Valuation and Ethics

 

 

LO1 Critically evaluate valuation methodologies and their uses
LO2 Critically appraise aspects of ethics and regulation and provide reasoned solutions and
advice to ethical problems
LO3 Critically analyse comparable rents, yields and capital values, to evaluate the current
UK and international property markets in a range of sectors
LO4 Develop basic valuation reports and provide justified solutions to a range of real estate
valuation problems
Scenario
You are employed as a graduate surveyor by Castlebrook, a firm of general practice surveyors. A
well-established client, Cathedral Properties Ltd, owns a portfolio of different types of real estate.
Castlebrook have been asked for advice concerning two properties from their portfolio.
Property 1
The first property comprises a ground floor mid-parade lock-up shop, with the following internal
dimensions:
Internal width (at front): 7.65m
Shop depth: 26 m
At a depth of 15m the shop widens for the remainder of the shop by 3m giving an internal width of
10.65m. The shop provides an ‘L’ shape configuration.
Within the shop there are three columns spaced at 5m intervals from the frontage. These columns
measure 0.45 m by 0.45m. At the rear of the shop there are WCs measuring overall 1.8m by 1.8m.
Property 2
The second property is a vacant office building known as Belmont House, situated on Belmont
Business Park. Belmont Park was built in 2010 and comprises 10 modern office buildings, situated
on the edge of a large regional city. Basic details of the subject property are as follows:
Address: Belmont House, 1 Belmont Business Park.
Title: Freehold.
Three-storey open-plan office.
Total accommodation 1,950 square metres (20,990 sq ft) International Property Measurement
Standard 1 (IPMS 1) with 20 car parking spaces.
Freehold interest to be placed on the market imminently.
© University College of Estate Management 2020 Page 3 of 11
Table 1: Comparable Evidence – Belmont Business Park
Address Description Lease terms Floor areas Transaction/Ren
t p.a.

Sample Solution

Valuation and Ethics

When valuing a company as a going concern, there are three main valuation methods used by industry practitioners: (1) DFC analysis, (2) comparable company analysis, and (3) precedent transactions. These are the most common methods of valuation used in investing banking, equity research, private equity, corporate development, mergers & acquisitions (M&A), leveraged buyouts (LBO), and most areas of finance. Comparable company analysis, also called trading multiples, is a relative valuation method in which you compare the current value of a business to other similar businesses by looking at trading multiples like P/E, EV/EBITDA, or other ratios. Precedent transactions analysis is another form of relative valuation where you compare the company in question to other businesses that have recently been sold or acquired in the same industry. This transaction values include the take-over premium included in the price for which they were acquired.

While a set of frameworks complement and build on each other, the delineation of the concept focuses heavily on vertical versus horizontal dimensions in a time-sliced fashion. That is, time dimension in accountability has not been of primary importance. However, it is worth noting that the time dimension is closely interrelated with a series of conceptual distinctions made in previous literature, and it may cover complementary aspects of the question concerning two sequential lines represented by administrative responsibility versus political accountability. First, the positioning of accountability actors depends on the time dimension. Civil servants usually have longer terms to serve the public interest over the long term. At the same time, they are responsible to the elected representatives of the public who tend to have “a limited time horizon” and “prefer policies that yield tangible benefits for constituents in the near term” (Posner, 2004: 137). For this reason, the priorities expressed by elected officials may be far more related to short-term issues and temporal problems instead of long-term solutions, whereas the long-lasting forms of civil service personnel would prioritize sustainable solutions to secure a long-term perspective of the citizens, both current and in the future. Second, the time frame is essential to distinguishing between two main streams of accountability. Accountability mechanisms focus predominantly on retroactive accountability for the past outcomes, while accountability as a virtue takes a proactive approach to ensuring ethical behaviors in the future. The timeline is also useful to distinguishing between ex ante accountability of the decision-making process leading up to the decision and ex post accountability where the results available from the decision already taken or where questions of compliance are identified and addressed. In other words, ex ante accountability refers to being accountable for the decision before an administrator act, while ex post accountability is suggestive of situations where administrators are accountable for the outcome of their decisions. For example, the focus of traditional bureaucratic administration is very much

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