1. Definition of an internal and external valuer
    Internal – employed by a company to value their assets /enterprise. Valuations are for internal use only. No third party reliance.

    External – Has no material links with the assets being valued
  2. Three important steps before undertaking a valuation
    Competence – check you are competent and have the required skill level to work

    Independence – check there are no conflicts or personal interests

    Terms of Engagement – set out in writing full confirmation of instruction from client prior to starting work
  3. What needs to be detail in the terms of engagement?
    • Confirm competence of valuer
    • Extent and limitations of the valuers inspection must be stated
  4. What statutory due diligence can be undertaken for a valuation? Up to 13
    • Asbestos register
    • Business Rates
    • Environmental matters (power lines, sub stations, telecoms masts)
    • Flood risk
    • Title deeds
    • Contamination survey
    • EPC
    • Equality Act compliance
    • Fire Safety compliance
    • Highways
    • Legal title and tenure
    • Public right of ways
    • Planning history and compliance
  5. What would be included in a valuation file on a computor?
    • Appendices
    • Instruction and Correspondence
    • Property Info
    • Photos
    • Legal Documents
    • Statutory Documents
    • Evidence
    • Draft Reports
    • Sign off and Final Report
  6. Provide a timeline of the valuation instruction
    • Receive instruction from client
    • Check competence
    • Conflict check
    • Terms of engagement in writing
    • Receive signed TOE’s
    • Gather info – leases, title docs, planning info
    • Due diligence
    • Inspect and Measure
    • Comparable evidence
    • Analyse Evidence
    • Undertake valuation
    • Draft report
    • Have report checked by another surveyor
    • Finalise and sign report
    • Report to client
    • Invoice
    • Ensure valuation file is in good order
  7. What are the 5 methods of valuation and when is each used?

    • Investment – when the property has an income stream

    • Profits method – when the value of the property depends on the profitability of the business i.e pubs
    • Annual turnover - (less) costs = Gross Profit
    • (less) – reasonable working expenses = unadjusted net profit
    • (less) operators remuneration
    • =Adjusted net profit known as the Fair Maintainable Operating Profit (FMOP)

    • Expressed as EBITDA

    • Capitalised at an appropriate yield

    • Residual Valuation – calculating the value of land

    • Contractors method – when there are no direct comparables i.e. schools and lighthouses

    • Method of valuation and not a bases
    • Used for owner occupier properties
    • Accounts purposes only
    • Also used for rating of specialist property
  8. What are the 6 steps for the comparable method?
    • Search and select comps
    • Confirm and verify details
    • Assemble in comps schedule
    • Adjust comps using hierarchy of evidence
    • Analyse to form opinion of value
    • Report value and prepare file note
  9. What is the new RICS Guidance Note relating to comparable evidence?
    Comparable Evidence in Real Estate Valuation 1st Edition 2019
  10. What are the 3 hierarchies of evidence?
    What are the 3 hierarchies of evidence?

    • Category A – direct comps / near identical properties / similar assets / properties on the market / offer submitted on properties
    • Category B – general market data such as commercial databases, indices, historic evidence
    • Category C – evidence from other asset classes, interest rates/stock prices
  11. What is the term and reversion method?
    • Used for under rented properties
    • YP term at a capitalisation rate for the require number of years (lower yield)
    • PV reversion for number of years – yp in perp reversionary income at capitalisation rate
  12. What is the layer / hardcore method?
    • Used for over rented properties
    • Income flow divided horizontally
    • Bottom slice market rent – top slice rent passing minus market rent
    • High yield to revision
  13. What are the risk factors for yield?
    • Rental and capital growth prospect
    • Quality of location / covenant
    • Use of property
    • Lease terms
    • Voids
    • Security of regularity of income
    • Liquidity
    • Economy
  14. What is the All Growths Implicit yield?
    Assumes many of the assumption that are made explicit in a DCF approach and the risks are hidden in the selected yield
  15. What is the All Risks Yield?
    The remunerative rate of interest used in the valuation of fully let property at MR reflecting all the prospects and risk attached to the particular investment
  16. What is the True Yield
    Assumes rent is paid in advance and not in arrears
  17. What is a nominal yield?
    Initial yield assuming rent is paid in arrears
  18. What is an equated yield?
    A growth explicit yield that can be used in a DCF as you separately allow for growth.
  19. What is a Gross Yield?
    Yield not adjusted for purchasers costs
  20. What is an Equivalent Yield?
    Average weighted yield when a reversionary property is valued using a NIY and a reversionary yield
  21. What is an initial yield?
    Simple income yield for current income and current price
  22. What is a Reversionary Yield?
    MR divided by current price on a property that is under rented
  23. What is a running yield?
    Yield at one moment in time
  24. What does a DCF involve?
    When is a DCF used?
  25. What is the methodology of a DCF?
    • Estimate the cash flow (income less expenditure)
    • Estimate the exit value at the end of the holding period
    • Select discount rate
    • Discount cash flow at discount rate
    • Value is the sum of the completed discounted cash flow to provide a NPV
  26. Define Net Present Value
    Sum of discounted cash flows of the project
  27. Why is NPV used?
    To determine if an investment gives a positive return again a target rate of return
  28. What does a positive NPV mean?
    The rate of return at which all future cashflows must be discounted to produce a NPV of zero.
  29. When is an IRR used?
    Used to assess the total return of an investment making some assumptions regarding rental growth
  30. When is Profits Method used?
    • Used to value trade related properties where there is a monopoly position
    • Used where the value of the property depends upon the profitability of its business and its trading potential
  31. Give examples of properties when used
    Pubs, petrol station, hotels, guest, nurseries, leisure and care homes
  32. What is required to use this method?
    Must have 3 years of accurate and audited accounts
  33. What adjustments are made?
    Maturity of business and any unacceptable or exceptional expenditure
  34. What is the methodology?
    • Annual turnover (income received) – LESS costs = Gross Profits
    • LESS reasonable working expenses = unadjusted net profit
    • LESS operators remuneration
    • = Adjusted net profit known as the Fair Maintainable Operating Profit

    • This can be expressed as EBITDA (earnings before interest taxation depreciation amortisation)

    • Capitalised at an appropriate yield
  35. When is the Depreciated replacement costs (DRC) method aka Contractors Method used?
    When no direct comparables
  36. Give examples of properties this is used for
    i.e. sewage works, lighthouses, oil refineries, schools
  37. What is the purpose of this method? 3 things
    • Used for owner occupier properties
    • For accounts purposes for specialised properties
    • Also used for rating purposes
  38. What is the methodology?
    • Value of the land in its existing use
    • Add current cost of replacing the building plus fees less a discount for depreciation and obsolescence
  39. What are the 3 areas of depreciation?
    • Physical – wear and tear
    • Functional – design no longer fit for purpose
    • Economic – due to changing market conditions for use of the asset
  40. Is this method used for Red Book Valuations for secured lending?
  41. What can this valuation be used for?
    Financial statements
  42. What is the RICS Guidance Note?
    Depreciated Replacement Costs Method of Valuation for Financial Reporting 2018
  43. What is the structure of the RICS Valuation Global Standards?
    • Part 1 – Introduction
    • Part 2 – Glossary
    • Part 3 – Professional Standards
    • Part 4 - Valuation Technical and Performance Standards
    • Part 5 – Valuation Applications
    • Part 6 – The International Valuations Standards
  44. What are the key changes? Name 12
    • No date
    • Red Book Global
    • Reflects updates within Internations Valuations Standards
    • PS1 – ‘Written means any valuation conveyed by paper or any electronic/digital means’
    • PS2 – Values must apply independence and objectivity to their work and ‘professional scepticism’ when reviewing data i.e. misleading comps
    • VPS 1 – Additional reference to IVE 220 about ‘non-financial liabilities’ which needs to be referred to as aspects of an asset or liability to be valued in TOE.
    • VPS 3 – State what the valuation approach was and relevant reasoning that lead to their findings
    • VPS 5 – As per IVS 105, to ensure the selection of valuation model is appropriate for the basis of value, that it is recorded and the mdoels assuptions are misunderstood.
    • VPGA 1 – ‘Performance standards required when valuing for financial statements’
    • VPGA 8 – Importance of considering current and historic land uses in the context of sustainability when valuing the property
    • IVS 410 – Valuer of development property to ‘apply a minimum of two appropriate and recognises methods’
  45. PS1 Compliance with the standards and practice statements where a written valuation is provided.


    What are the 5 exception of its mandatory use?
    • Advice provided in preparation for negotiations or litigation
    • Valuer is performing statutory function except for return to tax authority
    • Valuation is for internal purposes
    • Valuation provided in anticipation of giving evidence as an expert witness
    • Agency and brokerage
  46. What is PS2?
    Ethics, competence, objectivity and disclosures
  47. What does this relate to?
    The valuer and firm must act independently and not to be influenced. Must apply professional scepticism.
  48. What does VPS 1 cover?
    Terms of Engagement
  49. What is included in TOE’s for a valuation?
    • ID and status of valuer
    • ID of the client
    • ID of any other intended users
    • Asset to be valued
    • Currency
    • Purpose of valuation
    • Valuation date
    • Basis of value
    • Extent of investigation
    • Nature and sources of info to be relied on
    • Assumptions/special assumptions to be made
    • Format of report
    • Restrictions of use, distribution and publication
    • Confirmation of Global Red Boook / IVS Compliance
    • Fee basis
    • Complaints Handling Procedure
    • Statement that valuation may be subject to compliance by RICS
    • Limitation on liability agreed
  50. What is the difference between an assumption and a special assumption?
    • Assumption – made where it is reasonable fir the valuer to accept that something is true without the need for specific investigation
    • Special assumption – is a supposition that is taken to be true and accepted as a fact even though it is not true.
  51. How must they be agreed?
    It must be agreed in writing at the commencement of the instruction
  52. What is VPS 2?
    Inspections, Investigations and Records
  53. What four factors must be considered when valuing with restricted info or a physical inspection?
    • Nature of the restriction must be agreed in writing in the TOE’s
    • The possible valuation implications of the restriction confirmed in writing before the value is reported
    • The valuer should consider whether the restriction is reasonable with regard to the purpose of the valuation
    • The restriction must be referred to in the report
  54. Can you revalue a property without re-inspecting?
    No, unless the valuer is satisfied that there have been no material changes to the property or nature of the location since the last valuation
  55. What is VPS 3?
    Valuation reports
  56. What are the minimum requirements to be stated in the report?
    • ID of the status and valuer
    • Client and any other intended users
    • Purpose of valuation
    • ID of the asset to be valued
    • Basis of value
    • Valuation date
    • Extent of investigation
    • Nature and source of information relied upon
    • Assumptions and special assumptions
    • Restrictions on use, distribution and publication
    • Instruction undertaken in accordance with IVS standards
    • Valuation approach and reasoning
    • Valuation figure
    • Date of valuation
    • Comment on market uncertainty
    • Statement setting out any limitations on liability that have been agreed
  57. What must any advice or info provided to the client be marked with prior to sending out the report?
  58. What is VPS 4?
    Bases of Value, Assumptions and Special Assumptions
  59. What is Market Value?
    • The estimated amount for which an asset or liability should exchange
    • On the valuation date
    • Between a willing buyer and willing seller
    • In an arm’s length transaction
    • After property marketing
    • After the parties have acted knowledgably, prudently and without compulsion
  60. What is Market Rent?
    • The estimated amount for which an interest in real property should be leased
    • On the valuation date
    • Between a willing lessor and willing lessee
    • On appropriate lease terms
    • In an arm’s length transaction
    • After property marketing
    • After the parties have acted knowledgably, prudently and without compulsion
  61. What is Fair Value?
    ‘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
    • Adopted by International Accounting Standards Board
    • RICS views that the definition is generally consistent with Market Value
  62. What is Investment Value?
    The value of an asset to a particular owner or prospective owner for an individual investment or operational objectives

    • May differ from Market Value
    • Sometimes used as a measure of worth to reflect the value against the clients own investment criteria
  63. What is VPS 5?
    • Valuation approaches and methods
    • Valuers responsible for choosing and justifying their valuation approach and use of model
    • In some case, more than one approach may be adopted
  64. What is VPGA 2?
    Valuations for secured lending valuations
  65. What does this cover?
    Dealing with conflicts of interest for secured lending

    • Any previous dealings with borrower must be disclosed
    • Previous dealing means within the last 2 years
    • If valuer or client believes instruction causes a conflict that can’t be avoided, instruction must be declined

    Reporting Procedures


    • Additional info to be provided to the lender to help them form a decision on lending:
    • Valuation methodology adopted supported where appropriate with the calculation
    • Where a property has recently transacted or been u/o, the extent to which that info has been accepted as market value
    • Where the enquiry does not reveal any info, the valuer will make a statement to that affect in the report
    • Comment on any environment consideration
    • Comment on sustainability of the property for mortgage purposes
    • Any circumstances that the valuer is aware my effect the price
  66. What are building cost reinstatement valuations?
    • For building insurance purposes – cost to reinstate without profit.
    • USE BCIS for built costs – GIA for commercial, GEA for resi
    • Remember to add VSAT, demolition cost, professional fees, planning and building regs fees
  67. What is hope value?
    • The value that arises for an expectation that future circumstances affecting the property may change
    • Eg future prospect of securing planning for development land
    • The realisation of marriage value arising from the merger of two interests in land
  68. What is required when a charity is buying or selling a property?
    Trustees must obtain a S119 of the Charities Act 2011
  69. What is the surveyor’s requirement?
    Must comment if the purchase or sale is in the charities best interests
  70. What must the report state?
    State whether the terms agreed are the best that can be reasonable obtained by the charity
  71. What are typical purchaser’s costs and what do they consist of?
    • 5% Stamp duty
    • Agents fees 1%
    • Legal fees 0.5%
    • VAT
  72. What is marriage value?
    • Created by a merger of interests – can be physical or tenurial
    • Undertake a before and after valuation and calculate level of marriage value created
    • Typical negotiated outcome is to split the marriage value created 50% each or pro-rata to the value of the individual interests
  73. How do you value long leaseholds?
    • Ground rent deducted from the gross income to calc net rent received
    • This is capitalised at a yield for the length of the lease to create a market value
  74. What is a premium?
    A capital payment made by one party to another
  75. When is a premium paid?
    • Paid by an ingoing tenant of retail to secure a prime shop
    • Sum of money to reflect fixtures and fittings
    • Sum of money paid by an ingoing tenant for a leasehold interest to represent the positive difference between market rent and passing rent
  76. What is a WAULT?
    Weighted unexpired lease term.
  77. What is a ransom strip?
    Piece of land that controls access to another piece of landUpper tribunal suggest value of a ransom strip could be in the order of 15-50% of the development value unlocked by the inclusion of the strip
  78. What is case law for ransom strips?
    KEY CASE – 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
  79. What are the stamp duty bands for commercial property?
    • Commercial
    • £0-£150,000 – 0%
    • £150,001 - £250,000 – 2%
    • £250,000 and above – 5%

    Also payable on new leases, calculated on the NPV of the lease, discounted at the RPI at the following rates as a progressive/incremental tax:

    • NPV up to £150,000 – 0%
    • NPV over £150,000 – 1%
    • NPV over £5,000,000 – 2%
  80. What is zoning?
    • Valuation technique not method
    • 6.1m zones, sometimes 9.14m in Bond Street for example
  81. What discounts / allowances can be made?
    • Quantum discounts can be made for size
    • End allowances can be allowed for shape such as split levels, excessive frontage to depth ratio and hard frontages
    • Return frontage usually add 10%
  82. What is a special purchaser?
    • A particular buyer for who a particular asset had special value because of advantages arising from its ownership that would not be available to other buyers in the market
    • Eg tenant purchasing freehold / adjoining land owner
  83. What is the fit our period assumed in the rent free?
    3 months
  84. What is a party wall?
    A wall that forms the boundary between two properties
  85. What act governs party walls and what does this state?
    • Party Wall etc Act 1996 – provides framework
    • Must inform adjoining owners if you wish to undertake work on a party wall
  86. What is a right of light?
    Arises after 20 years of uninterrupted enjoyment of light without a 3rd party by way of an easement with a prescriptive right. If infringed, an injunction can be granted or damages awarded
  87. What is a landmark case?
    HKRUK Ltd v Healy 2011 – outcome left high cross with a remedial works bill and mandatory injunction to reduce scale of its extended Toronto Square Scheme in Leeds where 2 floors were added
  88. What are the 3 aims of the RICS Valuer Registration Scheme?
    • Improve the quality of valuation and ensure the highest possible professional standards
    • Meet the RICS requirement to self-regulate effectively
    • Protect and raise the status of the valuation profession as leading expert in valuation.
  89. What information is required for registration?
    • Type of valuations
    • Purpose of Valuations
    • Number of valuations
    • Firms total fee income from Red Book Global vals in the last year
    • What data sources are used?
    • Quality assurance audit procedures in place
    • History of any negligence claims and notifications
  90. What should clients expect from a valuation?
    • Openness and transparency
    • RICS protection and International Valuation Standards
    • Expertise and clear reported
    • World class regulations
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