Valuation (Core)

Question 1

What are the exceptions to compliance of the Red Book?

Answer 1

1. Expert Witness
2. Litigation & negotiation
3. Market Appraisal / Agency
4. Statutory Basis
5. Internal Purposes

Question 2

What RICS guidance relates to Valuation?

Answer 2

• Comparable evidence in Real Estate Valuation. Guidance Note. 1st Ed. Oct 19.
• Valuation of Rural Property. Guidance note. 3rd ed. July 19.

Question 3

When was the UK Red Book last updated?

Answer 3

14th January 2019

Question 4

What is a Special Assumption?

Answer 4

An assumption that assumes facts that differ from the
actual facts existing at the valuation date.

Question 5

Can you revalue without re-inspecting a property?

Answer 5

Revaluation without reinspection cannot be undertaken unless you are satisfied that there have been no material changes to the physical or locational nature of the property since the last valuation.

Question 6

What are the 3, VPS 5 valuation approaches?

Answer 6

Cost
Income
Market

Question 7

Describe VPS 1 - 5.

Answer 7

VPS 1 - TOE (scope of work)
VPS 2 - Inspections, investigations & records
VPS 3 - Valuation Reports
VPS 4 - Bases of Value, Assumptions & Special Assumptions
VPS 5 - Valuation approaches & methods

Question 8

What does PS1 & PS2 relate to?

Answer 8

(Professional Standards)
- PS1; Compliance with standards where a written valuation is provided
- PS2; Ethics, competency, objectivity and disclosures

Question 9

Which RICS document outlines the process for identifying and using comparable evidence?

Answer 9

Comparable Evidence in Real Estate Valuation (RICS Guidance Note) 1st ed. 2019.

Question 10

What is an Assumption?

Answer 10

• Matters that are reasonable to accept as fact in the context of the valuation assignment without specific investigation or verification.

Question 11

What is PV of £1 (YP in perpetuity)?

Answer 11

Todays value of the right to receive a series of annual payments in perpetuity, discounted at a stated rate of interest.

Question 12

Before accepting an instruction, you need to ensure you comply with PS 2. What pre-instruction checks should I carry out?

Answer 12

• Check you are sufficiently competent, knowledgable and experienced to provide the required valuation advice.
• Ensure no conflicts of interest exist or that they are managed appropriately.
• Undertake the required money laundering checks on your client.
• Issue Red Book compliant Terms of Engagement (see VPS 1) and hold a signed copy on file.

Question 13

Major factor in determining the yield?

Answer 13

• Risk
• Other factors include; lease terms, security and regularity of income, use of property & location.

Question 14

What is Years Purchase (YP)?

Answer 14

The number of years required for the income to repay the purchase price.

Question 15

Are you aware on any RICS Guidance notes on COVID-19?

Answer 15

I am aware of the RICS ‘Covid-19 Guide to Surveying Services’ which contains a range of guidance notes to work safely and in line with government guidelines through the Pandemic.
▪ This provides specific guidance on:-
• Physical Inspections for Residential Properties.
• Physical Inspections for Non-domestic Properties.
• Residential Valuations and Surveys.
• Reopening of the Housing Market.
• Reopening of Commercial Buildings.

Question 16

What is the difference between an Expert Witness and Red Book Valuation Report?

Answer 16

Expert Witness Report;
- Contains Statement of Truth
- Primary duty to Tribunal
- Independent and unbiased product
- Fall within your expertise, experience and knowledge
- Impartial and uninfluenced by those instructing or paying you to give the evidence.
- In accordance with Civil Procedure Rules, Practise Direction 35

Question 17

What is the structure of the RICS Valuation Global Standards 2017 - UK National Supplement?

Answer 17

• PS 1
• VPS 1 - 3
• VPGA 1 - 18

Question 18

When would you use the replacement cost valuation method?

Answer 18

When valuing ‘specialised’ assets such as a School, Swimming Pool or Purpose-built Football Stadium.

Question 19

What is market value?

Answer 19

• 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.

Question 20

Which VPGA relates to secured lending?

Answer 20

VPGA 2

Question 21

What guidance should you follow when measuring a property?

Answer 21

• Code of Measuring practise. RICS Guidance Note. May 2015.
  (GEA, GIA & NIA)

Question 22

The profits method of valuation depends on what?

Answer 22

Profitability of it’s business (not physical building or location).

Question 23

How do you value a property with an Agricultural Occupancy Condition? (AOC)

Answer 23

• Comparable method
• Rule of thumb; 25-30% below market value.

Question 24

What is VPGA 2 & VPGA 10?

Answer 24

VPGA 2 - Valuation of interests for secured lending.
VPGA 10 - Matters that may give rise to material uncertainty.

Question 25

What is fair value?

Answer 25

- 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.

Question 26

What are the 5 specific circumstances where VPS 1-5 may be unsuitable or inappropriate to comply with?

Answer 26

- Providing agency or brokerage advice for an acquisition or disposal. - Acting as an expert witness. - Performing statutory functions. - Providing a valuation purely for internal purposes (without liability and without communication to a third party). - Providing valuation advice in the course of negotiations or litigation where the valuer is acting as an advocate.

Question 27

What is the profits method used for?

Answer 27

Valuing specialist trading properties such as pubs, care homes, petrol stations and hotels.

Question 28

What is PV of £1 per annum? (YP Single rate)

Answer 28

Todays value of the right to receive a series of annual payments for a given number of years at a stated rate of interest.

Question 29

The RICS Property Measurement, Professional Statement comprises what two elements;

Answer 29

1. Professional statement: property measurement 2. RICS IPMS Data Standard

Question 30

Comparable Evidence in Real Estate Valuation - Guidance Note, divides the hierarchy of evidence into what 3 categories?

Answer 30

A: Direct Comparables C: Other sources B: General Market Data (DOG)

Question 31

What is included in Terms of Engagement for a Valuation?

Answer 31

- Identification & Status of Valuer - Identification of the client - Purpose of the valuation - Identification of the asset or liability being valued - Basis of value - Date of valuation - Dave of inspection - Extent of valuers investigations - Nature & source of information relied upon - Special assumption - Fee - Fee settlement - Complaints handling procedure - Liability - Signatures

Question 32

What does VPGA2 say about reporting procedures?

Answer 32

As well as minimum reporting standards additional info is required: - Advise whether they agree to the loan. - Disclose COI in ToE. - Valuation methodology and calcs. - Environmental consideration. - Comment on suitability for mortgage purposes. - Any circumstances of which the valuer is aware that could affect the price. - Any other factor that conflicts with MV.

Question 33

What is market rent?

Answer 33

- Estimated amount an interest in property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

Question 34

What is a Special Purchaser?

Answer 34

- A particular buyer for whom a particular asset has a special value because of advantages arising from its ownership that would not be available to other buyers in a market.

Question 35

What is in a Redbook Valuation?

Answer 35

- Identification & status of valuer - Identification of the client (and other intended users) - Purpose of the valuation - Identification of the assets or liability valued - Basis of value - Valuation date - Extent of investigations - Nature & sources of information relied upon - Assumption and special assumptions - Valuation approach and reasoning - Valuation amount - Date of valuation report - Commentary on material uncertainty - Limitations on liability

Question 36

What are the bases of Value?

Answer 36

- Market Value - Market Rent - Investment Value - Fair Value

Question 37

What is the structure of the RICS Valuation Global Standards 2017 - UK National Supplement?

Answer 37

- PS 1 - VPS 1 - 3 - VPGA 1 - 18

Question 38

What is the RICS Valuation - Global Standards (2022)?

Answer 38

- Red Book - Sets out contains mandatory rules, best practice guidance and related commentary for all RICS members undertaking valuations.

Question 39

What is the UK National Supplement (2017)?

Answer 39

The UK national supplement adds to the Global Red Book for valuations that are subject to UK legilsation.

Question 40

What is the Valuation process from instruction to completion?

Answer 40

- Conflict of Interest check - Receipt of instruction - TOE/B - Desktop Research - Inspection - Comparable Research - Report Drafting - Valuation and methoolody - Issuing of Report - Invoicing

Question 41

What are joint tenants? How would you value it?

Answer 41

Joint tenants automatically pass on any assets, such as land or property, to the other owners if one of them dies. You cannot pass on your ownership of the property in your will. If the asset, such as land or property, was owned as a joint tenant divide the value of the asset by 2. If land or property was owned with other joint tenants, divide the value by the number of owners and take 10% from the share of the person who died.

Question 42

What are Tenants in Common?

Answer 42

* You can own different shares of the property. * The property does not automatically go to the other owners if you die. * You can pass on your share of the property in your will.

Question 43

What is Hierarchy of Evidence?

Answer 43

Split into three catergories: A: Direct Comparables B: General Market Data C: Other Sources