Valuation L3 Flashcards

Question

What is a hardcore layer? Talk me through the methodolgy?

Answer 1

A hardcore layer is used when the passing rent of an investment property is over market rent. 1. Income flow is divded horizontally with the bottom slice being the market rent and top slice being the passing rent until the lease event 2. Higher yeild is adopted for the top slice to reflect risk

Answer 2

* All Risk Yeild - Yeild of a fully let property reflecting all risks * True Yeild - Assumes rent is paid in advance * Nominal Yeild - Assumes rent is paid in arrears * Gross Yeild - Not adjusted for purchasers costs * Net Yeild - Adjusted for purhcasers cost * Inital Yield - Straigt income yeild for current income * Reversionary Yeild - Under rented * Equivalent Yeild - Average of intial and reversionary * Running Yeild - Yeild at one moement in time

Answer 3

DCF is a growth explicit method that projects estimated cashflow over a holding period with an exit value usually adopting an all risk yield. Used for: * Phased developement * Complex leaseholds ## Footnote RICS Practice Infomation 'Discounted Cash Flow Valuations 2023

Answer 4

1. Estimate cashflow 2. Estimate Exit Value at the end of holding 3. Select a discount rate 4. Discount cashflow to reflect risk (reflects percieved level of risk) 5. The valuation is the sum of the discounted cashflow to provide the Net Present Value (NPV)

Answer 5

NPV * Sum of disounting cashflows * If positve then target rate of return has been exeeded * If negative then target rate of return has been not been met IRR * Rate at which future cashflow is must be dicounted to to produce an NPV of 0 * IRR assess total return from an asset making assumptions on voids etc * If NPV is more than 0 then target rate of turn is met

Answer 6

Recipts and expenditure is for trade producing properties and is related to its trading profitabliity and potential by establishing the **Fair Maintable Operating Profit** (FMOP) from a **Reasonbly Efficent Opereator** .(REO) 1. Annual Turnover less costs = Gross Profit 2. Less Reasoble Working Expenses 3. Less operators Remuneration of a REO = FMOP 4. Capitlised using an All Risk Yeild = Market Value 5. Cross check wih sales comps if possible

Answer 7

A residual valuation values the Market Value of a development site 1) GDV - Estmiate the GDV using sales comps 2) TDC - Deduct the Total Development Costs (TDC) **Site Preperation** * Includes site preperation such as demolition and removal £20K * construction costs £1800m2 * professional fees (10%) * Legal fees (1%) * contingency (5%) * Marketing fees (1%) **Finance costs** * Finance Costs Assume 100% debt finance on stright line basis at 8.25% over the length of the development - Above Bank base rate **Developers Profit** * Developers Profit 20% what developers in the market would want based on the level of risk for this undertaking 3) GDV - TDC = Establish Site Value 4) Check - Cross check site value against comparable where possible ## Footnote RICS Proffesional Standards - Valuation of Development Property (2020)

Answer 8

I adopted 20% developers profit. This is an estimation of what developers would want in the market based on the level of risk for undertaking of this sort of developemnt in the market.

Answer 9

Residual valuation is to obtain a land value. Development apprasial assesses provides a viablity study of a development for an investor ## Footnote RICS Proffesional Standards - Valuation of Development Property (2020)

Answer 10

DRC is used when market evidence is limited or for specialist properties. It is used in rating and accouting. 1. Cost of land in exisiting use, planning is assumed 2. Calculate the cost of constuction 3. Adjust for obsolence - physical, functional, economic obsolence 4. Land development costs 5. Decapitlisation - used in contactors valution adopting staturory decap rate of 2.6% and 4.4% 6. Stand back and look

Answer 11

Global VPGA 8

Answer 12

Global VGPA 10

Answer 13

* Rotation policy * 5 years max for single engagement * 10 years for firms * RICS can give an expect

Answer 14

* UK VPGA 4 - 6 relates to valuations for the public secor * VPGA 15 - Valuation for Capital Taxation * VPGA 16 - Valuations for Compulosry Purchase and Statutory Compensation

Answer 15

CBRE v Lincoln [2010] Valuation of 4 hotels * 5% Residential Valuations * 10% One off commerical Valuations * 15% Valuation with exceptional features

Answer 16

Value unlocked by the merger of property intrests, considering a before and after valuation

Answer 17

RICS Rules for the registration of firms (2022) Benefits include: * Imporved valuation quality ensuring professional standards * Meets RICS requirments to self regulate * Protects and raises the statur of the profession ## Footnote Rules for the registration of firms - Version 7 (with effect 2 February 2022)

Answer 18

* Software systems which can provide property valuations using mathematical modelling combined with a database * They are most used for residential property Pros * * Able to consider a larger number of data points * Saves time, money and resources * Removes any human bias or subjectivity * Useful for assessing the value of a property portfolio Cons * Do not take into account property condition and specific factors * Use transactional data which may lag the actual market i.e. cannot include evidence from properties which might be under offer

Answer 19

Rent is in line with the estimated rental value, implying nil reversion.

Answer 20

Purpose: to value the CRM for reimbursement purpose under the NHS premise cost directions Approach: Compile and create a scheduled of CMR attaching appropriate weight to surgeries Reasoning: I considered value significant factors pertinent to GP surgeries and based on the evidence available and agreements of other CMRs I arrived at my valuation of a fair CMR Outcome: After receiving assurance I initiated negotiations with the agent and reached an agreement on my proposal

Answer 21

Purpose: To value the rateable value inline with schedule 6 of LGFA 1988 Approach: considering the nature of the property and the lack of comparable transactions for this type of property I adopted the contracts method Reasoning: using BICS for build costs, i considered the depreciation rate by assessing obsoletion and undeveloped land costs, I adopted the statutory recapitalisation rate of 4.4% Outcome: arrived at the RV which was sent via a decision notice

Answer 22

a contractual provision that allows a property owner to benifit from unrealised future profit

Answer 23

For IHT I valued under the statutory assumption that the value of any property shall be the best price **which it might reasonably be expected to fetch if sold in the open market at the relevant time**. The price obtainable for an estate may depend on how it is sold, i.e. whether it is sold in one or several lots With regard to VPGA 15 and In this case the bunglow formed part of a natural lot determind applying the principles of prudent lotting

Answer 24

The property is offered for sale on the open market by whichever method of sale will achieve the best price

Answer 25

- Consistency in appraoch - Consistency in Valuation - Inderpendance, objectivity and transparency - Clarity

Answer 26

A person with a particular intrest in a property because of its advantages arising from the ownership that would be availble to other purchasers

Answer 27

Take the income at each step and capitalise it using an appriorate yeild years and then depcalitise it by the years purchase to work out the aggrigate rent

Valuation L3 Flashcards

(54 cards)