APC Spring 2026 > Valuation > Flashcards

Valuation Flashcards

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1
Q

What is Net Effective Rent?

A

The actual cost of the rent when rent incentives are subtracted

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2
Q

What is Estimated Rental Value?

A

The rental value a property could lease for in the future taking account of current market conditions

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3
Q

What are the Bases of Valuation?

A

Market Value
Market Rent
Fair Value (IFRS 13)
Liquidation Value
Synergistic Value
Investment Value
Equitable Value

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4
Q

What is Fair Value?

A

That price that would be received to sell an asset in an orderly trasnsaction between market participants at measurement date

IFRS13

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5
Q

What is Investment Value?

A

The value of an asset to the owner based on their operational objectives

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6
Q

What is an internal valuer?

A

Valuation for internal use only

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7
Q

What is an external valuer?

A

Has no material links with the asset to be valued

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8
Q

What 3 steps should one take prior to commencing a valuation?

A

Check competence

Check independence (any coi)

ToE (confirm competence, coi and confirm instruction)

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9
Q

What are the 5 methods of valuation?

A

Investment
Comparable
Residual
Profits
DRC

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10
Q

3 valuation approaches?

A

Income approach (profits and investment) - income stream converted into capital value

Cost approach (DRC and residual) - cost to build an equivalent buildimg + land value - depreciation

Market approach (comps) - market evidence

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11
Q

What part of the Red Book are applicable to everything?

A

Part 3
PS1
PS2

Part 4
VPS 1 - 6

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12
Q

What do not require red book valuations?

A

Market appraisals

Internal purposes

Statutory functions

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13
Q

What is Profits Method?

A

Value depends on the profit the property is generating

Then capitalised by a YP multiplier

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14
Q

What is Investment Method?

A

Value that is generated by rental income

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15
Q

What is the Residual Method?

A

Value of development land

(once TBC, FF&E, Contigency, Site financing, acquisition costs & developer’s profit are subtracted from the GDV (turnkey))

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16
Q

What is the Comparable Method?

A

Collecting recent, nearby and similar sales, rental or yield evidence

Adjust characteristics in terms of similarity to subject property

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17
Q

What is the DRC Method?

A

Used for rare properties (school, hospital), when theres no comparable evidence and are rarely sold on the open market

Cost approach

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18
Q

Is an insurance valuation an opinion of value?

A

No

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19
Q

Whats is the difference between Turnkey and VP?

A

Vacant Possession is a totally empty building

Turnkey has staff in place, FF&E and is ready to accept its first resident

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20
Q

What is part 6 of the Red Book?

A

IVS

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21
Q

What are IVS?

A

Provide global guidance on valuation

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22
Q

Name some of the changes in the most recent Red Book.

A

New VPGA 11 - relating to relationships with auditors

Use of AI in valuations

New content of valuation methods and modelling

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23
Q

Who publishes IVS?

A

International Valuation Standards Committee

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24
Q

What is a DCF?

A
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25
What is the purpose of the Red Book?
- Ensure consistency and quality - Promote Trust - Align with international standards - Protect oublic interest
26
What rae the 3 steps prior to sommencing a valuation?
check competence check indepenence set out ToE
27
What is the purpose of updating the Red Book?
In order to reflect changes through the industry
28
What changes were implemented in the latest Red Book?
1) Alignment with new IVS 2025 2) New VPGA 11 relating to relationships wioth auditors 3) Comment on the use of AI in valuations
29
Why do you undertake staturoty due dilligence?
to check there are no material matters that could imapct value
30
What is WAULT and how do you calculate it?
Weighted Average Unexpired Lease Term (remaining leas term x rent) for each lease, divided by total rental income
31
Describe the general timescale to a valuation
1. Recieve instruction 2. check comeptence and independence 3. Issue ToE 4. Recieve ToE signed by client 5. gather information (accounts, capex, staff details, fees) 6. due diligence checks 7. Inspections 8. Valuation 9. Collect comparables to cross-check 10. have valuation numbers reviewed by senior member 11. draft report 12. peer review draft report by senior colleague 13. final report 14. report to client 15. issue invoice 16. ensure everything is in good order for archiving
32
Where section refers to ToE in the Red Book?
VPS 1
33
What must a valuation ToE include?
Property(s) to be valued PII Agreed Fee CHP Confirm no conflicts Valuer/point of contact Bases of Value special assumptions
34
Explain what the conventional valuation method is
capitalisaing the rent with an all risks yield
35
What valuation method is used for under rented property?
term and reversion
36
What valuation method is used for oevr rented property?
core and top slice
37
Explain term and reversion
capitalising the current rent until lease expiry/rent review with initial yield then capitalise MR into perprtuity at a reversionary yield
38
Explain core and top slice
Capitalise market rent (core) in perpetuity remaining rent (top slice) capitalise using higher yield (ro reflect risk)
39
What is an all risks yield?
Used in valuations of fully let properties at Market Rent reflecting all risk relating to that particular investment
40
What is a gross yield?
Yield not adjusted for purcher's costs
41
What is a net yield
Yield adjusted for purchaser's costs
42
What is an intitial yield?
Refelcts return on current passing rent
43
What is a running yield?
At one moment in time
44
What is a Reversionary yield?
The yield an investment is expected to make at MR
45
What is an equivalent yield?
average weighted yield when a reversionary property is valued using an intial and reversionary yield
46
What is a nominal yield?
Rent paid in arrears
47
What is a true yield?
Rent paid in advance
48
What is outlined in VPGA 4 of the Red Book?
Valuation for trade related properties
49
Define market value
the estimated amount ofr which an asset or liability exchanges - in an arm's lenght transaction - at valuation date - after proper marketing - between a willing buyer and a willing seller - when all aprties have acted knowledgeably, prudently and without compulsion
50
Explain the hierachy of evidence for comparable method
1) Cat A - direct market evidence 2) Cat B - general market data 3) Cat C - other sources
51
Which Professional standard supports this?
Comparable Evidence in Real Estate Valuation 2019
52
What are the steps whens earching for comparable evidence?
1) search and collect evidene 2) verify details 3) put evidence in excel table 4) adjust with regards to hierachy 5) form opinion on value
53
Are you aware of any RICS publication with regard to Comparable evidence?
Comparable Evidence in Real Estate Valuation 2019
54
Would you undertake a credit check on a tenant fro an investment valuation? If so, why?
Yes To gain understanding of covenant strength as this can affect yield adopted
55
What are the main factors you consider when choosing a yield?
Risk Covenant strength Location Voids Property use
56
What is an assumption?
Assuming something be true without investigation e.g. couldn't find an epc for the property but I asume is MEES compliant
57
What is a special assumption?
Accepting something as fact when it is not
58
Define a reasonably efficient operator
a competent and efficient operator this is what i assume when i establish my FMTs EXCLUDES PERSONAL GOODWILL
59
For residual valuations, what percentages do you usually consdier normal for: - Developer's Profit - Contingency - Marketing - Professional Fees - FF&E - Acquisition Costs
DP - 15-20% C - 5-10% M - 1-2% PF - 10-15% FF&E - £12.5k per bed AC - 5%
60
What do professional fees include?
solicitors, surveyors, services from professionals
61
What are contingency costs?
unexpected costs, costs being higher than expected. Eg material inflation
62
What do acquisition costs include?
Agents fees, SDLT, legal fees
63
What is the difference between residual value and development appraisal?
64
What is a YP?
Years Purchase The inverse of a yield, reflective of property's risks and rewards Number of years to repay the investment
65
What are the contents of the Red Book?
Intro Glossary PS - MANDATORY VPS - MANDATORY VPGA - ADVISORY IVS
66
What type of valuation does not need to be Red Book compliant?
1. Market appraisal report 2. internal purpose valuation 3. statutory functions 4. providng agency advise 5. litigation purposes 6. expert witness
67
What are the 6 Valuation Performance Standards?
VPS1 - ToE VPS2 - bases of Value, assumptions amnd special assumtpions VPS3 - Valuation approaches & methods VPS4 - Inspection, investigation and record VPS5 - Valuation models VPS6 - Valuation Reports
68
Can desktop valuations be Red Book compliant?
Yes - VPS4, revaluation without reinspection but client must confirm no material changes to the property
69
Why did you use 2.00x rental cover in your valuation?
2.00x rental cover ensures the rent is sustainable for an reo while allowimg for profit
70
Is an inheritance tax valuation part of the Red Book?
Yes. RICS Global Standards: National Supplements. VPGA 15
71
What does VPGA 15 of National Supplement state?
72
When is DRC method used?
When there is no available market evidence used to value rare assets such as schools and hospitals
72
How does the Red Book define DRC method?
the current cist of replacing an asset with its modern equivalent asset, less deductions for physical deterioration, and all relevant forms of obsolescence and optimisation
73
Where does it mention valuer rotation in the Red Book?
Part 3: PS 2 Rotate valuer not exceeding 7 years Only for registered purposes valuations (doesnt include secured lending)
74
What is the importance of valuer rotation?
If a valuer have been responsible for valuing a certain property for some time, their independence could be compromised Good practice to ensure valuer independence
75
What is your firm's valuer rotation policy?
76
What does Vacant Possession mean?
The Property is empty of previous tenants / empty of previous occupiers
77
What does the Professionals Standard 'Comparable Evidence in Real Estate Valuations' outline?
- outlines advice on dealing with situations where there is limited available evidence and sets out hieracy of evidence 'the valuer should use professional judgement to assess the relative importance of evidence on a case-by-case basis'
78
what is the simple methodology of a DCF?
1. estimate the cash flow for an agreed holding period 2. estimate the exit value at the end of the holding period 3. delect the discount rate 4. discount the cash flow at gthe discount rate 5. Value is the sum of the completed discounted cash flow to provide NPV
79
What is internal rate of return?
Rate of a return chosen to provide an NPV of 0
80
How do you know if an NPV is positive?
It will be greater than zero This means the investment is making a profit
81
What is net present value?
The value of all future cash flows (+ and -) over the life of an investment dicosunted to the present
82
What is an IRR used for?
Used to assess the total return of an investment will it provide profitability?
APC Spring 2026
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