RICS APC Measurement and Valuation 2 — Questions and Answers
Question 1: What is the 'Years' Purchase' (YP) in the investment method of valuation?
- The number of years a property has been owned
- The multiplier applied to income to determine capital value, derived from the yield (Correct answer)
- The age of the building
- The length of the lease remaining
Correct answer: The multiplier applied to income to determine capital value, derived from the yield
Years' Purchase is the multiplier (reciprocal of the yield) applied to income to calculate capital value. For example, a 5% yield gives a YP of 20 (100/5 = 20).
Question 2: Under the RICS Red Book, what is a 'Red Book Valuation'?
- Any informal property estimate
- A valuation carried out in accordance with RICS Valuation - Global Standards (Correct answer)
- A valuation only for residential property
- A building survey report
Correct answer: A valuation carried out in accordance with RICS Valuation - Global Standards
A Red Book Valuation is one carried out in accordance with RICS Valuation - Global Standards (the 'Red Book'), which sets mandatory requirements for RICS members undertaking valuations.
Question 3: What is the 'contractor's method' of valuation primarily used for?
- Residential properties
- Properties that rarely change hands and for which there is no market evidence, such as schools and hospitals (Correct answer)
- Commercial office buildings
- Retail shopping centres
Correct answer: Properties that rarely change hands and for which there is no market evidence, such as schools and hospitals
The contractor's method (or cost approach) is used for specialised properties that rarely sell on the open market, such as schools, hospitals, and churches, where comparison evidence is scarce.
Question 4: In the context of leasehold property valuation, what is a 'ground rent'?
- The market rental value of the property
- The rent paid by a leaseholder to the freeholder for the use of the land (Correct answer)
- The cost of maintaining communal gardens
- The rates paid to the local council
Correct answer: The rent paid by a leaseholder to the freeholder for the use of the land
Ground rent is the payment made by a leaseholder to the freeholder for the right to occupy and use the land on which the property stands, typically much lower than market rent.
Question 5: What does 'IPMS' stand for in the context of property measurement?
- Internal Property Measurement System
- International Property Measurement Standards (Correct answer)
- Institutional Property Management Standards
- Independent Property Market Standards
Correct answer: International Property Measurement Standards
IPMS stands for International Property Measurement Standards, developed to provide a consistent global standard for measuring and reporting property floor areas.
Question 6: When valuing a property with a reversionary interest, what does the 'term and reversion' approach involve?
- Valuing only the current lease term
- Valuing the income in two parts: the current rent until lease review/expiry, and the market rent thereafter (Correct answer)
- Valuing only the future market rent
- Valuing based solely on building costs
Correct answer: Valuing the income in two parts: the current rent until lease review/expiry, and the market rent thereafter
The term and reversion approach values the income stream in two tranches: the 'term' (current passing rent until the next review or lease end) and the 'reversion' (the estimated market rent after that point).
RICS APC Measurement and Valuation 2
What is the 'Years' Purchase' (YP) in the investment method of valuation?