CRE APC 2024 > Valuation Module 1 > Flashcards

Valuation Module 1 Flashcards

(52 cards)

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1
Q

What is the full title of the Red Book?

A

RICS Valuation – Global Standards (Red Book Global Standards) was published in December 2024, taking effect on 31 January 2025

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2
Q

When did the current edition of the Red Book come into force?

A

31.01.2022

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3
Q

Who are the International Valuation Standards Council?

A

It’s a not for profit independent body that act in the public interest to ensure international standards and guidance.

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4
Q

What editions of the Red Book have been in effect during my APC training period?

A

2022 & 2025 GS and 2024 UK National standards

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5
Q

What is the purpose of the Red Book?

A

It’s a framework for best practice, setting out procedural rules and guidance. Ensuring consistency, objectivity, and transparency in valuations.

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6
Q

What is the purpose of the UK National supplement?

A

To supplement the RICS Valuation Global Standards. It’s tailored to the UK market.

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7
Q

To what valuations does the Red Book apply?

A

Valuations carried out by RICS registered valuers globally. Real Estate, M&E, Business, Infrastructure, Financial and National Resources (6).

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8
Q

What 5 valuations are exceptions to the Red Book?

A

IMSaLE
1. Internal only. 2. Agency/marketing. 3. Statutory 4. Litigation and 5. Expert witness

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9
Q

Can you name some valuations that are carried out for Statutory Function?

A
  1. Compulsory purchase. 2. Business rates. 3 Leasehold enfranchisement. 4. Demunitive Value. 5. Rent & lease renewal.
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10
Q

What is the difference between Valuation Technical and Performance Standards (VPS) and Valuation Practice Guidance applications (VPGA)?

A

VPS is mandatory, and VPGA is guidance, best practice recommendations.

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11
Q

What is RICS Practice Information?

A

Supports practice, knowledge and performance but is not mandatory.

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12
Q

What are the possible consequences if a valuer does not comply with a VPS.

A
  1. Disciplinary action. 2. Loss of accreditation (suspension/expulsion). 3. Consent order (order to rectify wrong).
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13
Q

What are the possible consequences if a Valuer does not comply with VPGA?

A

Potential contributory factor in a negligence claim.

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14
Q

Describe how Departure from the Red Book mandatory requirements may be possible?

A
  1. Professional judgement. 2. Good reason. 3. Client instruction. It must be justified, disclosed and documented
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15
Q

What information would you require from a telephone enquirer who asked: Can you do me a valuation.

A
  1. My competence (property, location, market, purpose).
  2. Client and seller (ensure no conflict of interest/manage it.
  3. Deadline
  4. Contact info
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16
Q

What do your valuation files contain?

A
  1. COI and due diligence checks
  2. Property information
  3. Client information
  4. Valuation methodology
  5. Base value
  6. Date
  7. Lease details, photos, inspection, and measurements information.
  8. Comparable data
  9. TofE
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17
Q

What are the main contents of the Terms of Engagement for a Valuation?

A
  1. Valuer’s competency
  2. Client details
  3. Property details
  4. Purpose
  5. Bases of value
  6. Valuation date
  7. Limitations
  8. Assumptions and Special assumptions
  9. Fee and indemnity
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18
Q

How would you respond to a request to value a property from a Drive-by?

A
  1. Competence (know area, property, market well)
  2. Is the property standard
  3. Add limitations to the report (no internal inspection etc)
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19
Q

Please name the Red Book Global Bases of value?

A
  1. Market value
  2. Market rent
  3. Investment value
  4. Fair value
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20
Q

Please name the UK specific bases of value?

A

EUV (existing use value) and two residential (EUVSH & Project market value).

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21
Q

What is the difference between a Basis of Value and Method of Valuation?

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A

Basis of value is a red book definition of value.

Method of validation is the calculation you undertake.

22
Q

Describe three assumptions that are usually made in producing a valuation?

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A
  1. Title (good and free of restrictive convenants)
  2. Property condition (that any hidden aspects will not reveal defects and all equipment is maintained and in good repair)
  3. Free from contamination and hazards
23
Q

What is a Special Assumption?

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A

Assumes facts that differ from those existing on the valuation date. Like planning permission has been granted.

24
Q

Give three situations when it would be appropriate to make special assumptions?

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A
  1. If let assume it’s vacant possession
  2. If vacant, assume it’s let.
  3. Assume development is complete
  4. Assume planning permission is achieved
25
Define market value?
Estimated value a proper would exchange for between a willing buyer and willing seller, at arms length after proper marketing, on a set valuation date where the parties acted without compulsion.
26
What do you consider proper marketing?
1. Selling by most appropriate method of sale 2. Sufficient time to achieve best price 3. Advertise to target market.
27
What is an arms length transaction?
No business or personal relationships.
28
What is synergistic value?
The value of merged interest is greater than individual parts. I.e. freehold/leasehold
29
What is marriage value?
The difference (additional uplift) between synergistic value and market value.
30
What is a Special Purchaser?
One who enjoys special value over and above the open market.
31
When is market rent not appropriate as a basis of value in providing a report on the rental value of a property and why not?
1. Only applies to vacant property 2.depends on lease disregards 3. lease renewal conditions
32
When is fair value the appropriate valuation basis?
It is used in financial statements.
33
What is regulated purpose valuation?
Regulated Purpose Valuations (RPVs) are valuations that are relied upon by third parties who typically did not commission the valuation themselves, such as for financial reporting or investment purposes. Valuers and forms cannot value the same asset for more than 5 years. The break must be for 3 years. Only applies to large firms.
34
What is an Asset Valuation?
It's used in balance sheets.
35
When is Euv used?
In local and central government, non-specialised owner occupied properties.
36
What is the fundamental difference between market value and existing use value?
Market value is the highest and best use value. EUV cannot consider development or AUV (alternatives use value).
37
When is DRC (Deprecated Replacement Cost) used?
As a last resort for bespoke properties that cannot be valued any other way. Eg school, council asset, library, fire station?
38
Name three situations that can adversely affect the certainty of values?
1. Property characteristics 2. Limited information 3. Disruptive markets
39
What is a usual proper marketing period?
Residential- 90 days Commercial- 180 days
40
What does establish a framework for uniformity and best practice mean?
1. Valuer must be confident 2. no COI 3. Agree TofE 4. Inspect, measure, and carry out relevant investigations. 5. Assemble, analyse, weigh, and rank comparables 6. Conduct valuation with rationale 7. Report valuation
41
What's DRC stand for in Valuation
Depreciated Replacement Cost
42
How do you calculate the Depreciated Replacement Cost and why would you use it?
Gross replacement cost of modern build adjusted for depreciation. It's for assets that don't cone to the market often. It's a method of last resort. Eg include oil rigs and fire stations.
43
What is the Profits Method of Valuation?
The profits method of property valuation is typically applied to commercial property valuations where the major value component is driven by the profitability of the businesses that occupy the buildings and not simply the land or buildings themselves. Situations where the profits method of valuation would be appropriate include hotels, guest houses, pubs and cinemas.
44
What are the hierarchy of evidence in valuation?
1. Open Market letting 2. Agreed lease renewal 3. Agreed rent reviews 4. Independent expert determination or Abritration Award 5. Court Decision
45
What is a true yield?
It's the yield at maturity
46
What is NPV
Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time and discounted to present value.
47
What is IRR
internal rate of return (IRR) is a calculation used to estimate the profitability of potential investments. IRR price is the discount rate or the interest needed for the project to break even given the initial investment.
48
What is an equivalent yield
The weighted average over time taking into account voids and future income.
49
What is a revisionary yield
A yield at lease event when the current rent adjusts to market rent.
50
What is an initial yield
Initial Yield is the annualised rents of a property expressed as a percentage of the property value.
51
What is the net initial yield
Net Initial Yield is the annualised rents less operating cost of a property expressed as a percentage of the property value.
52
What does the DCF Measure
This method determines a property's value by projecting its future free cash flows and then discounting them back to the present day.
CRE APC 2024
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