Level 1

Question 1

What are the main changes to the Red Book?

Answer 1

PS1 and VPS 1 - Terms of reference must be clear and unambiguous - either RBG complaint or not
References IFRS 13 and 16 under VPGA 1
Reference to Profits method for certain trade-related properties
Sustainability and ESG under VPS 2 and 3 and VPGA 2

Question 2

What is the Red Book Global?

Answer 2

Promote and support high standards of Valuations
Mandatory practices for members
Set of rules and principles for valuations

Question 3

What may determine value?

Answer 3

Specification
Location
Market Conditions
Tenant Covenant
Sustainability

Question 4

What would you include in Terms of Engagement?

Answer 4

1. Identification and status of valuer
2. Identification of client
3. Identification of other intended users
4. Asset to be valued - if portfolio then lotting considered
5. Currency
6. Purpose of Valuation
7. Basis of value
8. Date of valuation
9. Extent of investigation
10. Nature and source of information relied upon
11. Assumptions and Special assumptions made
12. Format of report
13. Restriction for use, distribution and publication
14. Confirmation of RBG / IVS compliance
15. Fee basis
16. Complaints handling procedure
17. Statement that valuation may be subject to compliance by RICS
18. Limitation on liability agreed

Question 5

What part is the Terms of Engagements under?

Answer 5

VPS 1

Question 6

What is a Red Book Valuation?

Answer 6

Formal opinion of value and relied upon by an instructing party
Follows strict standards for consistency and quality

Question 7

Difference between Assumptions and Special Assumption?

Answer 7

Assumption - where reasonable for valuer to accept something is true without need for investigation
Special Assumption - something taken to be true and accept as fact, even though it is not true. Must be agreed in writing

Question 8

What is VPS 4?

Answer 8

Bases of Value

Question 9

5 examples of RPVs?

Answer 9

1. Financial Reporting (company accounts)
2. Stock Exchange Listings
3. Takeover or merger
4. Collective investment schemes
5. Unregulated property unit trusts

Question 9

What is a Regulated Purpose Valuation?

Answer 9

Valuation relied on by Third parties who have not commissioned the valuation and are subject to valuation monitoring

Question 10

Where is RPV in Red Book?

Answer 10

UK VPS 3: RPV
and
VPS 2.5 under Disclosures

Question 11

What is the difference between MV and Fair Value?

Answer 11

Fair Value is required under IFRS 13
Fair Value is value on measurement date

Question 12

What are the methods of valuation?

Answer 12

Income - Investment, Residual, Profits
Cost - DRC Method
Market - Comparables

Question 13

Difference between Growth Implicit and growth Explicit?

Answer 13

Implicit - assumptions embedded into yield
Explicit - Assumptions explicity stated outside of yield

Question 15

What is reversionary yield?

Answer 15

MR divided by current price on investment let below MR

Question 16

Would equivalent yield be higher or lower than NIY if Overrented?

Answer 16

Lower - reversionary goes down at next lease event

Question 16

Difference between yield and return?

Answer 16

Yield - measure of return expressed as percentage of capital invested

Question 17

When is a valuation NOT a Red Book?

Answer 17

1. Advice in negotiations or litigation (RR)
2. Statutory function
3. Internal purposes without third party
4. Part of agency or brokerage
5. Evidence as Expert witness

Question 18

What is MR?

Answer 18

Estimated amount for which an interest in real property should be leased
- On the valuation date
- Between a willing lessor and lessee
- On appropriate lease terms
- Arms length
- After proper marketing
- Where parties acted knowledgably, prudently and without compulsion