What are the methods of Valuation?
PRICC
Profits Residual Investment Comparable Replacement Cost
What is the difference between an assumption and a special assumption?
Assumption: When it is reasonable to suggest something is accurate without specific investigation.
Special Assumption: When the valuer makes assumption based on facts that differ from those existing at the valuation date or assumptions that wouldn’t have been made by a typical market participant. Must expressly agree and confirm in writing the special assumptions of the client before the report is issued. E.g. assuming AHA farm had vacant possession.
When might you not accept a valuation instruction?
- If you are not a registered valuer
- If it is not an area of your expertise
- If the client will not complete Terms of Engagement
- If the client does not meet Money Laundering Checks
- It is a valuation out of your expertise e.g. a hotel in a town
When would you use the profits method?
Use the profits method when valuing properties like pubs, petrol stations or hotels.
Income less costs, divisible surplus giving the rent then X YP.
When would you use the residual method?
Development sites or properties with development potential.
A: Gross Development Value = Residential = Value of building when sold (using comparables) = Commercial = basis of rent and a yield e.g. 800m @ £150/m2 x YP in Perp at 8% = Value Less: B: Build Price C: Finance Costs D: Developer’s Costs e.g. 15% of GDV E: purchase costs/taxes at 4% F: Fees e.g. 2% = Site Value
When would you use investment method?
For example, a farm on an AHA.
Investment = capitalising annual rent x YP @ % risk
When would you use the comparable method?
Comparable = evidence of similar properties sold recently within local area
When would you use the Depreciated Costs method?
Costs = no direct market e.g. schools. (Depreciated Replacement Cost – cost of new building - % obscureness and cost of site)
What are the main drivers and underlying principles of valuation?
- Size
- Location
- Occupancy
- Type of valuation
What is included in Terms of Engagement?
- Client and their details
- Valuer – status, qualifications = report must be signed by valuer
- Asset or liability to be valued –
- Interest to be valued - freehold or leasehold
- Valuation currency
- Conflicts of interest
- Purpose of valuation e.g. IHT planning (doesn’t need to be Red Book), ‘security’ = lending
- Basis of valuation
- information source
- data of valuation
- assumptions and special assumptions
- nature and extent of valuers work (including investigations, inspections, limitations)
- Format of the report
- restrictions on use, distribution and publication
- fees
- complaints handling procedure
- limitation of liability
- RICS Valuation – Global Standards (2020) - Confirmation that the valuation has been prepared in accordance with the current Red Books standards
What is included within a report?
- Introduction
a. Client details
b. Valuer
c. asset or liability to be valued
d. interest in asset
e. conflict of interest
f. Purpose of valuation
g. basis of valuation
h. date of valuation
i. information sources
j. inspection date - clear, cloudy weather, rainy weather.
k. assumptions and special assumptions
l. RICS Valuation – Global Standards 2019 - Executive Summary – property, location, description, tenure, tenancies, valuation
- The Property
a. Property address
b. location
c. description
d. services
e. condition
f. access to the property
g. tenancy is leases or licences
h. plant machinery
i. basic payment scheme
j. CSS
k. contamination and environmental factors – radon, invasive species, asbestos
l. flood risk
m. report on title
n. rights of ways, Wayleaves, easements
o. restrictions and designations – AONB, Listed Building – Magic Map Searches
p. Planning and development
q. council tax, business rates, drainage rates
r. EPC - Final Evaluation
a) Valuation
b) commentary
c) valuation approach on methodology - Limitations of Liability
- Restrictions on Use, distribution, publication
- Signed and dated by valuer
