What are the 5 methods of valuation?
- Comparable (Market evidence); 2. Investment (Income producing); 3. Residual (Development); 4. Profits (Trade-related e.g. hotels); 5. Cost/Contractor’s (Specialist assets).
What is the “Red Book”?
The RICS Valuation – Global Standards. it ensures consistency, transparency, and high professional standards globally. It incorporates International Valuation Standards (IVS).
Which sections are mandatory?
PS 1 & 2 (Professional Standards) and VPS 1 through 5 (Valuation Technical and Performance Standards). VPGAs (Guidance Applications) are advisory.
Market Value (MV) vs. Market Rent (MR)?
MV: The estimated amount for which an asset should exchange on the date of valuation between a willing buyer and seller. MR: The estimated amount for which an interest in real property should be leased.
Assumption vs. Special Assumption?
Assumption: A fact taken to be true (e.g., the building has good title). Special Assumption: Something that is not true at the date of valuation but is assumed for the report (e.g., that a planning permission has been granted).
What is PII “Run-off” cover?
Insurance that covers a surveyor for claims made after they have retired or the firm has closed. RICS requires a minimum of 6 years of cover.
Why are Terms of Engagement (ToE) important?
They form the contract between the surveyor and the client. VPS 1 mandates they must be issued/signed before the valuation is delivered to prevent misunderstandings and limit liability.
How do you value using the Investment Method?
By capitalizing the rental income. I use the formula: Rent x YP (Years Purchase). YP is calculated as $1/Yield$. For a reversionary interest, I use the “Term and Reversion” or “Layer/In-situ” method.
How do you value using the Comparable Method?
By identifying similar properties sold/let recently, adjusting for differences (size, location, condition, date), and applying a unit of comparison (e.g., £/sq ft).
What is the “Margin of Error”?
A legal concept (often 10-15%) within which a valuation is considered “reasonable.” If a valuation falls outside this, it may be deemed negligent (e.g., K/S Lincoln v CBRE Hotels).
What is IFRS 13?
The International Financial Reporting Standard for Fair Value. It defines fair value and sets out a framework for measuring it, categorized into Level 1, 2, and 3 inputs.
How do you ensure comparable evidence is reliable?
I use the RICS hierarchy of evidence. Category A (Directly comparable transactions) is best. I verify third-party data (e.g. CoStar) by speaking to the agents involved to confirm the net effective rent and any incentives.
How do you choose an appropriate yield?
I look at market evidence for similar “risk” profiles. I adjust the yield based on covenant strength, lease length, and the physical prospects of the building. A stronger tenant or longer lease usually results in a lower (sharper) yield.
What checks do you do before accepting an instruction?
- Competence check (do I know this asset/area?); 2. Conflict of interest check; 3. AML/KYC checks; 4. Ensure I have adequate PII for the asset value.
What would you do if you couldn’t inspect a part of the property?
I would state it as a limitation in the ToE and the report. I would make an Assumption regarding its condition, but if the missing info is critical, I might decline the instruction (following Hart v Large).
