APC Valuation (Rating) > Valuation > Flashcards

Valuation Flashcards

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1
Q

Define valuation.

A

The process of determining the current worth of an asset or liability.

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2
Q

What does the income approach base value on?

A

Expected future income.

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3
Q

What is the cost approach?

A

A valuation method estimating the cost to replace or reproduce an asset.

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4
Q

Define market value.

A

The estimated amount for which an asset should exchange in a competitive market.
In Red Book The estimated amount for which a property should exchange on the date of valuation between a willing buyer and willing seller in an arms length transaction after proper marketing whereon the parties had acted knowledgeably, prudently and without compulsion

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5
Q

What is a discounted cash flow analysis?

A

A valuation method that projects future cash flows and discounts them to present value.

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6
Q

What is the investment method?

A

A valuation approach focusing on the income-generating potential of a property.

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7
Q

What is depreciation

A

Reduction of assets value over time

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8
Q

Define highest and best use.

A

The most profitable legal use of a property that is physically possible.

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9
Q

What is a valuation report?

A

A document detailing the findings and conclusions of a property valuation.

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10
Q

Define appraisal.

A

An expert assessment of a property’s value, typically conducted by a licensed appraiser.

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11
Q

What is the investment valuation method.

A

A valuation method that converts income into value through capitalization rates.

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12
Q

Define fair market value.

A

The price at which an asset would sell in an open market between willing buyers and sellers.

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13
Q

Define liquidation value.

A

The estimated value of an asset when sold quickly, often below market value.

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14
Q

What is the replacement cost method?

A

A valuation approach estimating the cost to replace an asset with a similar one.

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15
Q

3 approaches to valuation

A

Market
Income
Cost

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16
Q

5 methods of valuation

A

Comparable
Investment
Profits
Residual
Depreciated Replacement Cost

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17
Q

VPS 1

A

Terms of Engagement

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18
Q

VPS 2

A

Bases of value, assumptions and special assumptions

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19
Q

What is in VPS 3

A

Valuation approaches and methods
(Market, income, cost)
(Comparable, investment, residual, profits and DRC)

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20
Q

VPS 4

A

Inspections and investigations

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21
Q

VPS 5

A

New section. - Valuation models

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22
Q

VPS 6

A

Valuation reports, includes ESG

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23
Q

When would you use Hardcore approach and explain it.

A

If the property is rented above the market rent the income can be capitalised using Hardcore layer which is the market rent capitalised in perpetuity at ARY
Then a top layer or froth is capitalized for the term of the lease on a reversionary yield (higher)

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24
Q

When would you use Term and reversion

A

When a property is under rented.

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25
What is a yield
Annual return on an investment. Expressed as a percentage of capital value.
26
When would you use DCF
When there are no comparable market transactions Or comparing multiple investments
27
What factors affect yields
Tenant covenant Location of property Specification Growth potential Rent levels
28
What is an All risks Yield
Rental revenue of property as annual percentage of property value
29
How do you calculate Gross initial yield
Divide annual income by capital value and x 100
30
What are main components of a valuation report
Date of valuation Extent of inspection Opinion of value in words and figures Prohibit publication clause Date of report Valuer qualification
31
What would you caveat in a valuation report
Publication Confidentiality Delterious materials Planning Taxation Information supplied Environmental matters
32
What RICS guidance relates to comparable method?
Professional standard Comparable evidence in real estate valuation.
33
Tell me about the RICS Publication 'comparable evidence in real estate valuation'
It outlines the principles of the use of comparable evidence Encourages consistency Addresses the availability of comparison evidence Considers sources if evidence
34
In Comparable Evidence in Real estate valuation . What does it say about comparable evidence?
Comparables should be Comprehensive Recent Identical or Similar arms length verifiable Consistent with Local market practice Occurred in Active market with multiple bidders
35
Can you use hindsight evidence for valuation
Should only use evidence that was available on the day of valuation. Chifley Holdin s v HMRC 2024. Disregard events that could not have been known at valuation date and apply less weight to evidence after valuation date.
36
What is the hierarchy of evidence in the RICS publication. Comparable evidence for real estate valuation
A - direct comparables B - general market data C - other sources Eg. Transactions of other types of property and locations, background data
37
How would you analyse evidence
Establish a common measurement Make adjustments Stand back weigh up evidence.
38
What impacts rental vlaue
Location Size Age and condition Car parking Plot Planning use class
39
Hierarchy of rental evidence
Open market letting Lease renewal Rent review Third party determination Sale and leaseback Inter company transactions
40
What would impact on a yield for investment valuation. What are the main drivers that impact on a yield.
Risk! Age and condition Tenure Covenant strength Lease terms and length Location Development potential
41
What are some investment valuation approaches
Traditional method for rack rented Term and reversion for under rented Hardcore and topslice for over rented DCF - build growth explicitly into income flows. Can be of assistance if multiple properties or a choice of properties.
42
What are pros and cons of DCF method
Good for varying income flows Used if no investment comps Useful for comparisons Good for analysis Cons Requires more information for inputs Higher risk of error
43
Describe how to do term and reversion.
Current rent multiply by YP at chosen percentage for the term. (lower yield because less risk) For Reversion Market rent rent Multiply by YP at ARY yield or reversionary yield Defer for term (use present value)
44
Where do you find the figures for YP and PV multipliers
Parry's tables or online There is a formula if the exact figure is not in Parry's
45
How do you do a hardcore and topslice valuation.
Value market rent in perpetuity Add top slice (difference between market rent and current rent) times YO for amount of term at lower percentage yield.
46
Do you defer any part of the calculation in hardcore method.
No
47
How would you value a leasehold interest
Capitalise profit rent Consider sinking fund.
48
What is an initial yield
Same as gross yield. Calculated by rent /capital value
49
What is Net yield
Gross yield plus purchasers costs. Worked out; rent /(value plus costs) Lower percentage.
50
What costs might be deducted for investment method valuation
Purchasers costs Eg SDLT Agency fees Solicitor fee
51
How would you assess the covenant strength of a tenant
Brand name Experian Review accounts Dun and Bradstreet
52
Is there a softer or sharper yield on the term when doing a term and reversion?
Sharper. (Lower)
53
What is a running yield?
Yield at any one moment in time
54
Is term and reversion growth explicit or implicit?
Implicit (DCF is explicit)
55
What is all risks yield
Rate of interest used in valuation of fully let property at market rent, reflecting all prospects and risks.
56
What is the Red Book
The RICS red book contains mandatory rules and best practice guidance for members who undertake valuation. Includes International Valuation standards
57
What steps would you take following valuation instruction in private sector.
Details of property Conflict of interest check Get signed instruction Find out purpose of valuation Gather information about property Inspect And measure if needed Report
58
Are you aware of any recent changes to RICS guidance regarding DRC valuation
New practice guidance document effective April 2026. Depreciated replacement cost method of valuation for financial reporting. Downgrade of 2019 document from professional standard to practice guidance. New mandatory restrictions on assumptions around alternative sites.
59
New RICS guidance on DRC valuations. What are the main updates?
Technical update. HM treasury prohibition in using alternative lower -value sites for UK public sector reporting. Mandatory from 28/29 Early adoption permitted this financial year (with treasury approval) So the site cannot be relocated to a cheaper area for replacement cost.
60
Defintion of DRC as a valuation method
Current replacement cost of an asset with modern equivalent less deductions for physical deterioration, functional and economic obsolescence.
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