Valuation Level 1

Question 1

5 principle methods of valuation

Answer 1

1. Comparable
2. Investment
3. Residual
4. Contractors
5. Profits

Question 2

When would one of these be appropriate to use

Answer 2

1 - Comparable - when there is an active property market, properties are standard and easy to compare

2 - Investment - When a property generates a rental income. Market data for yields

3 - Residual - Development land, GDV (planning & land acquisition)

4 - Contractors - Special purpose or unique e.g. hospitals, schools. No active market

5 - Profits - When the property’s value is closely tied to the profitability of a business e.g. pubs, hotels, restaurants

Question 3

How do valuation methods and approaches differ

Answer 3

Approaches - Conceptual framework based on specific economic principles

Methods - Specific, actionable techniques applied within those approaches

Question 4

How do you decide which valuation method to apply?

Answer 4

Considering;
- Property type
- Purpose of valuation
- Availability of market data
- Client instruction

Question 5

What is a years purchase multiplier

Answer 5

A factor used to convert an annual income into its capital value

YP = The number of years income a buyer is willing to pay to purchase a property

Question 6

What is the IHT market value definition

Answer 6

S.160 Inheritance Tax Act 1984 (formerly the Capital Transfer Tax Act) defines market value for IHT as follows;
‘The value at any time of any property shall for the purpose of this Act to be the price which the property might reasonably be expected to fetch if sold on the open market at that time; but that price shall not be assumed to be reduced on the ground that the whole property is to be placed on the market at one and the same time’

Question 7

Give me an example of a good covenant and how this might impact a valuation?

Answer 7

A good covenant is typically clear, reasonable and relevant to the property, ensuring long-term value preservation. This could be a covenant restricting the subdivision of farmland to ensure the farm remains a viable, large scale unit

Question 8

What is PI Insurance

Answer 8

A mandatory insurance for RICS regulated firms and members to cover claims of negligence, errors or omissions in professional services.

Question 9

Why do surveyors need PII?

Answer 9

To comply with RICS regulation, protect their business from negligence claims

Question 10

Tell me about the RICS requirements in relation to PII

Answer 10

The nature and extent of the insurance must be adequate and appropriate having particular
regard to:
* an ‘each and every’ claim basis or aggregate plus unlimited round the clock reinstatement
basis
* RICS’ minimum policy wording or more comprehensive wording. As a minimum, you should
ensure that your policy wording is written on a full civil liability basis and
* the minimum level of indemnity based on the firm’s turnover in the previous year (or
estimated for a new firm).

Question 11

How did the decision in Hart V Large affect PII

Answer 11

2021 court appeal, increased liability risk for surveyors. Established that surveyors may be liable for total loss if negligence

Question 12

What level of PII cover does your firm have?

Answer 12

Turn over £200,001 and above - Cover £1,000,000

Others;
Turn over £100,000 or less - £250,000 cover

Turn over £100,001 to £200,000 - £500,000 cover

Question 13

How would you distinguish limitations on liability in your valuations?

Answer 13

• Defining scope of work
• Outlining contractual exclusions
• Capping financial exposure
• Stating specific purpose and reliance of the report

Question 14

Where in your valuation report do you state any limitations on liability?

Answer 14

Under a dedicated header

Question 15

What relevance does Hart V Large have for your valuation practice?

Answer 15

Duty of care and advice
- if further investigations are needed
- or a more suited survey type e.g. building survey

Question 16

What aspect of Hart v Large allowed the judge to award damages without applying the SAAMCO cap

Answer 16

As the surveyors failure was classified as negligent advice regarding a crucial transaction, rather than negligent provision of information

Question 17

What is the SAAMCO cap

Answer 17

Originating from the South Australia Asset Management Corp (v York Montague 1996).

It is a legal principle limiting a negligent professional liability to the foreseeable consequences of providing wrong information.

Ensures surveyors are not held responsible for risks they did not assume e.g. general market crash

Question 18

Under the SAAMCO cap, is a valuer liable for losses due to downturn in the market?

Answer 18

No

Question 19

Under the SAAMCO cap, is a valuers liability usually limited to the overvaluation on the valuation date

Answer 19

Yes, a valuers liability in negligence is usually limited to the difference between the valuation provided and the true value of the property on the date of the valuation

Question 20

what would you do if you received a notice of a PII claim from a client or their solicitor

Answer 20

• Acknowledge receipt
• Secure documents
• check deadlines
• gather facts
• Notify insurers

Question 21

Is there a difference between being negligent when undertaking a survey/valuation and providing negligent advice?

Answer 21

Yes.
Negligence in undertaking a valuation = not spotting defects or providing a valuation that falls outside of the accepted margin of error

Negligence advice = advising on surveys with a purchase that were unnecessary or not advising on a survey e.g. damp survey

Question 22

What is run off cover?

Answer 22

Cover a firm must obtain for 6 years after ceasing trade to protect against claim from past professional services.

Must be a min of £1,000,000