- 🧠 How to Remember the Five Ethical Standards of RICS → (S.T.I.R.R)
- E-Questions - Exams 2021, 2022, 2023
- Question 1 - Definitions of valuation concepts (10 points)
- Question 2 - Parameters that determine risk in a propertys discount rate (4p)
- Question 3 - Write a short essay about your business ethics (4p)
- Question 4 - DCF Calculation
- Question 1 - Definitions of valuation concepts (10 points)
- Question 2 - How circumstances changes risk for a property and its discount rate
- Question 3 - RICS Ethical Standards & The major valuation approaches
- Question 4 - Valuation & Transaction based indices
- Question 1 - Explain the following concepts (10 points):
- Question 2 - Risk parameters & Valuation approach Commercial, Church & School (10 points) 🛑
- Question 3 - Uncertainty related to property valuations
- Question 4 - Calculate WACC and Exit Yield + The Five RICS Ethical Standards
- How to value Hotels - Hotel valuation techniques
- Complete Exam 2023 April
- 1. Explain some Market Value, Anchoring, Scenario & Sensitivity Analysis
- 2.
- 4. Valuations of a Hotel
- Part B - Advanced: 40 points
- Question 5 - (4 points)
- Question 6 - (8 points)
- Question 7 - (10 points)
- Question 8. (10 points)
🧠 How to Remember the Five Ethical Standards of RICS → (S.T.I.R.R)
Keyword | Full Sentence of Ethical Standard | Akronym |
Service | Always provide the best service | S (ervice) |
Trust | Act in a way that promotes trust in the profession. | T (rust) |
Integrity | Act with integrity. | I (ntegrity) |
Respect | Treat others with respect | R (espect) |
Responsibility | Take Responsibility | R (esponsibility) |
E-Questions - Exams 2021, 2022, 2023
Question 1 - Definitions of valuation concepts (10 points)
Explain the following concepts, 2 points for each correct answer:
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Question 2 - Parameters that determine risk in a propertys discount rate (4p)
Risk rate (risk premium or risk compensation or property risk) is one of the components of the discount rate in property valuations. What does the size of this risk rate depends on?
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Question 3 - Write a short essay about your business ethics (4p)
Provide your own definition of business ethics and explain why it is important for the real estate companies to do business ethically.
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In most advanced economies, a substantial part of their GDP is made up by commercial real estate. If an industry does not act ethically, trust erodes and lies build up within the industry, which can lead to black-swan events at the tail end. The collapse of the soviet union is one example, but a more recent example is the 2008 financial crisis.
By doing business ethically, real estate companies can also contribute to the overall health and stability of the real estate industry. Ethical behavior can help prevent fraud and other illegal activities that can undermine the industry's reputation and trustworthiness.
In summary, business ethics is important for real estate companies because it builds trust, protects their reputation, and ensures that they act responsibly and in the best interests of their clients. By doing so, they contribute to the stability and sustainability of the industry as a whole. (note that i mention a few of the keywords in the RICS ethical standards here)
Just try to do the right thing. The hard part is figuring out what the right thing is, given your set of circumstances and context.
Question 4 - DCF Calculation
A retail building has total area of 5000 square feet that is currently under the lease at $15 per square foot per year. Expenses on this building are $5 per square foot per year and are expected to stay constant. Vacancy and collection loss is estimated at 5% of potential gross income. Suppose the rents will develop with the rate of inflation that is 2% per year. Investor is going to hold the property during 3 years and then sell it. Discount rate is equal 10%. Expected growth of Net Operating Income in year 4 is 2%. Assume that all payments occur at the end of the period.
Questions with 2p for each right answer | Answer |
a) What is the potential gross income of the building in year 3? | |
b) What is the effective gross income of the building in year 2? | |
c) What is the net operating income of the building in year 1? | |
d) What is the expected net operating income of the building in year 4? | |
e) What is the salvage value of the building at the end of the 3rd year? | |
f) What is the market value of the building today? | |
g) What is the initial yield rate? | |
h) What is the exit yield rate? |
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Question 1 - Definitions of valuation concepts (10 points)
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Question 2 - How circumstances changes risk for a property and its discount rate
a) You are deciding on the discount rate to apply to a retail property in your valuation. Indicate whether you would increase or decrease your proposed rate in view of each of the following circumstances:
Circumstances | Increase or Decrease Discount Rate? |
You have secured a first-class tenant. | ??? |
You have heard that planning permission for a new retail mall nearby has been granted | ??? |
The property has been recently modernized | ??? |
The tenant wants to take a short lease. | ??? |
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b) Using the following assumptions what is the value of the property? (Same question in exam from 2022 and 2020)
Assumptions | |||
Discount rate (r) | 7% | Vacancy (v) | 5% |
Growth Rate (g) | 2% | Expenses Ratio = % of PGI | 35% |
Exit Yield (y) | ??? | CAPEX = % of PGI | 10% |
Acronym | Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
PGI | Potential Gross Income | 150 | 153 | 156,06 | 159,18 | 162,36 | 165,61 | |
Vacancy Allowance | ||||||||
EGI | Effective Gross Income | |||||||
OPEX | Operating expenses | |||||||
NOI | Net Operating Income | |||||||
CAPEX | Capital Expenditure | |||||||
Net Annual Cashflows | ||||||||
Salvage Value | ||||||||
Net Cashflow with Salvage value | ||||||||
PV | Present Value 7% (r) |
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Question 3 - RICS Ethical Standards & The major valuation approaches
a) Describe five RICS Professional and Ethical Standards. (5p)
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b) What are the three major valuation approaches? Explain at least two methods associated with these approaches. (5p)
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Question 4 - Valuation & Transaction based indices
a) Explain the difference between valuation based indices and transaction-linked indices. (4p)
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b) Explain how illiquidity and volatility on the real estate market affects the property valuation. (6p)
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Question 1 - Explain the following concepts (10 points):
a) Describe the international definition of market value and comment on two potential problems in this definition.(4p)
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b) Smoothing ni valuation context (2p)
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c) Scenario analysis and sensitivity analysis (use an example) (4p)
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Question 2 - Risk parameters & Valuation approach Commercial, Church & School (10 points) 🛑
a) Risk rate (risk premium or risk compensation or property risk) is one of the components of the discount rate ni property valuations. What does the size of this risk rate depends on? (4p)
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b) You have asked to cary out valuation of the following properties. Explain which valuation approach you will use it and why. i. Income Producing Property (2p) ii. A church (2p) iii. A public School (2p) Can
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Question 3 - Uncertainty related to property valuations
There are many different types of uncertainty related to property valuations. Describe at least four of these uncertainties and how their effect on property valuations. (4p)
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b) Using the following assumptions what is the value of the property? (Same question in exam from 2022 and 2020)
Assumptions | |||
Discount rate (r) | 7% | Vacancy (v) | 5% |
Growth Rate (g) | 2% | Expenses Ratio = % of PGI | 35% |
Exit Yield (y) | ??? | CAPEX = % of PGI | 10% |
Acronym | Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
PGI | Potential Gross Income | 150 | 153 | 156,06 | 159,18 | 162,36 | 165,61 | |
Vacancy Allowance | ||||||||
EGI | Effective Gross Income | |||||||
OPEX | Operating expenses | |||||||
NOI | Net Operating Income | |||||||
CAPEX | Capital Expenditure | |||||||
Net Annual Cashflows | ||||||||
Salvage Value | ||||||||
Net Cashflow with Salvage value | ||||||||
PV | Present Value 7% (r) |
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Question 4 - Calculate WACC and Exit Yield + The Five RICS Ethical Standards
a) Given the following information, calculate the WACC and Exit Yield
Corporate Tax (Tc) | 30% | rD | 6% |
Growth (g) | 2% | rE | 16% |
Ru | 10% | WACC | ??? |
Target D/(D+E) | 60% | Exit Yield | ??? |
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b) Describe five RICS Professional and Ethical Standards
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How to value Hotels - Hotel valuation techniques
The Coke-Can Multiplier
50 rooms hotel where a soda can sells for $1.25
ADR Valuation - Average Daily Rate Technique
A hotel should generate one dollar in average daily rate per every thousand dollars in value per guest room
Average Daily Rate = Revenue Per Day * Rooms * 1000
ADR Value = (Average Daily Rate) * (number of rooms) * (1000)
RevPar
RevPar = Occupancy rate*Average Daily Rental Rate (ADR)
Occupancy rate = (Number of room nights sold) / (Potential rooms sold)
Complete Exam 2023 April
1. Explain some Market Value, Anchoring, Scenario & Sensitivity Analysis
Explain the Following Terms
a) Market Value
b) Anchoring
c) Scenario Analysis & Sensitivity Analysis
d) Operational Leverage
2.
4. Valuations of a Hotel
Number of Rooms | 50 |
Daily Rate | 90 Dollars |
Occupancy | 85% |
Soda Can | 1,2 Dollars |
Coke Can Multiplier → 1,2*50*1 000 000 = 6 000 000 Dollars
ADR → 90*50*1000 = 4 500 000
RevPar → ADR*Occupancy = 4 500 000*0,9
Part B - Advanced: 40 points
Question 5 - (4 points)
Provide at least two reasons why house buyers from outside the particular housing market might pay a higher price then the local buyers.
Question 6 - (8 points)
Discuss for whom highly transparent property market might be beneficial and for whom it might not.
Question 7 - (10 points)
Discuss the problems in property valuation that are associated with booms and busts on the market.
Question 8. (10 points)
Suppose that you have performed simulation analysis with 100 trials for market value estimation of some property assigned to you and have received the following results table, histogram and descriptive statistics: