Valuation (level 2)

Question 1

What are 5 valuation methods:

Answer 1

1. comparable
2. investment- DCF
3. contractors method/depreciated replacement cost
4. Profit method- pubs/petrol stations
5. residual method

Question 2

How would I deal with a over-rented property

Answer 2

i would use the layer and hardcore investment method

Question 3

can you explain when you would use Depreciated replacement cost

Answer 3

It may be used to value unique properties where there are limited comparables and also used for rating valuations of specialist properties.

1. used for owner occupier properties
2. accounts purposes for specialist props
3. rating valuations of specialist props

Question 4

What three things should I consider before a valuation

Answer 4

1. Competence
2. Conflict of interest
3. Terms of engagement

Question 5

What are the different steps involved in a valuation

Answer 5

1. receive instruction
2. check competence
3. check for conflict
4. issue terms of Engagement
5. receive signed terms of engagement
6. carry out research- title docs, leases, planning info and check for anything that may effect value
7. inspect and measure property
8. carry out valuation
9. draft report
10. get report check by other surveyor
11. issue report to client
12. issue invoice
13. ensure your records are all up to date

Question 6

Why should you carry out statutory due-diligence

Answer 6

To ensure there is nothing that effects the value of the asset you are valuing 
1.check for site history
2.check asbestos register
3.check contamination 
4.Flooding 
5.EPC
6.Fire safety compliance 
7 title - check boundary

Question 7

When would you use the investment method

Answer 7

When there is an income stream

Question 8

How is the investment method calculated

Answer 8

the rental income is capitalised to produce a capital value

Question 9

What are the different types of investment method calculation

Answer 9

1. conventional investment method- used when the passing rent is assumed to be the market rent (market rent *YP= market value)
2. term and reversion- used when the passing rent is less than the market rent.
3. Layer and hardcore method- used when the passing rent is more than the market rent.

Question 10

What is a yield?

Answer 10

A measure of investment return

Question 11

How would i calculate the yield ?

Answer 11

Income/Price (capital value) *100

Question 12

How do I calculate YP

Answer 12

YP=100/yield

Question 13

what should you consider when selecting a yield from comparable evidence

Answer 13

This should be considered carefully. RISK is a major factor when considering the yield in relationship to:
quality of location
quality of covenant 
use of property
lease terms
liquidity  
etc

Question 14

What would I use an all risk yield for?

Answer 14

use in the valuation of a property let at market rent, reflecting all appropriate risks attached to that particular investment

Question 15

Explain what a DCF is

Answer 15

A discounted cash flow is a form of investment method valuation. It is used value assets where cashflows are explicitly stated over a finite period of investment.

unlike other investment methods the explicitly identifies growth patterns instead of incorporating this in the ARY

Question 16

How is a DCF calculated

Answer 16

1. estimate cash flow less expenditure
2. estimate any exit fee at the end of the investment period
3. select discount rate
4. apply discount rate to cash flow
5. value the cashflow to arrive at NPV

Question 17

When would you use the profit method

Answer 17

Profit method is used for properties where their value lies in how much profit they make as appose to the building itself and location. This would be things like pubs, petrol stations, nurseries and hotels

Question 18

How would you carry out a profit method calculation

Answer 18

annual turnover- less cost and expenses = gross profit

gross profit- less reasonable work expenses = adjusted net profit

further calculated need to work out EBITDA

then capitalise at appropriate yield to reach market value

cross check with sale evidence if possible

Question 19

What is EBITDA

Answer 19

Earning before inflation, taxation, deprecation and amortisation

Question 20

When would you use a residual valuation

Answer 20

When valuing a specific property holding to find market value based on a set of market conditions/inputs

Question 21

How is residual value calculated

Answer 21

the GDV- less development costs- developers profit= residual value

Question 22

What sort of development costs might you have in a residual valuations

Answer 22

1. demolition cost
2. build costs
3. proffesional fees
4. contingency
5. S75 fees
6. marketing costs
7. developers profit

Question 23

What are the two main types of finance

Answer 23

1. Dept finance- borrowing from a bank or loan company

2. equity finance- selling shares in the business

Question 24

What are the three main reasons a developer might borrow money

Answer 24

1. site purchase cost- straight line calculation
2. construction costs- s-line calculation
3. holding costs- straight line calculation

Question 25

Explain the Hierarchy of evidence

Answer 25

1. comparables/ open market lettings 2. lease renewals 3. rent reviews 4. third party determination- expert determination and arbitration 5. Sale and leaseback 6. Inter-company transactions

Question 26

How would I carry out a comparative valuation

Answer 26

1. search and find comparables 2. confirm details and analysis headline rent to get net effective rent 3. assemble comparables in schedule 4. give consideration to hierarchy of evidence 5. form opinion of value 6. report value

Question 27

Luss estates example- what were you valuing in each instance

Answer 27

1. Luss WWTW- uplift in value released by the granting of the rights 2. Helensburgh WTW-valuation of the land . element of special purchaser 3. luss wtw and sr- valuation of asset and land 4. helensburgh res 3- land 5. tarbet assess right- for luss only not transferable

Question 28

Langloan example- in terms of valuation how did I go about determining if there was any marriage value

Answer 28

I carried out 2 residual valuations. One with SW's title area only and one with the combined title area. This should that the residual value for SW half at about 50k-60k and for full site £160k. for two reason- each title area could probably only fit a spacious 1 unit on. whereas the combine land could comfortably fit 3. SW side has higher site prep costs due to tank.

Question 29

Alt Mur Hydro example- How did I establish the rate of return? what percentages did I use?

Answer 29

this was established from comparables that Calum provided of other similar schemes- we used 6.5%

Question 30

Am I aware of the current rates and yields?

Answer 30

what sort of yeild are we looking at in the edinburgh area in terms of the prime and secondary

Question 31

N/A

Answer 31

N/A