Property Valuation and Underwriting Disclosure
About RICS Surveyors
RICS stands for the Royal Institution of Chartered Surveyors. It is an independent professional body in the UK that accredits professionals within the land, property, construction, and infrastructure sectors worldwide. A RICS surveyor provides expert advice and guidance on all matters related to property, land, and construction. Their valuations are crucial in the UK Real Estate industry, ensuring property values are assessed with professional accuracy and reliable standards.
Property Valuation Sources
At Tangible, we primarily rely on Home Track Valuation for property assessments. In cases where this valuation is unavailable or deemed inaccurate, we enlist an independent RICS-approved valuer, such as Eddisons, to conduct a valuation. Each property is valued based on individual sales, comparable market evidence, and inspections.
Our Property Underwriting Process
Tangible employs a robust underwriting process to ensure that property valuations and final deals are conducted with the highest standards of accuracy and integrity. Below is an overview of our methodology, demonstrating how we determine the agreed price, incorporate additional costs, and calculate the total property tokenization cost.
Agreed Price
Example deal - Single Home Dwelling - Residential
Address: 18 High Lane, Nottingham NG7 1FL
Home Track: Unavailable
RICS (Eddisons): £5.650M
Agreed price: £5.5M
Our Valuation: £5.643M.This includes a 2.60% markup.
Tangible negotiates the final property price, and endeavors for such final price to be below RICS valuation and never exceeds the third-party or Home Track valuation.
For this hypothetical property, the agreed final amount of £5.5M is 0.61% less than the RICS valuation.
Tangible always aims to achieve:
A minimum Profit Margin of 2%
A Net Rental Yield of at least 8%
Determining Our Valuation
Our Valuation includes a markup ranging from 2% to 15% (this mark up the approx range of the difference between agreed final price and RICS valuation), based on third-party RICS valuations or Home Track figures. If our valuation deviates by more than 0.5% compared to third-party valuations, the deal is voided.
Calculating Add-on Costs
Tangible adds various additional costs to ‘Our Valuation’:
Management fee: 2% of ‘Our Valuation’
Vacancy reserve: 2% of ‘Our Valuation’
Maintenance reserve: 5% of ‘Our Valuation’
Legal closing costs: Typically £1,200 per property, paid at settlement.
Annual Insurance costs: £1000 - £3000 per property.
Stamp Duty Land Tax: Typically, 3% of 'Our Valuation'.
Other expenses, such as agent fees (around 2%), are also integrated into the markup, aligning the agreed price with our valuation.
Calculating the Total Property Tokenization Cost
The Total Property Tokenization Cost is defined as:
Total Property Tokenization Cost=Our Valuation+All add-on costs
Continuing with the previous example, this figure amounts to £6,451,752. This total is then converted at the prevailing GBP/USD exchange rate with an added 2% margin:
GBP/USD Spot rate = 1.22
Tangible conversion rate = 1.22×(1+0.02)=1.2444
So, £6,451,752 × 1.2444 = USD$8,028,560.19
The 2% margin applied to the exchange rate serves as a financial buffer to protect against currency volatility and potential losses during the conversion process. It also covers the costs associated with converting USD into stablecoins and then into GBP for property settlements. This margin contributed to the stability of our product offering, ensuring that property acquisitions could be completed reliably and predictably regardless of fluctuations in forex markets.
Sale to the Treasury or Customer
When USDR was active, Tangible sold the tokenized property to the Tangible Treasury at the calculated total property tokenization cost, thereby collateralizing USDR. Alternatively, the tokenized property could be sold to buyers on the Tangible Marketplace at the same calculated total property tokenization cost.
Additional Property-Specific Risks and Housing Market Risks
In addition to the standard valuation and underwriting processes, we consider other property-specific risks and housing market risks. These include:
Market Fluctuations: The property market can be volatile, and property values can fluctuate due to changes in economic conditions, interest rates, and market demand. These fluctuations can affect the final sale price and rental yields.
Location-Specific Risks: Properties in different locations may have various risks, such as local economic conditions, employment rates, and infrastructural developments. These factors can significantly impact property values and rental demand.
Regulatory Risks: Changes in local, regional, or national regulations concerning property ownership, rental laws, and taxation can influence property investments' profitability and feasibility.
Environmental Risks: Properties may be subject to environmental risks such as flooding, natural disasters, or pollution. These can affect the property's value and insurability.
Occupancy Risks: The risk of prolonged vacancies can impact rental income and overall returns. The state of the rental market and demand for rental properties in the area plays a crucial role in occupancy rates.
We consider such risks when evaluating property investments to ensure a comprehensive understanding of potential impacts on property values and returns.
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