuer must follow Section 119 of the Charities Act 2011

Answer 234

* The extra value created by the merger of two interests - can be physical or legal * Undertake a before and after valuation and calculate the level of marriage value created * 50/50 or pro - rata on value of individual assets

Answer 235

* Using the investment method * Assume virtual freehold - adopt a softer yield to reflect this * Deduct ground rent from the gross rent to calculate the net rent received. Then can: * Capitalise at a yield for the remaining length of the lease * Use a dual rate to adjust the valuation to set up a sinking fund, so it is comparable to freehold investments

Answer 236

* Fixed * Geared (rent received/receivable)

Answer 237

* 10-15% of the passing rent or market rent

Answer 238

* A capital payment made by one party to another

Answer 239

* Paid by in-going tenant of a property to secure * Represent fixtures and fittings within a building, paid by an in-going tenant * In-going tenant for a leasehold interest, to represent the profit rent * Reverse premium may be paid by the out-going tenant to the new tenant or landlord to tenant

Answer 240

* Weighted average unexpired lease term * remaining to the first break or expiry of a lease * Weighted by the contracted rent

Answer 241

Add up the total contracted income between now and the expiry dates and divide by the total annual income

Answer 242

* Piece of land which controls the access to another piece of land

Answer 243

* 15-50% of the development value unlocked

Answer 244

* A particular buyer for who a particular asset has special value because of advantages arising from its ownership that would not be available to other buyers in a market * Purchaser willing to pay a premium * Tenant purchasing the freehold interest or owning an adjacent property

Answer 245

* An amount that reflects particular attributes of an asset that are only of value to a special purchaser

Answer 246

* Rent that would be agreed between the parties, but without incentives forming part of the transaction * Calculated as post fit-out, pre-incentive i.e. the difference between an allowance for tenant fit-out (usually 3 months) and the rent free period

Answer 247

NEF = (headline rent X (lease term - Insentive)) / lease term

Answer 248

* Yes, it is permitted to undertake multiple loan security valuations on behalf of the same lender. * You may, however, be conflicted if your firm had open litigation with that lender or were involved in their corporate restructuring, for example.

Answer 249

Office: * 3.75% to 4.75% Industrial: * 4.25% to 6.75% High Street Shops: * 6.25% to 12%+ Supermarkets * 4.5% Shopping Centres: * 6.5% to 14.5% Leisure Park= 6.5%

Answer 250

Growth Implicit (All Risks Yield, ARY): * Capitalisation rate that reflects all risks and rewards. * Assumes growth is built into the yield. Growth Explicit (Equivalent Yield): * Weighted average yield of income streams. * Seperates income return and future growth assumptions

Answer 251

* (Rental Income/Yield) * 100

Answer 252

* 1/(1+i)^n * The Current Value of a Future sum of money given a specified rate of return

Answer 253

* (1-PV)/1 * The value of something in the number of years required for its income to yield its purchase price

Answer 254

* 100/1 * YP in perpetuity calcualted as a yield

Answer 255

* Break Clause - shorter term certain - reflected in the yield - would apply a higher yield * Restrictive user - would impact upon the market rent - therefore less to capitalise

Answer 256

* Widen geographical search for comps (Category C - RICS GN Comparable Evidence) - if still nothing, look for alternative methods: o Profits and Contractors

Answer 257

* A series of documentary records showing the steps taken in undertaking and arriving at the findings of your report

Answer 258

* Valuations are hypothetical * There is usually no single fact that can prove it is right * You need evidence to show what you've done and why * Rule 3 - Members and firms must provide good quality and diligent service * VPS 4 Inspections, investigations and records - "A proper record must be kept of inspections and investigations, and of other key inputs, in an appropriate business format"

Answer 259

Records of what you have agreed to do (VPS 1) How you have arrived at your opinion (VPS 3) What you have investigated, anything you have relied on as fact and anything you have assumed (VPS 4) The Report (VPS 6) Copy of final report

Answer 260

* Instructions * COI * Terms of Engagement * Site inspection notes * Desktop investigation notes * 3rd party information * Comparables, analysis, reasoning, calculation notes * Final Report (signed copy) * Quality control procedures adhered to

Answer 261

* Acting for buyer and seller of a property in the same transaction. * Acting for two or more parties competing for an opportunity. * Valuing for the lender where advice is also being provided to the borrower. * Valuing a property previously valued for another client. * Undertaking a valuation for third party consumption where the valuers firm has other fee earning relationships with the client. * Valuing both parties interests in a leasehold transaction.

Answer 262

Having a questioning mind that critically assesses all evidence that is used in a valuation to ensure it is accurate. Taking a step back and making sure the information you are provided with makes sense and can be relied upon.

Answer 263

-Assess the property's market value without lease complications. -Understand its liquidity for a quick sale in case of default. -Standardise valuations for easier comparison across properties. -Minimise risks from tenant issues or lease agreements. -Plan for a worst-case scenario, focusing on the propertyâ€™s core value.

Answer 264

* Nature of the restriction must be agreed in writing in the Terms of Engagement * Possible valuation implications of the restriction confirmed in writing before the value is reported * Valuer should consider whether the restriction is reasonable with regard to the purpose of the valuation * The restriction must be referred to in the report

Answer 265

* Must not be undertaken unless the valuer is satisfied that there has been no material changes to the property or nature of its location since its last inspection * (this must be confirmed in the Terms of Engagement and in the valuation report)

Answer 266

-Gross Initial Yield (GIY) is the yield based on a property's current rental income relative to its purchase price, giving a snapshot of the return an investor would receive today. -Reversionary Yield is the potential future yield, based on the estimated market rent the property could achieve, reflecting its income potential once leases are updated to market rates.

Answer 267

* The Red Book Global contains mandatory rules and best practice guidance for members who undertake asset valuations. * Effective from 31 January 2025

Answer 268

* Consistency, Objectivity, Transparency * Accuracy, Confidence, Credibility, Independence, Clarity, Trust

Answer 269

* To reflect updates to the International Valuation Standards

Answer 270

* PS1: "Written" means any valuation conveyed by paper, any electronic or digital means or in the form of recorded media. This could include the output of valuation software e.g. an AVM * PS2: Reinforces that valuers must apply independence and objectivity to their work and "professional scepticism" when reviewing information and data * VPS3: Valuation reports must clearly state the valuation approach and relevant reasoning which led to their findings. Where appropriate, sustainability and environmental matters should form an integral part of the valuation approach * VPS5: Reinforcement of the obligation to ensure that the valuation model is appropriate for the basis of value, that this is recorded and the model's assumptions are understood (as per new IVS 105) * IVS410: requirement for valuers of development property to apply a minimum of two method of valuation

Answer 271

* Advice is provided in negotiations or litigation * Statutory function except for the provision of a valuation for inclusion in a statutory return to a tax authority * Internal purposes, without liability and not communicated to any third party * Agency and brokerage work in anticipation of receiving instructions to dispose of or acquire and asset (except where a purchase port is required which includes a valuation) * Expert witness

Answer 272

* Yes, as long as it does not meet any of the criteria outlined in the PS 1

Answer 273

* The UK National Supplement augments the Red Book Global requirements for valuations in the UK and is not a substitute for it * Provides requirements for members on the application of the RICS Valuation - Global Standards in the UK jurisdiction

Answer 274

* More user friendly with clear advice on what is and is not mandatory * New UK VPGAs have been included for the valuation of central government assets, local authority assets and registered social housing providers' assets * For financial reporting valuations, there is greater differentiation between UK GAAP and IFRS requirements * New section on valuation for commercial lending (UK VGPA 10)

Answer 275

* Introduction * UK Professional and Valuation Standards (Mandatory) * UK Valuation Practice Guidance Applications (Advisory) * Summary of changes from Red Book UK, 2015

Answer 276

Provides UK specific guidance to complement the RICS Global Standards: -UK Legislation and Regulations -Property-specific guidance e.g. office, resiâ€¦ -Regulatory framework- alines with UK financial regulations -UK valuation Practice Guidance- covers Loan security values, investment values -Ethical and professional standards

Answer 277

Mandatory rotation: -Max period of 10 yrs before the rotation of val firms -Max single engagement period of 5 yrs -Max period of 5 yrs before rotation of an individual responsible valuer -Min 3 yrs break after rotation off an engagement

Answer 278

- to align references to the updated Red Book Global Standards

Answer 279

* RICS Valuer Registration Scheme (VRS)

Answer 280

* Improve the quality of valuation and ensure the highest possible professional standards * To meet the RICS requirement to self-regulate effectively * To protect and raise the status of the valuation profession as the leading expertise in valuation

Answer 281

* Openness and transparency * RICS protection and international valuation standards * Expertise and clear reporting * World class regulations

Answer 282

* Those who have completed the APC valuation competency to Level 3 qualify for registration * Alternative route post qualification for those with Valuation to only Level 2. * This includes undertaking more valuation experience (up to 100 days) and a case study submission

Answer 283

* Those undertaking valuation work in compliance with the Red Book Global

Answer 284

* Type of valuations * Purpose of valuations * Number of valuations * Firm's total fee income from Red Book Global valuations in the last year * What data sources used * Quality assurance audit procedures in place * History of any negligence claims and notifications

Answer 285

* Register of registered valuers * Firms annual return * Risk based reviews, ranging from desktop investigations to site based Regulatory Review Visits (RRVs), dependent on the risk identified * Head of Regulation has the power to remove a valuer from the scheme

Answer 286

* An arrangement can be made periodically review the valuation at intervals not greater than 7 years by another member.

Answer 287

* Void holding costs - insurance, service charge and empty rates * Capex - refurbishment necessary to achieve your opinion of market rent * Letting fees

Answer 288

A valuation report is Red Book compliant when it adheres to the RICS Valuation â€“ Global Standards and includes the following key elements: -**Compliance with IVS**: The report must follow International Valuation Standards (IVS). -**Clear Purpose**: The report must clearly state the purpose and intended use of the valuation. -**Client Identification: **The client must be clearly identified. -**Valuer Independence:** The valuer must declare their independence and any conflicts of interest. -**Basis of Value**: The basis of value (e.g., market value, investment value) must be defined. -**Valuation Date**: The valuation date must be stated. -Scope of Work: The scope of the valuation, including assumptions and limitations, should be outlined. -**Compliance Statement:** A statement that the report is prepared in accordance with the RICS Red Book standards. These elements ensure transparency, consistency, and professionalism in the valuation process.

Answer 289

* The value of an asset to a particular owner, or prospective owner for individual investment or operational objectives i.e. the measure of worth to reflect the value against the client's own investment criteria

Answer 290

* The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties * Not used in the UK

Answer 291

* Used for a group of assets sold on a piecemeal basis considering the cost of getting the assets into a saleable condition * Not used in the UK

Answer 292

I would highlight the importance of considering current rising interest rates and high levels of inflation that result in the following:- * Rising borrowing costs * Falling demand for commercial office space = longer void periods and a reduction in the Gross Development Value. * There has been recent pull back of borrowing products from specialist lenders * High levels of inflation = building costs remaining high resulting

VALUATION Flashcards

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