Valuation - Level 2

Question 1

ToE - what would you include in your ToE?

Answer 1

• Identification and status of the valuer
• Identification of the client(s)
• Identification of any other intended users
• identification of the asset(s) or liability(ies) being valued
• Valuation (financial) currency
• Purpose of valuation
• Basis(es) of value adopted
• Valuation date
• Nature and extent of the valuer’s work - including investigations - and any limitations thereon
• Nature of source(s) of information upon which the valuer will rely
• all assumptions and special assumptions to be made
• format of the report
• restrictions on use, distribution and publication of the report
• Confirmation that the valuation will be undertaken in accordance with the IVS
• the basis on which the fee will be calculated
• where the firm is registered for regulation by the RICS, reference to the firm’s complaints handling procedure, with confirmation that a copy will be made available on request
• a statement that compliance with these standards may be subject to monitoring under the RICS’ conduct and disciplinary regulations
• a statement setting out any limitations on liability that have been agreed

Question 2

ToE - At what point did you commence the instruction?

Answer 2

• After I completed my conflict of interest checks and ensure I was competent I commenced preparing the ToE

Question 3

ToE - Explain your approach and method to valuing the property?

Answer 3

• I compiled the Terms of Enaggement in line with VPS 1. I ensured I covered all the mandatory headings. Once completed the ToE was sent to the client to sign.
• I then in line with VPS 2 arranged an inspection
• I then in line with VPS 4 looked at comparable evidence to find the market value.
• I then in line with VPS 3 prepared my valuation report

Question 4

ToE - What factors affected value?

Answer 4

• Specification
• Location
• Age

Question 5

Rickmansworth - What was your advice?

Answer 5

• Based on the residual valuation I ended up accepting the returned value based on the conclusion that the costs would be too high and that it would not be feasible

Question 5

ToE - What was the basis of value?

Answer 5

Market value

Question 6

ToE - What involvement did you have in the valuation beyond agreeing ToE and inspecting?

Answer 6

• I looked for comparable evidence and prepared the valuation report to be then signed by a registered valuer

Question 7

Rickmansworth - What are the steps for a residual valuation?

Answer 7

• Using the comparable method to determine the Gross Development Value (Market value of a completed development)
• LESS – Total Development Costs
  o Built costs
  o Site preperation
  o Building costs
  o Professional fees
  o Contingency (5-10%)
  o Market costs (1-2%)
  o Finance Costs
  o Developers profit
• Deduct Total Development Cost from Gross Development Cost to establish Site Value
• Cross Check site value against the value of comparable sites if possible

Question 8

Rickmansworth - What is hope value?

Answer 8

• Hope value is the value added if there is any development potential on the land or the property that would be potential buyer would carry out to increase the value of the property

Question 9

Rickmansworth - What was Palliser v HMRC 2018 about

Answer 9

• In 2012 Mr Palliser inherited an 88.4% share in a maisonette from his father. The property was dated and unmodernised and required major refurbishment at the valuation date. In August 2012 a chartered surveyor valued the proeprty at £1.4m giving Mr Palliser an interest of £1.237m. No Hope value was added. In March 2014 the proeprty sold for £2.525m. In December 2016 a Notice of Determination was served by HMRC under section 221 of IHTA 1984 under which the deceased father’s interest was valued at £1.828,880. Mr Palliser appealed the decision to the First Tier Tribunal saying that the correct valuation was £1,113,840. The appeal was referred to the Upper Tribunal (UT) to determine the valuation dispute. The Upper Tribunal, in dismissing the appeal and criticising the surveyor’s negative approach to the valuation, said that as the property was being sold with the potential for improvement then if the market is prepared to pay a price that includes the prospect of an enlarged floor space then that must be taken into account in the valuation. To the extent that the potential has not been crystallised by planning permission, its value will be hope value rather than development value. Either way, it is not an element of value to be ignored under section 160 IHTA. However, the tribunal did not agree with HMRC’s proposed value for Mr Palliser’s 88.4% and reduced it to £1,603,930 after a 10% reduction for the undivided share

Question 10

Rickmansworth - What case law relates to Hope Value

Answer 10

• Palliser v HMRC 2018

Question 11

Rickmansworth - What was the construction or the property

Answer 11

• 2 Storey Semi detached house, build circa 1930. Solid brick masonry, finished with render, pitched roof with concrete tiles covering, uPVC double glazed windows.

Question 12

Rickmansworth - What did you do in the desk-based review?

Answer 12

• After completing my conflict of interest checks and started to look at the property for comparables
• I then noticed there were potential for hope value
• I looked at the planning portal which I saw the next door property who was granted planning for a rear extension. Based on that I carried out a residual valuation to see if an extension would be feasible.

Question 13

Rickmansworth - Why did you think the property had hope value?

Answer 13

• As the property had quite a lot of space at the rear and the fact that the next door neighbour was undergoing construction, it was definitely consideration for the subject.

Question 14

Rickmansworth - Why did you then accept the returned value rather than carrying out a valuation using the comparable method?

Answer 14

• In order to accept the returned value, I used the comparable method which suggested the returned value to be reasonable

Question 15

Rickmansworth - What section of The Inheritance Tax Act defines Market Value?

Answer 15

Section 160

Question 16

Rickmansworth - How did you assess GDV?

Answer 16

• By looking at the comparable method and determining what the analysed price would be for a new property

Question 17

Rickmansworth - What costs did you deduct from this?

Answer 17

• Built costs
• Site preperation costs
• Marketing fees
• Finance fees
• Contingency

Question 18

Rickmansworth - What did you assume in relation to one of your inputs, e.g., build costs?

Answer 18

• Assume 5% contingency because that’s a standard market practice

Question 19

Rickmansworth - How did you deal with the lack of planning consent for the subject?

Answer 19

• Based on the fact that the next door neighbour was granted planning and was an identical property, my consideration for the potential development had more weight. However the development wasn’t feasible therefore, the planning consent wasn’t an issue

Question 19

Welwyn-Hatfield Asset Valuation - Why did you value beacons?

Answer 19

• As we are unable to inspect all properties due to the vast amount so we separate them into different groups that allow us to put values on them for example a 2 bed flat we will have a beacon for that type of flat.

Question 20

Welwyn-Hatfield Asset Valuation - What is a beacon?

Answer 20

• A beacon is a classification of a property type and is used to put different types of properties in different groups for bulk valuations

Question 21

Welwyn-Hatfield Asset Valuation - What sources did you use?

Answer 21

• Rightmove, Zoopla, our central database

Question 22

Welwyn-Hatfield Asset Valuation - What bases of value did you use?

Answer 22

EUV-SH

Question 23

Welwyn-Hatfield Asset Valuation - What is Fair Value used for?

Answer 23

- Financial Reporting Purposes

Question 23

Welwyn-Hatfield Asset Valuation - What is EUV?

Answer 23

- Existing use value for Social Housing - EUV-SH is an opinion of the best price at which the sale of an interest in a property would have been completed unconditionally for a cash consideration on the valuation date

Question 24

Welwyn-Hatfield Asset Valuation - Where would you find the definition of EUV-SH?

Answer 24

- VPGA 7 in the RICS Valuation UK National Supplement 2024

Question 25

Welwyn-Hatfield Asset Valuation - 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 (this definition derives from International Financial Reporting Standards IFRS 13). For most practical purposes the concept of fair value is consistent with that of market value, and so there would ordinarily be on difference between them in terms of the valuation figure reported.

Question 26

Welwyn-Hatfield Asset Valuation - How did you value one of the properties?

Answer 26

- I valued the flats using the comparable method

Question 27

Welwyn-Hatfield Asset Valuation - What did you report on specific beacons to your client?

Answer 27

- Based on my valuations, it was clear in the valuation report the process of how the beacons were valued. - Therefore for example, my valuation for the 2 bed flats considering, size, location, specification all took account for when reporting for the specific beacon

Question 28

Welwyn-Hatfield Asset Valuation - What type of social housing were you valuing?

Answer 28

Flats

Question 29

Welwyn-Hatfield Asset Valuation - What were the key comparables?

Answer 29

- Key comparables were properties as close to the valuation date, similar characteristics, location, size etc

Question 30

Welwyn-Hatfield Asset Valuation - How did you apply the hierarchy of evidence?

Answer 30

- I looked at comparables that were of similar characteristics, size, specification, close to the valuation date - I then applied weight to the comparables placing most weight to the properties that were most similar.