Measurement and Valuation Flashcards

What is the 'Years' Purchase' (YP) in the investment method of valuation?

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).

Under the RICS Red Book, what is a 'Red Book Valuation'?

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.

What is the 'contractor's method' of valuation primarily used for?

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.

In the context of leasehold property valuation, what is a 'ground rent'?

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.

What does 'IPMS' stand for in the context of property measurement?

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.

When valuing a property with a reversionary interest, what does the 'term and reversion' approach involve?

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).