Flashcards in Valuation Deck (83)
How would you value a Leasehold interest?
I would deduct the Ground Rent from the Gross Income to calculate the Net Income.
Capitalise Net Income at a yield for the remaining length of the lease to create a Market Value of the Leasehold Interest.
Typically, single rate yield discounted to reflect risk that a Leasehold interest a ‘wasting asset’; depends on the length of the lease remaining. Long leasehold interests do not realistically require a discount.
Graphs of relativity show relationship between lease term remaining and the % of Freehold value. Under 50 years; treated as a ‘wasting asset’.
What is the difference between the Gross Yield and the Net Yield?
Gross: Yield calculated on Gross price before Purchasers Costs have been deducted.
Net: Yield calculated on the Net price (i.e. it’s been adjusted for Purchaser’s Costs).
How would you work out the Net Yield from a Gross price?
Deduct Purchaser’s Costs from the Gross purchase price to give the Net Purchase Price
Current Rent / Net Purchase Price x 100 = Net Yield.
What is the difference between an Initial yield and a Reversionary yield?
Initial: The yield calculated from the current rent and the current price.
Reversionary: The yield calculated from the Market rent and the current price (for under-rented properties)
How is SDLT charged?
On an incremental basis, at different rates in bands depending on the purchase price.
From April 2016, additional residential properties charged at 3% on top.
From April 2017, no SDLT on FTB first £300,000
What is a ransom strip?
A piece of land which controls the access to another piece of land
What is special value?
Red Book 2017 – “an amount that reflects particular attributes of an asset that are only of value to a special purchaser”
This could arise from the physical, functional or economic association of the property with another i.e. adjoining property
Special value may be generated when transaction is NOT arm’s length where there is a special purchaser
What is a Special Purchaser?
Red Book 2017 – a particular buyer for whom a particular asset has special value because of advantages not available to other buyers in the market e.g. a tenant purchasing his freehold interest
What is a party wall?
It stands astride the boundary of land belonging to two or more different land owners
There are Chartered Surveyors who specialise in party wall disputes
Party Wall Act 1996 – provides framework for resolving disputes in relation to party walls.
The Act provides a building owner who wishes to carry out work to an existing party wall with additional rights beyond ordinary common law rights
Party wall owners MUST inform all adjoining owners if intend to undertake any works to party wall
What are rights of light? Case law?
Rights arise after 20 years uninterrupted enjoyment of light without the consent of a third party.
If a right to light is infringed, an injunction can be granted or damages awarded.
Highcross vs Heaney 2011 – Highcross were given a remedial works bill and a mandatory injunction to reduce scale of Toronto Sq scheme in Leeds where 2 new floors were added to an existing office building
What is the RICS Valuer Registration Scheme (VRS)?
A regulatory monitoring scheme for all valuers carrying out Red Book valuations. RICS publishes a register.
Three aims of the scheme:
1. Improve the quality of valuation
2. To meet the RICS’ requirement to self regulate effectively
3. Protect and raise status of the valuation profession
Can use the term ‘RICS Registered Valuer’ on business stationery
Annual fee of £160 needs to be paid to the RICS.
As per the VRS, what should clients be able to expect from an RICS valuation?
- Openness and transparency
- RICS protection and International valuation standards
- Expertise and clear reporting
- ‘World class regulations’ RICS 2010
Is registration on the VRS required for valuation work excluded from the Red Book?
Registration is not mandatory for valuations excluded from the Red Book.
How is the VRS monitored?
RICS monitor the valuer through the submission of their firm’s annual return
The Head if Regulation has the power to remove a valuer from the scheme.
What do you know about Departures from the Red Book?
When there are special circumstances where the MANDATORY sections of the Red Book may be inappropriate or impractical.
PS1and2 – NO departures under any circumstances.
VPS1-5 – can depart, must include clear statement in TOE and report.
What differences are there between the Red Book and IVS?
IVS are produced by the IVSC (council) which is an international body
RICS Red Book adopts the IVS and provides an implementation an application framework for members and firms
How do you calculate a YP from a yield?
If it’s YP into perpetuity (which is 100/yield):
Then 100 / the yield = YP
What are the key changes between Global Red Book 2020 and 2017?
Very little has changed. Date has been dropped from title, referred to as Red Book Global, it reflects updates of IVS.
PS1 - Written means any valuation in the form of recorded media
PS2 - Must apply independence, & 'professional scepitism'
VPS 1- non - financial liabilities in TOEs
VPS 3 - significance of sustainability has had on their approach and valuation.
VPS5 - selection of valuation model is appropriate for the basis of value.
PII – why is it required? Case law?
Rule 9 of Rules of Conduct for Firms
Regulated firms need to ensure they have adequate and appropriate professional indemnity insurance
Requires firms to put in place run-off cover
Scullion v Bank of Scotland: the Court of Appeal's decision that a surveyor who provides advice on value to a lender does not owe the borrower a duty of care.
Ideally, what should comparable evidence be?
Comprehensive, identical or very similar, recent, arms-length, verifiable, the result of underlying demand in an active market.
Who can use the RICS Registered Valuer logo?
Individual Members who are registered.
When is DRC used?
For specialised properties only for valuations for financial statements.