Valuation Flashcards

Question

What factors should be considered by the valuer when they are instructed to undertake a valuation of restricted information or without physical inspection?

Answer 1

1. The nature of the restriction must be agreed in writing in the TOE 2. The possible valuation implications of the restriction confirmed in writing before the value is reported 3. The valuer should consider whether the restriction is reasonable with regard to the purpose of the valuation 4. The restriction must be referred to in the report

Answer 2

1. Market Value 2. Market Rent 3. Fair Value (IFRS13) 4. Investment Value 5. Equitable Value (IVS 104) 6. Liquidation Value

Answer 3

Mandatory General Standards address matters such as terms of engagement, approaches to and bases and methods of valuation as well as reporting Asset Standards which provide requirements relating to specific types of asst, such as real property and development property

Answer 4

The RICS monitor the VRS through the submission of the firms annual returns Additional monitoring ranges with Risk Based Reviews from desktop investigations to site based Regulatory Review Visits (RRVs) dependent on the risks identified The Head of Regulation has the power to remove a valuer from the Scheme

Answer 5

The estimated amount which an asset or liability should exchange: On the valuation date Between a willing buyer and a willing seller In an arms length transaction After proper marketing Where the parties had acted knowledgeably, prudently and without compulsion

Answer 6

Compliance with standards and practice statements where a written valuation is provided

Answer 7

1. Valuation for financial reporting 7. Valuation of registered social housing providers' assets for financial statements 8. Valuation of charity assets 10. Valuation for commercial secured lending purposes 11. Valuation for residential mortgage purposes 14. Valuation of registered social housing for loan security purposes 15. Valuation for CGT, Inheritance Tax, SDLT and ATED

Answer 8

1. Future prospect of securing planning permission for the development of land where no planning permissions currently exist 2. The realization of marriage value arising from the merger of two interests in land

Answer 9

Proper records must be held of the inspections and investigation and of other key inputs in an appropriate business format Note the importance given to ESG and Sustainability

Answer 10

This basis of value can be used for a group of assets sold in a piecemeal basis considering the costs of getting the assets into a saleable condition Not used in the UK

Answer 11

RICS Guidance Note on Rights of Light 2016

Answer 12

1. When the LL/T wants a surrender of the existing lease and agrees to grant a new lease usually longer on different lease terms simultaneously 2. Calculation of the premium to reflect the change in value of the leasehold interest 3. Need to value the before and after leasehold interest Understand the valuation of premiums

Answer 13

Fair value will be adopted for all IFRS adopted accounts Prescribed performance standards must be adhered to

Answer 14

A premium is a capital payment made by one party to another

Answer 15

RICS Global Guidance Note "Sustainability and ESG in commercial property valuation and strategic advice" December 2021 (effective 31 Jan 2022)

Answer 16

1. Effective from 14th January 2019 2. Sets out clarification that the national supplement augments the Red Book Global requirements for valuations in the UK and is not substitute for it 3. Provides specific requirements for members on the application of the Global Standards to valuations undertaken subject to UK jurisdiction 4. It contains 18 Valuation Practice Guidance Applications (UK VPGAs) - regrouping many to become more user friendly 5. Most of the advice is not mandatory but is for advisory guidance

Answer 17

1. A particular buyer for whom a particular asset has a special value because of advantages arising from its ownership which would not be available to other buyers in a market. 2. Special value is an amount that reflects particular attributes of an assets that are only of value to a special purchaser 3. This could arise from physical, functional or economic association of the property with some other property such as an adjoining property Example - A tenant purchasing their freehold interest

Answer 18

Regulated Purpose Valuations (RICS Valuation Monitoring)

Answer 19

Peter Pereira Gray

Answer 20

1. Professional and Ethical Standards Members undertaking valuations must act in accordance with the RICS Rules of Conduct 2. Independence, objectivity and the identification and management of conflicts of interest: The valuer/firm must act objectively and independently and not be influenced by situatio s which could threaten professional objectivity Professional Scepticism when reviewing information and data before relying on it Detailed advice on dealing with COI 3. Terms of Engagement Members must understand the clients requirements and comply with the minimum terms of engagement. Members must be able to demonstrate professional competence

Answer 21

The findings have been accepted in full and will be implemented in due course

Answer 22

Add usually 10% uplift (dependent on comps and footfall)

Answer 23

1. More user-friendly with clear advice on what is and what is not mandatory 2. Clarity that the UK national supplement augments the Red Book Global for valuations in the UK 3. New UK VPGAs have been included for the valuation of central government assets, local authority assets and registered social housing providers assets 4. For financial reporting valuations, there is greater differentiation between UK GAAP and IFRS requirements 5. New section on valuation for commercial lending

Answer 24

1. Sustainability and ESG factors 2. The use of the Profits Methods 3. Definitions and scope of valuations contained within the International Valuation Standards (IVS)

Answer 25

SDLT - at rates Agents fee - say 1% of the purchase price plus VAT Solicitors fees - say 0.5% of the purchase price plus vat

Answer 26

It is usual valuation practice to deduct the likely costs of purchase from the Gross Market Value to provide a net Market Value of a property as a purchaser will have to pay these costs

Answer 27

When a property is purchased or an introductory purchase fee accepted by the firm, it cannot be valued for a regulated purpose valuation for 12 months by the same firm

Answer 28

Type of valuations Purpose of valuations Number of valuations Firms total fee income from Red Book Global valuations in the last year What data sources are used Quality assurance audit procedures in place History of any negligence claims and notifications

Answer 29

As well as the minimum requirements of a valuation report: Additional information must be reported to give the lender more information regarding the instruction The valuer should be able to advise whether to agree to the loan or in the case the borrower defaults

Answer 30

Used for shops with two main frontages

Answer 31

The value of an asset to a particular owner or prospective owner for individual investment or operational objectives - This may differ from Market Value - This is sometimes used as a measure of worth to reflect the value against the clients own investment criteria

Answer 32

Openness and transparency RICS protection and International valuation standards Expertise and clear reporting World class regulations

Answer 33

Singer & Friedlander Ltd V J. D. Wood (1977) It held that the usual margin of error can be varied and it will be narrower for a relatively straightforward valuation case and wider for a more complex case

Answer 34

Matters that may give rise to material valuation uncertainty

Answer 35

1. Improve the quality of valuation and ensure the highest possible professional standards 2. To meet the RICS requirement to self-regulate effectively 3. To protect and raise the status of the valuation profession as the leading expertise in valuation

Answer 36

RICS Guidance Note: Valuation of Residential Leasehold Premises (2021)

Answer 37

When the property zones reflect physical changes in the building such as steps

Answer 38

The estimate price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interest of those parties - Not used in the UK

Answer 39

Valuation Technical and Performance Standards (VPS) Mandatory VPS - TOE (IVS 101 Scope of Work)

Answer 40

Inspections and Reporting (VPS 2 & VPS 3) - Valuers should have regards to the relevance and significance of ESG and Sustainability Factors when considering the valuation approach and reasoning Valuation for Secured Lending Purposes (VPGA 2) - ESG and sustainability factors should form part of the valuation approach - Commentary may also be required on the maintainability of income and future cost liabilities to meet changing regulations and investor expectations

Answer 41

A technique used for the valuation of hidden/obscured areas

Answer 42

New leases and premiums payable calculated on the Net Present Value (NPV) of the lease, discounted at the RPI at the following rates as a incremental tax: NPV of up to £150K (£125K for resi) - 0% NPV of over £150K (£125K for resi) - 1% NPV over £5M - 2%

Answer 43

Restricted Information (desk top) valuations (no inspection undertaken)

Answer 44

A non exhaustive list of properties including self-storage, flexible workspace and purpose built student houseing

Answer 45

1. Governance arrangements 2. Separation of valuation from advisory activities within firms in respect of the use of valuation data and instructions 3. Developing a time-specific, mandatory procurement and rotation process for valuers 4. Developing a Valuation Compliance Office role within firms 5. Processes to raise concerns about ethical conduct including improper pressure placed on valuers 6. Establishing a valuation regulatory quality assurance panel 7. DCF as the principal model applied in preparing property investment valuations 8. Improving the knowledge and application of valuers in respect of advanced analytical techniques 9. Independent review of real estate investment valuations 10. Review of post-qualification requirements for valuers and regular re-validation of valuers 11. Continue to build on its important work to ensure a diverse and inclusive valuation profession 12. These findings may have far reaching consequences for valuers and their firms 13. RICS hopes that changes brought following the recommendations will increase trust in the profession and the confidence that clients will have in the quality of the valuation process

Answer 46

The Upper Tribunal (Lands Chamber) evidence suggests that the value could be in the order of 15%-50% of the development value unlocked by the inclusion of the ransom strip within the proposed development scheme In some cases a fixed sum has been awarded The Upper Tribunal (Lands Chamber) assesses each case on its own facts Key case law - Stokes V Cambridge (1961) - when a value of one third of the uplift in the development site value was awarded to the owner of the ransom strip

Answer 47

Registration is not mandatory for valuation work excluded from the Red Book Global Any valuer registered can use 'RICS Registered Valuer' on their business stationery and marketing material RICS publish a register of the Registered Valuers Members are only eligible if they have completed APC vals to Level 3 or subsequently qualify for registration There is a alternative post qualification route for those who did APC o Level 2 Annual fee payable to the RICS upon registration

Answer 48

1. Rent received less ground rent (=net rental income) 2. Capitalized at an appropriate yield for the remaining length of the lease 3. Result in the MV of the leasehold interest

Answer 49

In the last financial year whether percentage fee income from the client is less or more than 5% of the total fee income - if more than 5% it must be disclosed to the nearest 5% Whether since the end of the last financial year, this has changed or will likely change There should be a policy in place on the rotation of valuers when the asset is regularly valued. RICS recommends a 7 year maximum rotation policy

Answer 50

Dealing with conflicts of interest for secured lending valuations Reporting procedures

Answer 51

Preliminary valuation advice can be given - it must be marked as draft, for internal purposes only, cannot be relied upon and on no account can it be published or disclosed A draft report provided to the client must state that it is a draft and it is subject to the completion of the final report A draft valuation can be discussed with the client but the valuer is not to be influenced by the client in any way in respect of the final valuation figure stated in the report Any changes made to a preliminary valuation must be noted on file and reasons provided Any additional information supplied by the client as a result of the discussion regarding the draft report must be stated in the report

Answer 52

A wall is a party wall if it stands astride the boundary of land belonging to two or more different land owners. There are Chartered Surveyors who specialises is party wall disputes

Answer 53

Valuation Approaches and Methods

Answer 54

Part 1 - Introduction Part 2 - UK Professional and Valuation Standards (Mandatory) Part 3 - UK Valuation Practice Guidance Applications (Advisory) Part 4 - Summary of changes from Red Book UK 2014 (revised 2015)

Answer 55

A. Identification and status of the valuer B. Client and any other intended users C. Purpose of valuation D. Identification of the asset to be valued E. Basis of value F. Valuation date G. Extent of investigation H. Nature and source of the information to be relied upon I. Assumptions and special assumptions to be made J. Restrictions for use, distribution and publication K. Instruction undertaken in accordance with IVS standards L. Valuation approach and reasoning M. Valuation figure(s) N. Date of valuation report O. Comments on market uncertainty P. Statement setting out any limitations on liability that have been agreed

Answer 56

Independent Review of Real Estate Investment Valuations (December 2021)

Answer 57

1. Straight line method 2. Straight line method assuming time value of cash flow using a yield 3. Use of DCF

Answer 58

A supposition that is taken to be true and accepted as fact, even though it is not true

Answer 59

Inspections, Investigations and Records

Answer 60

A piece of land which controls the access to another piece of land

Answer 61

RICS introduced a regulatory monitoring scheme for all valuers carrying out Red Book Global Valuations from October 201

Answer 62

Assuming planning consent has been granted for a particular use or the property is vacant or let at the date of valuation

Answer 63

No - as they are not relied upon by third party or in the public interest

Answer 64

It is the tax payable by the purchaser in respect of the transfer of land and buildings (a progressive / incremental tax)

Answer 65

Can be used in zoning for shape such as split levels, excessive front to depth ratio and hard frontages (such as banks) depending on comparable evidence

Answer 66

HKRUK II (CHC) Ltd (a subsidiary of Highcross) V Heaney 2011 The outcome of this case has left Highcross with a remedial works bill and a mandatory injunction to reduce the scale of its extended Toronto Square scheme in Leeds where two new floor levels were added to tan existing office building

Answer 67

These are valuations relied on by third parties who have not commissioned the valuation and they are subject to valuation monitoring Valuations for FIVE purposes: 1. Financial Reporting (Company accounts) 2. Stock Exchange listings/inclusion in prospectuses and circulars 3. Takeovers and mergers 4. Collective investment schemes 5. Unregulated property unit trusts

Answer 68

1. For building insurance purposes 2. The cost of the reinstatement of the building without a profit 3. Use of RICS Building Cost Information Service (BCIS) adopting GIA for commercial properties and gross external area for residential properties 4. Have to add VAT / Demolition costs / professional fees / planning and building regulation fees and inflation allowance if applicable 5. A replacement cost figure which is provided for insurance purposes, whether separately or within a valuation report is not a 'written opinion of value' so Red Book Global compliance is not required

Answer 69

Undertake a before and after valuation and calculate the level of marriage value created Typical negotiated outcome is to split the marriage value created 50:50 or divide it pro-rata to the value of the individual interest

Answer 70

Valuation for inclusion in financial accounts

Answer 71

The tax is payable by UK companies who own UK residential dwellings of over £500,000 Aims to stop on-shore and off-shore individuals using companies to avoid SDLT for residential property

Answer 72

Inspections by RICS' professional regulation team now take place There is an annual declaration for all members who undertake regulated valuations. The length of time, purposes, extent and duration of the firms relationship with the client has to be outlined.

Answer 73

Party Wall etc Act 1996 Provides a framework for resolving disputes in relation to party walls, boundary walls and excavations near neighboring buildings The Act provides a building owner who wishes to carry out various sorts of work to an existing party wall, with additional rights going beyond ordinary common law rights. If you are a party wall owner you must inform all adjoining owners of your intention to undertake any works to the party wall

Answer 74

These are made where it is reasonable for the valuer to accept that something is true without the need for specific investigation

Answer 75

A technique not a method Used for the comparison of retail properties to create a unit of comparison for different sized buildings Rental value of the property decreases away from the street Zones 6.1m (20ft) Zones of 9.14m (30ft) - are used for prime streets in London, Belfast and Scottish Basement/First Floor areas are usually treated as A/10 dependent on comparable evidence Quantum discount can be used for size

Answer 76

Part 1 - Introduction Part 2 - Glossary Part 3 - Professional Standards (PS) Part 4 - Valuation Technical and Performance Standards (VPS) Part 5 - Valuation Applications (VPGA) Part 6 - The International Valuation Standards (IVS)

Answer 77

The Charity Commission requires the trustees of a charity to obtain a Section 119 of the Charities Act 2011 valuation when the charity is seeking to buy or sell property The valuer must follow the Act's requirements The surveyor must comment as to whether the purchase or sale is in the charity's best interest Reports must state whether terms agreed are the best that can be reasonably obtained for the charity UK VPGA 8 sets out advice in respect of the provision of valuation advice to charities Basis of valuation to be MV or MR

Answer 78

The principle of a 10% margin of error was reinforced in respect of a valuation of 4 hotels in 2005. The judge stated that an appropriate margin may be +/-5% for a standard residential property but for a one-off commercial property +/-10% and if there are exceptional features of the property the margin could be +/-15%

Answer 79

Provides a list of minimum matters which must be confirmed in writing to the client as a minimum PRIOR to commencing a Red Book Global valuation

Answer 80

A single rate yield is used in current valuation practice which is discounted to reflect an additional element of risk as it is a wasting asset As a leasehold interest is a wasting asset, dual rate tables adjust a leasehold valuation to be on the same basis as a freehold by using a sinking fund - however in practice leaseholders do not use sinking funds so the method is as above

Answer 81

1. A longstanding professional relationship with the prospective borrower or owner 2. When the valuer will gain a fee from introducing the transaction to the lender 3. If there is a financial interest in the property holding or prospective borrower 4. When the valuer is retained to act in the disposal or letting of the completed development on the subject property

Answer 82

Weighted Average Unexpired Lease Term remaining to the first break or expiry of a lease across asset weighted by the contracted rent A calculation often undertaken when valuing an asset or considering appropriate investment yield comparables for multi-occupied individual investments or portfolios Understand how to calculate a WAULT longhand

Answer 83

13 wide ranging recommendations

Answer 84

The overidding requirement is that a valuation report must not be misleading The valuer should clearly draw attention to, and comment on, any issues resulting in material uncertainty in the valuation on the specified date relating to the risk surrounding the valuation of the asset A standard caveat should not be used

Answer 85

Net Present Value The total rent payable over the term of the lease, reduced by an annualised discount rate There is a calculator on the HMRC website Break clauses are excluded from the calculations

Answer 86

Valuation Reports (IVS 103 Reporting)

Answer 87

Valuers are responsible for choosing and justifying their valuation approach and use of model In some cases, more than one approach may be appropriate

Answer 88

Professional Standards and they are mandatory

Answer 89

Valuers must take the steps to verify the necessary information being relied upon for a valuation to ensure the information is professionally adequate for its purpose

Answer 90

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 basis of valuation is now required if the International Financial Reporting Standards have been adopted by the client - It is adopted by the International Accounting Standards Board - The RICS view is that his definition is generally consistent with the definition of Market Value

Answer 91

A. Identification and status of the valuer B. Identification of the Client C. Identification of any other intended users D. The asset to be valued - if a portfolio then lotting of assets should be considered E. Currency F. Purpose of the valuation G. Basis of value H. Valuation date I. Extent of investigation J. Nature and source of the information to be relied upon K. Assumptions and special assumptions to be made L. Format of the report M. Restrictions for use, distribution and publication N. Confirmation of Red Book/IVS compliance O. Fee basis P. CHP to be made available Q. Statement that the valuation may be subject to compliance by the RICS R. Limitation on liability agreed

Answer 92

This is a Red Book Global valuation unless for one of the specific purposes set out in PS1

Answer 93

Valuations for secured lending

Answer 94

RICS Valuation - Global Standards (UK National Supplement, 2018)

Answer 95

1. Covers inspections and investigations with particular emphasis on ESG and specific environmental constraints and sustainability issues 2. Identifies ESG and Sustainability issues including the need to consider: Direct Valuation Factors (Storm/Flood risk) Indirect Valuation Factors (resilience or carbon emissions) Physical Risks (heat or wildfire) Transition Risks (regulatory change or carbon emissions)

Answer 96

The value arising from any expectation that future circumstances affect the property may change

Answer 97

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 basis of valuation is now required if the International Financial Reporting Standards have been adopted by the client - It is adopted by the International Accounting Standards Board - The RICS view is that his definition is generally consistent with the definition of Market Value

Answer 98

1. Disclosure to the lender - any previous / current / anticipated involvement 2. Previous involvement is defined as being in the past two years - but can be longer in some circumstances 3. If the valuer or client considers that a COI is unavoidable the instruction should be declined 4. The valuer is responsible to accept / refuse the instruction with regard to the ROC 5. If the conflict can be managed this must be agreed with the client and recorded in writing within the TOE and valuation report

Answer 99

Spreading the cost of a loan repayment over an agreed time period- ie 3-5 years

Answer 100

A bank would only request this for a valuation for secured lending purposes. Banks need to know what the value of property would be if their client defaults. This would result in a quick sale hence the restricted marketing period.

Answer 101

A publicly maintained road at the public expense via the Highway Authority/Council

Answer 102

• Planning application history. Identify materials used in construction and the design of windows. • Possible inscription into the property on historic buildings. • Architecture styles: Gothic, Vernacular, Tudor, Georgian, Art Deco. • Ask the owner/occupiers for the history of the building. • Historic maps and look up bomb damage from World War Two.

Answer 103

• Planning application history. Identify materials used in construction and the design of windows. • Possible inscription into the property on historic buildings. • Architecture styles: Gothic, Vernacular, Tudor, Georgian, Art Deco. • Ask the owner/occupiers for the history of the building. • Historic maps and look up bomb damage from World War Two.

Valuation Flashcards

(127 cards)