Valuation Examples

Question 1

What was the market value of Lebanon Park?

Answer 1

£3.4million

(£1,185 per sq ft)

Question 2

Can you run me through your valuation of Lebanon Park?

Answer 2

Checked competence, independence, terms of engagement
Purpose: Purchase
Basis of value: Market Value
Desktop research before inspection
Inspected & measured
Drafted report
Searched, verified, assembled comparable evidence & spoke with local agents
Adjusted comps
Analysed comps
Reported on Value
Advised client on the Market Value of the property

Question 3

Can you run me through your valuation of The Circle?

Answer 3

Checked competence, independence, terms of engagement
Purpose: Inheritance Tax purposes
Basis of value: MV as defined in the Inheritance Tax Act 1984 (S160) which is broadly equivalent to the Red Book definition of MV
Desktop research before inspection
Inspected & measured
Drafted report
Searched, selected, verified, comparable evidence & spoke with local agents
Assembled comps
Adjusted comps
Analysed comps
Reported on Value
Advised client on the MV of the property

Question 4

What were your strengths and weaknesses of Lebanon Park?

Answer 4

Strengths:
- Located in the popular residential area of Twickenham
- Quiet cul-de-sac location
- Attractive period property
- South west facing rear garden
- Off street parking

Weaknesses:
- Small garden which is somewhat overlooked
- Plot backs onto road

Question 5

Why did you the recommend to your client to put forward a cash offer? (Lebanon Park)

Answer 5

• Client wanted to secure the property at the best price
• Cash offer more attractive to vendor as speeds up a sale significantly as there are fewer hurdles & usually less risk CHECK

Question 6

How did you carry out the report in accordance with the red book? (Lebanon Park)

Answer 6

• Reported in accordance with the minimum requirements set out in the Red Book

Question 7

What were your strengths and weaknesses of The Circle?

Answer 7

Strengths:
- Established area of south east London with good local amenities and Zone 1 & 2
transport connections
- Allocated parking space in underground car park
- Balcony
- 24-hour concierge

Weaknesses:
- No longer considered a new development
- On site leisure facilities are not included within service charge
- Requires some updating

Question 8

What was your opinion of Market Value of The Circle?

Answer 8

£500,000

(£894 per sq ft)

Question 9

Gledhow Gardens - Who sets the fair rent? (submission)

Answer 9

The Rent Officer

Question 10

Gledhow Gardens - What is fair rent? (submission)

Answer 10

The maximum rent a landlord can charge a regulated or protected tenant.
CHECK WITH JOHN

Question 11

Gledhow Gardens - When can a T/ LL apply to the VOA to re-register the fair rent at a property? (submission)

Answer 11

• A LL or a T can apply to the VOA to re-register the fair rent at a property 21 months after the effective date of the previous registration
• The application (also know as RR1 Form) must specify the rent that the applicant wants the Rent Officer to register and contain other prescribed particulars

Question 12

Gledhow Gardens - How do you calculate the capped (Maximum Fair Rent Order 1999) rent? (submission)

Answer 12

The existing registered rent multiplied by a figure (which based on the change to the Retail Price Index from the last registration to the current registration – found on ONS website)
Plus 5% (or 7.5% in the case of first registration), then rounded up to the next 50 pence

Question 13

Gledhow Gardens - What does the Rent officer consider? (submission)

Answer 13

• The state of repair of the property
• The character of the property, its locality and its age
• How much furniture is provided and what it is like
• Any premium lawfully paid.

Question 14

Gledhow Gardens - What does the Rent officer NOT consider? (submission)

Answer 14

• The personal circumstances of the landlord and the tenant
• Any disrepair for which the tenant is responsible
• Any improvements that the tenant has made which he or she did not need to make under the terms of the tenancy.

Question 15

Gledhow Gardens - How do you calculate the uncapped rent? (submission)

Answer 15

• Start with the market rent of the flat calculated using the comparable method
• Deduct for T obligations under the tenancy which are more onerous then ASTs (higher for houses (FRI) than flats (IR)
• Deduct for T improvements
• Deduct for scarcity

Question 16

Gledhow Gardens - What are tenant obligations for a flat typically? (submission)

Answer 16

• Would check the lease first
• Tenants of flats under Rent Act 1977 are typically responsible for the internal repair and maintenance of the flat

Question 17

Gledhow Gardens - What is scarcity? (submission)

Answer 17

Where the imbalance of supply and demand for rented dwellings has the effect of inflating the rent

Question 18

Gledhow Gardens - Which rent (uncapped/capped) did you recommend in your client should include in their application to the VOA? (submission)

Answer 18

The higher of the two rents

Question 19

Gledhow Gardens - What is the Rent Registration process? (submission)

HOW WOULD YOU PHRASE THIS QUESTION - ASK VICKY

Answer 19

• A LL or a T can apply to the VOA to re-register the fair rent at a property 21 months after the effective date of the previous registration
• The application (also know as RR1 Form) must specify the rent that the applicant wants the Rent Officer to register and contain other prescribed particulars
• On receipt of the application the Rent Officer will write to both parties confirming receipt of the application and inviting either side to request a consultation to discuss the application
• If no consultation is requested the Rent Officer will carry out their valuation and send a copy of the new Rent Register to both parties
• The LL must then serve a Notice of Increase on the T
• Both parties can appeal the Rent Officer’s determination within a given time frame and the matter will be referred to the First-tier Tribunal for determination

Question 20

Gledhow Gardens - When does the Maximum Fair Rent apply? (submission)

Answer 20

Applies to all fair rent registrations made to rent officers since 1 February 1999 as long as a fair rent has previously been registered on the property.

Question 21

Gledhow Gardens - What are the rules of succession? (submission)

Answer 21

• Only the original Ts spouse or civil partner can succeed to a regulated tenancy. To qualify the spouse or civil partner must have lived at the premises immediately before the death. The successor must have lived with the tenant for 2 years prior to death
• The original Ts child would success to an assured tenancy but only if they had been living at the property with the T for 2 years prior to death

On the death of the first successor a member of the first successor’s family who:
- Had also been a member of the original tenant’s family
- Had lived with the successor for two years prior to the successor’s death will succeed to an assured tenancy

Question 22

Gledhow Gardens - When do the capping provision not apply? (submission)

Answer 22

• If there is NO existing registered fair rent (ie. it is a first registration)
• Because of a change in the condition of the property or common parts and, as a result of repairs or improvements (including the replacement of any fixture or fitting) carried out by the landlord the rent at the time of the last registration would have been at least 15% more
• It is important to emphasise that the 15% increase test is for increases that are directly attributable to the change in condition of the property NOT due to a change in general rental levels in the market

Question 23

Gledhow Gardens - How did you ascertain if the tenant in compliance with their obligations? (submission)

Answer 23

Reviewed their lease & their obligations

When inspecting the property, was aware if anything was suspicious. Typically, subletting for example is not allowed.

Question 24

Gledhow Gardens - What is the significance of the Retail Price Index (RPI) in determining the capped rent? (submission)

Answer 24

It reflects inflation & helps in figuring out rent increases over time

Question 25

Gledhow Gardens - What are the different obligations between the tenant of a AST to a tenant of Rent Act? (submission)

Answer 25

- Would have to check Rent Act 1977 lease obligations - The obligations of a Rent Act 1977 are more onerous than the tenant of an AST - But generally Rent Act 1977 tenants have the responsibility for the maintenance and repairs and internal structure whereas AST tenants would call a landlord

Question 26

Gledhow Gardens - What rent will the Rent officer register? (submission)

Answer 26

The lower value

Question 27

Gledhow Gardens - What are the principles of the Rent Act 1977? (submission)

Answer 27

- Applies to all residential tenancies created before 15 January 1989 (save for those types set out in the first part to the Act – eg. holiday lettings, agricultural tenancies) - Introduced rent regulation - Introduced long term security of tenure - Introduced rules of ‘succession’ which change what happens to the tenancy after the tenant dies

Question 28

Gledhow Gardens - Please can you talk me through the process of calculating the fair rent? (submission)

Answer 28

Two valuations are to be carried out: - Calculate the uncapped rent - Calculate the capped rent The Rent Officer will register the one which produces the lowest value

Question 29

Portfolio - Central London - Can you elaborate on the process you undertook for property inspections and why were only vacant properties chosen? (submission)

Answer 29

Four step process: - Desktop - Locality - External - Internal Vacant properties were chosen because of ease of access + it is a mixed tenure portfolio some of the properties the client doesn't have the right to inspect ( CHECK WITH JOHN)

Question 30

Portfolio - Central London - What was the purpose of acquiring a full tenancy schedule from the client? (submission)

Answer 30

Essential for us value their portfolio and gain a better understanding of their portfolio Understand any changes Update any tenancy details Changes to passing rent or ground rent Used it to update our records & valuation system

Question 31

Portfolio - Central London - How did the details of sales, purchases, and refurbishments over the year factor into the valuation? (submission)

Answer 31

Changed the valuation Can remove any properties that have been sold Can add any properties that have been purchased Refurbishments of properties increasing the value of existing assets (better specification)

Question 32

Portfolio - Central London - Can you run through this valuation process?

Answer 32

- Received instructions from the client - Checked competence, independence and signed and returned ToE - Valuation date= 31st September - Received tenancy data - mid-early September - Inspect a selection of their vacant properties - Upload the updated tenancy schedules to our valuation system - Comp search for all the properties to ascribe values to all units - Throughout instruction, there was regular client meetings throughout the year where the client would update us on any changes to the portfolio and we would give an indication of where values were at - Reported in draft to the client to their financial controller and they conducted internal checks - Finalised the valuation - Meeting with the auditors to go through the valuation and answer any queries they might have

Question 33

The Circle - Can you explain to me what the difference between the definition of market value is in comparison to the definition of market value for a tax valuation? (submission)

Answer 33

The difference is that the market value for tax valuation reflects the bid of a special purchaser in the market and assumes the asset is sold in lots to achieve best value

Question 34

The Circle - What are the drawbacks of using online databases? (submission)

Answer 34

Need to be verified with another source Sometimes missing information CHECK WITH PHILLIPA

Question 35

The Circle - What do you need to consider for an inheritance tax valuation that you wouldn’t for your standard valuation? (submission)

Answer 35

The date of the death of the owner

Question 36

The Circle - Where can I find the definition of Market Value ? (submission)

Answer 36

VPS 4 of the Red Book 2022

Question 37

The Circle - Where can I find the definition of Market Value (for tax purposes) ? (submission)

Answer 37

UK VPGA 15.2 Basis of value Inheritance Tax (IHT) in section 160, Inheritance Tax Act 1984

Question 38

The Circle - Is hope value to be included in the statutory MV? (submission)

Answer 38

YES

Question 39

Lebanon Park - How did your advised Market Value impact the client’s decision-making process? (submission)

Answer 39

My advised Market Value helped the client make a more informed decision about what offer they should put forward to acquire the property Their offer was subsequently accepted by the vendor

Question 40

Lebanon Park - How did your advised Market Value impact the client’s decision-making process? (submission)

Answer 40

My advised Market Value helped the client make a more informed decision about what offer they should put forward to acquire the property Their offer was subsequently accepted by the vendor

Question 41

Lebanon Park - Why does a purchase report fall outside of the Red Book? (submission)

Answer 41

As you are just providing advice CHECK

Question 42

Are draft valuations signed reports?

Answer 42

NO

Question 43

Lebanon Park - Why did you decide to follow the Red Book best practice guidelines even though your report fell within the exemptions of PS1? (submission)

Answer 43

- It is best practice to follow the Red Book - Shows clients that we uphold the highest level of professionalism

Question 44

How would you advise a client if a property is subject to a statutory tenancy?

Answer 44

- Harder for a client to regain the property with vacant possession - To be able to recover possession from a statutory tenant, a landlord must obtain a court order. The grounds for possession are set out in Schedule 15 of the Rent Act.

Question 45

How did you go about valuing properties that were subject to statutory tenancies?

Answer 45

- Value it with FVP - Deduct 25-30% (which is based on marked-based/norm)

Question 46

How would you search for comparables a statutory tenancy?

Answer 46

- Auction Results

Question 47

Gledhow Gardens - What adjustments would you be making for scarcity?

Answer 47

20% (first-tier tribunal) CHECK WITH JOHN

Question 48

Gledhow Gardens - What adjustments would you be making for s70 deductions for a flat?

Answer 48

Flats - 35% (first-tier tribunal) Houses - 55% (first-tier tribunal)

Question 49

The Circle - Can you explain how different that instruction would have been if the date of death was quite a long way before the date that you did the inspection? How would that impact your valuation and what you have had to consider?

Answer 49

- Ask if anything has changed to the property between the date of death and the inspection date e.g. ask if any improvements had been made between the date of death and the inspection date

Question 50

Portfolio - Central London - The tenancy schedule. Is that something that you verified yourself?

Answer 50

- Valuation is based on the information provided by the client - Provided with tenancy schedule when the valuated commenced + then a final tenancy schedule at the valuation date and which was cross checked with the data that we had CHECK WITH JOHN

Question 51

The Circle - Can you define Market Value as per the Inheritance Tax Act?

Answer 51

The price it 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 going to be placed on the market at one and same time

Question 52

Portfolio - Central London - What is fair value?

Answer 52

The price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date

Question 53

The Circle - Where can I find this definition of market value (inheritance tax)?

Answer 53

Definitions of the basis of value for: - Inheritance Tax (IHT) in section 160, Inheritance Tax Act 1984 Also, UK VPGA 15.2 Basis of value RICS Valuation - Global Standards 2017: UK national supplement

Question 54

The Circle - What assumptions are made as per VPGA15 UK National Supplement for tax purposes?

Answer 54

- The valuation should reflect the bid of any special purchaser in the market (provided that purchaser is willing and able to purchase). - For the purposes of the hypothetical sale, the vendor would divide the property, i.e. asset to be valued into whatever natural lots would achieve the best overall price (assumes the asset is sold in lots to achieve best value) - The sale is a hypothetical sale - The vendor is a hypothetical, prudent and willing party to the transaction - The purchaser is a hypothetical, prudent and willing party to the transaction (unless considered a special purchaser) - All preliminary arrangements necessary for the sale to take place have been carried out prior to the valuation date - The property is offered for sale on the open market by whichever method of sale will achieve the best price - There is adequate publicity or advertisement before the sale takes place so that it is brought to the attention of all likely purchasers