Valuation - Level 2

Question 1

Explain your valuation of 36 Elm road, Benfleet, Essex, SS7 2AH – 24th July 2020.

1. IHT Valuation.
2. UK VPGA.
3. VPS1 & VPS3 along with Assumptions.
4. VPS2
5. VPS4 - Market Value
6. VPS5 Valuation Method
7. RICS Reference to VPGA10 & COVID

Answer 1

• A 1930’s end of terraced two-bedroom house.
• I carried out an inheritance tax valuation for the freehold interest in accordance with UK VPGA 15
• A red book Valuation was carried out with VPS1 (Terms of Engagement) & VPS3 (Valuation Reports) which mirrored each other. Assumptions were contained in both VPS1 & VPS3 in accordance with UK VPGA 15
• I inspected the property and measured using a Dicto Laser measure in accordance with IPMS 3B Residential
• I used the comparative method of valuation. As this was for probate purposes the date of valuation was at the Date of Death being 21st April 2020.
• I selected three comparables within the same road. I established a hierarchy of evidence and made the relevant adjustments based on their condition, size, and time of completion to provide me with a price per m2.
• I capitalised the price per m2 by the floor area to arrive at my opinion of market value.
• In accordance with RICS recommendations reference was contained within the report due to the uncertainty of Covid-19 in accordance with VPGA10.

Question 2

• Discuss your comparable selection for 36 Elm Road?

1. Location
2. Hierarchy of Evidence
3. Adjustments
4. Price per m2

Answer 2

• I selected three comparables within the same road. I established a hierarchy of evidence and made the relevant adjustments based on their condition, size, and time of completion to provide me with a price per m2.
• The reason for this is the other properties did not provide a decent enough comparable.

Question 3

• Elaborate on what you included in your valuation in relation to Covid-19.

Answer 3

I added an uncertainty clause as per UK VPGA 10. This stated that due to Brexit and Covid the market was uncertain, and that the valuation needs to be periodically reviewed.

Question 4

• Explain the basis of your opinion of Market Value?

Answer 4

• My opinion of Market Value is what a property would sell for in the open market in an arm’s length transaction after property marketing.

Question 5

• How would you carry out a residual valuation?

Answer 5

• First work out the GDV – By maybe comparable and investment method is a mixed used development.
• GDV less Building Costs, Interest and Developers Profit = Land Value

Question 6

How would you carry out a term and reversion valuation?

Answer 6

Capitalise the passing rent (net income) up to review/reversion with YP Single Rate @ x%

Capitalise the market rent into perpetuity YP Perp @ x%

Defer it by multiply by PV of £1 for x years @ x%

You would use a higher yield for the reversion than for the term to reflect the risks.

Question 7

Explain the process of the hardcore/layer technique?

Answer 7

Bottom Slice Income = Capitalise the rent passing into perpetuity.

Top slice = Capitalise the marginal income (increase in rent you expect to receive)

Defer it by PV of £1 in x years @ x%

You would capitalise the top slice income by a higher rate than the bottome slice income.

Question 8

How would you value an over-rented investment?

2 approaches Block income and Core income approach.

1. How do you do the block income approach?

Answer 8

Can use the Block Income (same as term and reversion approach).

Passing​ Rent x YP for x years @ higher %

Review/Reversion = Market Rent (being lower) x YP Perp @ lower %

Defer that for the term by multiplying by PV of £1 in x years @ lower percentage (than term)

Question 9

Discuss your valuation of 36 Elm Road - Circa 82m2

1. Name the comparables.
2. State the floor areas.
3. State the Adjustments.
4. State your Valuation.

Answer 9

• The Comparables were:
• • 8 Elm Road - 76m2 (EPC) - 6th October 2017
    
    • 14 Elm Road - 145m2 (EPC) - 23rd March 2016
    • 16 Elm Road - 79m2 (EPC) - 15th July 2016
• Adjusted each by the HPI at the sale date and increased by the HPI to todays prices.
• Larger floor area of 14 Elm Road and allowed 20% for quantum.
• 8 Elm Road was similar in both style and condition.
• 16 Elm Road I deducted the cost of a garage.
• Subject property was on the end with room for a garage and possible extension to the side plus overlooking fields.

1. My Valuation at 20th April 2020 was £300,000

Question 10

Discuss your valuation of 8 Southridge Place - SW20

Name of Comps

Best Comp Being Subject Property

Subject Property Sold in 2015

Size Adjustment for Garage to Living Accommodation

Answer 10

1. 10 Lansdown Road
2. 2 Thaxted Place
3. 26a Cottenham Park Road
4. 8 Southridge Place
5. 7 Southridge Place

• 128m2 with Garage to 151m2 with Garage Converted
• Sold £950,000 in May 2015

Question 11

Explain how you value an over-rented property.

There are two apporaches the Block income and Core income approach.

1. Explain how you do the Core income approach?

Answer 11

Can use the Core income approach

Core Income = Market Rent multiplied to reversion by YP Perp @ ​x%

Top Slice = Overage/Froth (Over rented element) multiplied by YP for x years @ higher% (than the core income)

Question 12

Discuss your shared equity valuation of Flat 44 Research House carried out on 27th July 2020.

1. Date of Valuation
2. Name the Comparables.
3. State the Floor Areas
4. State the dates sold
5. State the subject property adjustment.s made
6. State your valuation figure

Answer 12

• Comparables used.

1. Flat 15 - 1 bed - G/F - 63m2 - Sold January 2019
2. Flat 31 - 1 bed - Top Floor - 60m2 - Sold November 2018
3. Flat 32 - 1 bed - Top floor - 63m2 - Sold October 2018
4. Subject property 44 - 1 bed - F/F - 53m2 - Sold October 2018

• Adjustment made was a decrease of 2.2% since October 2018 to the valuation date.
• Therefore price reduced from £325,000 to £317,850
• Date of valuation: 27th July

Question 13

What RICS Guidance did you follow for the following:

1. 36 Elm Road, Benfleet
2. Flat 44, Research House
3. 8 Southridge Place

Answer 13

• 36 Elm Road, Benfleet
  
  • UK VPGA 15
  • RICS Professional Statement - Property measurement standards 2nd Edition January 2018.
  • RICS Valuation - Global Standards
  • RICS Global Standards, 2017 UK Supplemen
• Flat 44, Research House
  
  • RICS Professional Statement - Property measurement standards 2nd edition January 2018.
  • UKVPGA 12.7 of the leasehold Interest for equity release.
  • RICS Valuation - Global Standards
  • RICS Global Standards, 2017 UK Supplement
  • Comparable evidence in real estate valuation, 1st edition, 2019
• 8 Southridge Place
  
  • RICS Professional Statement - Property measurement standards 2nd edition January 2018.
  • RICS Homebuyer Report Survey & Valuation 5th Edition 2016
  • RICS Valuation - Global Standards
  • RICS Global Standards, 2017 UK Supplement
  • Comparable evidence in real estate valuation, 1st edition, 2019