101 Red Book Flashcards
What are the 3 valuation approaches?
1) Market Approach
2) Income Approach
3) Cost Approach
What are the 5 valuation methods?
1) Comparable
2) Investment
3) Residual
4) Profits
5) Depreciated Replacement Cost
RICS Red Book Professional Standards
PS1 = Compliance with standards where a written valuation is provided.
PS2 = Ethics, competency, objectivity and disclosures
RICS Red Book Valuation Technical and Performance Standards
VPS1 = Terms of engagement
VPS2 = Bases of Value, assumption and special assumptions
VPS3 = Valuation approaches and methods
VPS4 = Inspections, investigations and records
VPS5 = Valuation models
VPS6 - Valuation reports
RICS Valuation Practive Guidance Applications
VPGA 1 - Financial Reporting
VGPA 2 - Secured Lending
VPGA 3 - Businesses
What is included within the International Valuation Standards?
What is the Red Book?
Globally recognised framework for valuation standards.
What three things should you consider as first steps before undertaking a valuation?
Your professional competence to undertake the valuation, your independence (No COI) and Terms of Engagement.
What should be considered in statutory due diligence prior to undertaking a valuation?
This includes:
* Asbestos, Tax
* Contamination
* Equality Act Compliance
* Environmental Matters (electricity sub stations)
* EPC Rating
* Flooding, Fire Safety
* Health and Safety Compliance
* Highways
* Legal Title and Tenure
* Public Rights of Way
* Planning History
Describe the timeline of a typical valuation instruction.
**Start: **
Receive opportunity to quote, Check competence, Check COI, Draft terms of engagement (scope of works, fee, PII, CHP), Receive countersigned terms.
**Due Diligence:
Valuation & Reporting:
Completion: **
Undertake statutory DD (rates, flood risk, planning, EPC), Gather information – leases, title, planning docs, OS plans, Inspect and measure, Research market / analyse comps.
**Due Diligence:
Valuation & Reporting:
Completion: **
Undertake valuation, Peer review, Draft report, Finalise and sign report, Report to your client.
**Due Diligence:
Valuation & Reporting:
Completion: **
Issue invoice, Ensure filing in good order for audit.
What are the Three Valuation Approaches and Methods According to the IVS 105?
- Market approach (comparable evidence)
- Income approach (converting current and future cash flows into capital value)
- Cost approach (DRC)
What does the Red Book say about DRC?
The method should not be used for loan security valuations, it is not a very reliable method.
What must a valuer include when reporting a DRC valuation?
State the value for any readily identifiable alternative use if it is higher than the current use if appropriate. If appropriate, a statement that the market value would be lower on cessation of the business use.
What is the Red Book called?
RICS Valuation – Global Standards (2025) (Red Book Global).
What is the structure of the Red Book (Parts 1-6)?
Picture
What are the 2 Red Book ‘Professional Standards’?
What is the Application of PS1?
What are the five situations when a valuation does not have to be fully compliant?
- Statutory function
- Use in litigation
- Expert witness
- Agency or brokerage
- Internal purposes.
What are the five reasons for non-compliance with the red book?
What things does the PS2 make mandatory?
Where in the Red Book does it talk about rotation policy?
What are the valuation and technical performance standards VPS?
According to VPS1 What are the minimum requirements to be confirmed in writing prior to a Red Book Valuation Commencing?
What is VPS 2 of the Red Book?
According to VPS 2 of the Red Book, what is the main purpose of Inspection and Investigation?
Are desktop valuations (i.e. without inspection) Red Book Compliant?
Yes, red book compliant unless for reasons in PS1, however VPS 2 of the Red Book sets out the following steps which should be taken by a valuer in this situation of restricted information.
Can you undertake a re-valuation of a property without re-inspection?
In accordance with VPS2 of the red book, you can revalue a property without reinspection providing you as the valuer are satisfied there has been no material change that will impact the property’s value.
* This should be stated in the Terms of Engagement and in the report.
What does VPS 2 say about Record Keeping?
Comprehensive records of investigations and inspections must be kept in a business format.
What does VPS3 of the Red Book say?
What does VPS3 say that a Valuation Report should contain?
What does VPS3 say that a Valuation Report should contain?
- Identification and status of valuer
- Identification of client
- Identification of the asset
- Purpose of valuation
- Bases of value adopted
- Valuation date
- Extent of investigation
- Nature and sources of information relied upon
- Assumptions and special assumptions
- Restrictions on use
- Confirmation that the valuation has been undertaken in accordance with IVS
- Valuation approach and reasoning
- Amount of valuation or valuations
- Date of valuation report
- Commentary on any material uncertainty in relation to the valuation where it is essential to ensure clarity on part of the valuation user
- Statement setting out any limitations on liability that have been agreed.
Does a valuer have to sign a valuation report?
Yes according to VPS 3. Make it clear that they objectively able to value the property. Signed off by an individual, not a firm.
What must you do and consider when providing preliminary (or draft) valuation advice?
According to VPS 3 of the Red Book, when providing draft advice:
• Mark the report draft
• Not to be shared and is for internal purposes only – no reliance
• Can be discussed with the client but the valuer must not be influenced by the client.
• Any changes to the final report or additional information considered must be included as a note in the final report.
What does VPS4 cover?
It covers bases of value, assumptions and special assumptions.
What are the 6 bases of value for VPS4?
• Market Value
• Market Rent
• Investment Value
• Fair Value (IFRS13)
• Equitable Value (IVS 104)
• Liquidation value
What must a valuer ensure when choosing a ‘basis’ of valuation?
In accordance with VPS 4, a valuer must ensure that this basis adopted is appropriate for the purpose of the valuation.
What is the Red Book definition of Market Value?
The estimated amount
that an asset or liability
should exchange on the
valuation date,
between a willing
buyer and willing seller in an
arms-length transaction,
after proper marketing,
where parties have acted
* knowledgeably,
* prudently and
* without compulsion.
What is the Red Book definition of Market Rent?
The estimated amount
that an interest in property
should be exchanged for on the
valuation date,
between a willing
lessor and willing lessee, on appropriate lease terms,
in an arms length transaction,
after proper marketing,
where parties have acted
* knowledgeably,
* prudently and
* without compulsion.
What is the definition of Investment Value?
The value of an asset to a particular owner or prospective owner for individual investment or operational objectives.
What is the definition of Fair Value (as an IFRS 13)?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
What does VPS 4 of the Red Book say about Special Assumptions?
A special assumption made by the valuer where an assumption either assumes facts that differ from those existing at the valuation date or that would not be made by a typical market participant in a transaction on that valuation date.
When must special assumptions and marketing constraints be agreed?
Special assumptions and marketing constraints must be agreed with the client prior to undertaking the valuation and Global Red Book states
What does VPS 5 of the RICS Valuation Global Standards refer to?
Valuation approaches and methods. Following IVS 105 Valuation Approaches and Methods:
• Market Approach (Compare)
• Income Approach (Capitalise)
• Cost Approach (Sum cost)
What does VPGA stand for? And how many VPGAs are there in the Red Book?
Valuation Practice Guidance – Application.
What is VPGA1 referent to and what does the Red Book say about it?
VPGA1 gives guidance on valuation for inclusion in financial accounts. Noting the IFRS will adopt Fair Value for financial accounts.
What does VPGA2 referent to and what does the Red Book say about it?
VPGA2 gives guidance surrounding valuation for secured lending.
According to VPGA 2 of the Red book, when valuing for Secured Lending Purposes, for what period of time is “previous involvement” defined as being within?
According to VPGA 2 of the Red Book, Previous Involvement is defined as involvement within the last 2 years.
What are some examples listed in VPGA 2 of the Red Book of Situations where an instruction should be declined on the basis of Previous Involvement?
• Having a longstanding professional relationship.
• When the valuer will gain a fee from introducing the transaction to the lender.
• If there is financial interest in the property holding or prospective borrower.
• When the valuer is retained to act in the disposal or letting of the completed development on the subject property.
If the valuer and Client make arrangements to manage a potential conflict of interest, where should these arrangements be recorded?
Recorded in the terms of engagement and in the valuation report.
Can you give some examples of Special Assumptions that may arise in loan security valuations, as highlighted in VPGA 2 of the Red Book?
- Vacant Possession
- New letting on given terms
- Special Purchasers (could be the borrower)
In addition to those points listed in VPS3, what has to be included in a valuation report for secured lending purposes according to VPGA 2 of the Red Book?
** Disclosure of involvement **
** Valuation method adopted **
* If there is a recent transaction of the property, how much reliance there is on that value
*** Comment on suitability for Secured Lending purposes **
* Comment on any factor affecting value
* Demand for alternative uses
* Disrepair (Deleterious materials)
* Environmental issues (flood risk)
* Market Commentary
* Current marketing period required
* Details of comparable transactions relied upon
What does VPGA 10 cover?
It concerns matters that may give rise to valuation material uncertainty. Covid. GFC.
What is the Purpose of the New UK National Supplement?
It is not a substitute, it augments the Red Book.
What does UK VPS 3 of the UK National Supplement Cover?
Valuation relied on by third parties who have not commissioned the valuation and they are subject to valuation monitoring.
1. Financial reporting
2. Stock Exchange Listings
3. Takeovers and Mergers
4. Collective investment schemes
5. Unregulated property unit trusts
What are the 5 exceptions from Red Book Global valuations?
- Expert Witness work 2. Agency and Brokerage work 3. Statutory work 4. Internal Purposes 5. Negotiations or Litigation.
What does VPS3 say that a Valuation Report should contain?
- Identification and status of valuer
- Identification of client
- Identification of the asset
- Purpose of valuation
- Bases of value adopted
- Valuation date
- Extent of investigation
- Nature and sources of information relied upon
- Assumptions and special assumptions
- Restrictions on use
- Confirmation that the valuation has been undertaken in accordance with IVS
- Valuation approach and reasoning
- Amount of valuation or valuations
- Date of valuation report
- Commentary on any material uncertainty in relation to the valuation where it is essential to ensure clarity on part of the valuation user
- Statement setting out any limitations on liability that have been agreed.
Does a valuer have to sign a valuation report?
Yes according to VPS 3. Make it clear that they objectively able to value the property. Signed off by an individual, not a firm.
What is the Purpose of the New UK National Supplement?
It is not a substitute, it augments the Red Book.
Are valuations for secured lending purposes regulated purpose valuations?
Secured lending valuations are NOT regulated purpose valuations as they are not relied upon by a third party or in the public interest.
What does it mean to be subject to ‘Valuation Monitoring’?
Inspections by the RICS professional regulation team take place.
• Annual declaration from the member valuing detailing the length of time that they have been valuing for that client.
• Whether that client accounts for more of less than 5% their income.
If your firm introduces the property or receives an acquisition fee for the purchase of the property, according to UK VPS3, how many months have to pass before you can value it for regulated purposes?
12 months.
What do you have to consider when valuing a charity in the UK?
Follow the requirements of the 2022 Charities Act. Guidance from the RICS is provided in UK VPGA 8.
• A surveyor would comment as to whether it would be in the best interest of the charity to buy/sell.
