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Valuation Flashcards

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1
Q

What was the average rent in 2019 for non-LFA land?

A

£132/ha (£326/acre)

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2
Q

What was the average rent in 2019 for LFA land?

A

£27/ha (£67/acre)

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3
Q

Give an example of a special assumption

A
  1. When a holding is valued for the purpose of compensation for relinquishment of an agricultural tenancy, the valuer must exclude the impact of tenant’s improvements
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4
Q

What four values should a valuer assess for a valuation of a holding for the purpose of compensation for a relinquishment of tenancy?

A
  1. The value of the holding with vacant possession, without any consideration of tenant’s improvements
  2. The value of the holding if occupied by the tenant
  3. Compensation due to the tenant for tenant’s improvements
  4. Compensation to the landlord for dilapidations
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5
Q

What are the 5 RICS recognised methods of valuation?

A
  1. Comparable method
  2. Residual method
  3. Investment method
  4. Profits method
  5. Depreciated replacement cost method
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6
Q

What date did the latest red book come into effect?

A

31st January 2020

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7
Q

What is the definition of market value?

A

“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”

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8
Q

What is special value?

A

An amount the reflects part or all of an asset which are only of value to a special purchaser

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9
Q

What are the three principle basis’ of value?

A
  1. Market value
  2. Equitable value
  3. Investment value
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10
Q

What is marriage value?

A

An additional element of value created by the combination of two or more assets, where the combined value is greater than the sum of the seperate values

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11
Q

Can special value be reflected in market value and equitable value?

A

Market value - no

Equitable value - yes

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12
Q

Can marriage value be reflected in market value and equitable value?

A

Yes, in both

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13
Q

Give examples of instances where valuations do not have to comply with the Red Book

A
  • Pre-sale advice
  • Supporting expert witness work
  • For purely internal purposes where the valuation will not be passed to a third party
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14
Q

Name the 5 valuation technical and performance standards (VPS 1-5)

A

VPS 1 - Terms of engagement (scope of work)
VPS 2 - Inspections, investigations and records
VPS 3 - Valuation reports
VPS 4 - Bases of value, assumptions and special A’s
VPS 5 - Valuation approaches and methods

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15
Q

What is the abbrevation for valuation practice guidance applications (advisories)?

A

VPGA

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16
Q

How many VPGA’s are in the RICS Red Book?

A

Ten

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17
Q

Give some examples of VPGAs.

A

VPGA 1 – Valuation for inclusion in financial statements
VPGA 2 – Valuation of interests for secured lending
VPGA 3 – Valuation of businesses and business interests
VPGA 4 – Valuation of individual trade related properties
VPGA 5 – Valuation of plant and equipment
VPGA 6 – Valuation of intangible assets
VPGA 7 – Valuation of personal property, including arts and antiques
VPGA 8 – Valuation of real property interests
VPGA 9 – Identification of portfolios, collections and groups of properties
VPGA 10 – Matters that may give rise to material valuation uncertainty

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18
Q

What is the cost approach?

A

A value based on the principle that a buyer will pay no more for an asset than the cost to obtain an asset of equal quality, whether by purchase or construction

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19
Q

What is the income approach?

A

A value derived by converting future cash flows into a single current capital value

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20
Q

What is a special assumption?

A

An assumption that either assumes facts different from the actual facts, or that would not be made a typical market participant in a transaction on the valuation date.

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21
Q

What is Professional Standard 1 (PS 1)?

A

Compliance with standards where a written valuation is provided

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22
Q

What is Professional Standard 2 (PS 2)?

A

Ethics, competency, objectivity and disclosures

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23
Q

When can valuations depart from Red Book VPS 1-5?

A
  1. Agency advice
  2. When acting as expert witness
  3. Performing statutory functions
  4. Providing valuation for internal purposes
  5. Providing valuation advice in the course of a negotiation, or litigation where the valuer is acting as an advocate
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24
Q

What should be included in valuation Terms of Engagement (18 items)?

A
  1. Identification and status of valuer
  2. Identification of the client(s)
  3. Identification of other intended users
  4. Identification of the asset(s)/liability(ies) being valued
  5. Currency
  6. Purpose
  7. Basis of value (see VPS 4)
  8. Valuation date
  9. Nature and extent of investigations and limitations
  10. Nature and source of information relied upon
  11. Assumptions and special assumptions
  12. Format of the report
  13. Restrictions on use, distribution and publication
  14. Confirmation of compliance with IVS
  15. Fee basis
  16. Reference to complaints handling procedure
  17. Statement relating to monitoring by RICS
  18. Any limitations on liability agreed
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25
What do the International Valuation Standards (IVS) 101 refer to Terms of Engagement as?
Scope of works
26
Who must be responsible for a valuation?
A name individual, who must be an RICS Registered Valuer
27
Can a property be revalued without re-inspection, if previously valued?
Yes, providing the valuer is satisfied that there have been no material changes to the physical attributes of the nature of its location since the last assignment
28
What should be included in inspection notes?
limits of inspection (e.g. could not enter property due to COVID-19) and inspection circumstances (e.g. time of year and weather conditions)
29
VPS 3 - Valuation Reports. What are the general principles?
- The report must clearly and accurately set out the conclusions of the valuation - The report must deal with all the matters agreed between the client and the valuar in the terms of engagement
30
What is VPS 4?
Bases of value, assumptions and special assumptions
31
What are the bases of value as defined in the IVS?
- Market value - Maket rent - Investment value - Equitable value - Synergistic value - Liquidation value
32
What is an assumption?
When it is reasonale for a valuer to accept that something is true without the need for specific investigation or verification
33
Give some examples of special assumptions
- Assuming planning has been granted - A development has been completed (in accordance with a defined plan/specification) - The property is vacant when it is in fact occupied - The property is let on defined terms when it is in fact vacant
34
Give some examples of assumptions in valuation
- Title (i.e. the property is held with vacant possession) - Planning (has appropriate planning for present use) - Condition of buildings - Condition of services
35
What is VPS 5?
Valuation approaches and methods
36
What are the three valuation approaches?
1. Market approach 2. Income approach 3. Cost approach
37
What basis of value should be used for secured lending purposes?
Market value
38
What is UK VPS 3?
Regulated purpose valuations: supplementary requirements
39
What are example of regulated purpose valuations?
Valuations for financial reporting Valuation reports for inclusion in UK company circulars Valuations in connection with takeovers and mergers Valuations for collective invesment schemes Valuations for unregulated property unit trusts
40
What is included in the Global Standards: UK National Supplement?
UK Professional Standard, 3 supplementary Valuation Performance Standards (VPS's) and 17 VPGA's for valuations for specific purposes.
41
What is different about the definition of Market Value (MV) in a valuation for tax purposes (CGT, IHT, SDLT and LBTT)?
The valuation should reflect the bid of any special purchaser in the market. It is the best possible price that could be acheived on the open market.
42
What are the general principles of good comparable evidence?
It should be: - Comprehensive, several rather than one - Very similar or if possible identical - Recent, i.e. reps the market on the valuation date - The result of an arm's length transaction - Verifiable - Consistent with local market practice - The result of underlying demand. I.e. there were enough potential bidders to create an active market
43
What are the key sources of comparable evidence?
- Direct transactional evidence - Publicly available information - Published databases - Asking prices - Historic evidence
44
What elements of comparable evidence should be recorded?
- Address - Real estate type - Nature of asset being valued - Location details - Legals - Brief description and specificaiton - Accomodation/area inc. method of measurement - Type of transaction - Date of transaction - Financial information - Parties involved - Source of information - Comments on reliability - Date of confirmation of information
45
How should a valuer deal with a lack of comparable evidence?
- Look further afield for evidence, perhaps more indirect | - Report lack of evidence and resulting uncertainty within valuation
46
What factors affect land value?
- Land use mix - Soil type - Capability - Aspect - Layout - Accessibility - Drainage - Irrigation - Proximity to markets - Size - Suitability and layout of buildings - Eligibility for support payments - Environmental or other statutory designations - Schemes - Tenure Planning opportunities - Use of machinery - Water distribution and availability - sporting rights - Riparian ownerships - Minerals - Public development/compulsory purchase proposals
47
What factors affect farm buildings value?
Age, construction type, layout, adaptability, access, compliance with farm quality assurance requirements, pollution hazards, electricity supply and other mains/private services, redevelopment/conversion opportunities.
48
What factors affect residential property value?
Age, construction type, layout, adaptability, access, compliance with quality assurance requirements, pollution hazards, electricity supply and other mains/private services, redevelopment/conversion opportunities.
49
What are the three area measurements as defined by the measurement code of practice?
- Gross External Area (GEA) - Gross Anternal Area (GIA) - Net Internal Area (NIA)
50
What is the IHT/CGT definition of valuation?
“the price which the property might reasonably be expected to fetch if sold in the open market at that time, but that price must not be assumed to be reduced on the grounds that the whole property is to be placed on the market at one and the same time.”
51
What must you do to maintain RICS Registered Valuer status?
Take valuation to level 3 in APC. Pay annual registration fee to remain on the Valuation Registration Scheme, submit return annually showing properties valued.
52
What is the definition of equitable value?
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.
53
When might you take account of hope value?
Land for potential development, such as a farmer's field on the edge of a town or land near a substation. The prospect of marriage value e.g. a neighbouring property was up for sale and the two combined would be of greater value.
54
What is existing use value?
The value of property in its current form.
55
How would you value a tenanted farm?
- Depends on the type of the tenancy and how easily vacant possession can be achieved. - Might value the farm on vacant possession and apply a discount rate based on the years until termination or in perpetuity if on a secure tenancy - You may then add a value based on capitalising the rent payable for the tenancy until the time that VP can be acheived.
56
What is a typical rental return from a farm tenancy?
Currently 1-2%, historically between 4-5%
57
What is the likely discount rate for tenanted farmland?
30-60%
58
What units of measurement should be adopted in a Red Book valuation?
Metric
59
What area measurement definition should be adopted when valuing shops and offices?
Net Internal Area (NIA)
60
Area outbuildings (that share a wall with the property) and garages included in Gross External Area?
Yes
61
When is GEA typically used?
Planning - measurement for planning applications Rating and council tax Building cost estimation
62
How does Gross Internal Area (GIA) differ from Gross External Area (GEA)?
GIA does not include perimeter wall thickness.
63
When would you use GIA?
Industrial valuation New homes valuation Property management
64
What is Net Internal Area (NIA)?
The useable area within a building measured to the internal face of the perimiter walls at each floor level.
65
What measurement area is used for residential valuations?
RV - Residential valuations. There is no single accepted practice for measurement. This might include Net Sales Area or Effictive Floor Area.
66
What is the minimum headroom for an area to be included within GIA/NSA measurement?
1.5m
67
What is the purpose of a farm stocktaking valuation?
To assess the closing stock value and thereby the proper profits or losses and baland sheet of a farming business, for inclusion in financial statements.
68
What basis would you use for a farm stocktaking valuation?
Fair value less cost to sell
69
What prices can be achieved for commercial woodland?
Up to £15,000 per ha
70
What factors affect the value of woodlands?
- Location (proximity to timber markets) - Size (commercial or amenity?) - Drainage - Climate - Elevation - Exposure - Soil type - Terrain - Access: internal and external - Achaeoligical features - Water courses - Tree species - Timber volumes - Tree size and age - timber quality - Management to date - Tree health - Porximity to buildings - Rights of access - Environmental designations - Non-woodland development potential - Grants - Market factors: Supply and demand, interest rates, price of timber
71
What methods might you use to value woodland?
- Comparable method: mostly used for smaller amenity woodlands where value of timber is irrelevant - Income based approach for standing timber, comparable approach for land as planting land - Present market value for mature woodland - expectation value for young, immature woodlands, or possibly even the replacement cost
72
How would you assess the present market value of standing timber?
Calculate the volume of standing timber and multiply by the relevant timber price.
73
What is the price currently being acheived for plantable hill ground?
Up to £2,000 per acre
74
What is the typical price for bare hill ground?
£100-300 per acre
75
What is the price for lowground grazing in the area?
Up to £1,500 per acre
76
What is the price for good arable ground in your area?
£4,000-6,000 per acre
77
What is the price currently being acheived for commercial forestry?
£15,000 per ha (just over £6,000 per acre)
78
Discuss what is currently happening in the agricultural land market?
- lack of supply due to Covid-19 (lowest on record) - demand stayed strong - prices held up - increase in lifestyle purchasers for small holdings - forestry buyers dominated hill ground market
79
What is the capital value of a stag?
Around £35,000
80
What is the capital value of a brace of grouse?
£8,000-9,000 per brace
81
What is the capital value of a salmon?
£5,000
82
When would you use a term and reversion approach?
On a property which has a current lease that is due to end in a known timeframe.
83
What is a term and reversion approach?
Calculate the value of the remaining lease payments (the term) by capitalising the income using an all risks yield. Apply a discount rate (present value of £1) to the remaining value (the reversion). This might be the market value if based on gaining vacant posession, or the capitalised income value in perpetuity at a higher risk yield if leasing the property again.
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