Mandatory Requirement & Guidance For Valuations - Module 1

Question 1

What is the full title of the Red Book?

Answer 1

RICS Valuation - Global Standards

Question 2

When did the current edition of the Red Book come into force?

Answer 2

31st January 2020

Question 3

What is the Supplement to the Red Book?

Answer 3

RICS Valuation - Global Standards 2017 UK national supplement.

Question 4

Who are the International Valuation Standards Council?

Answer 4

A not for profit organisation that acts as the global standard setter for the valuation professions, serving the public interest.

Question 5

What editions of the Red Book have been in effect during your APC training period?

Answer 5

1) RICS Valuation - Professional Standards (Global & UK) January 2014

2) RICS Valuation - Global Standards Jan 2017

3) RICS Valuation - Global Standards 2017 UK national supplement

4) RICS Valuation - Global Standards effective 31st January 2020

Question 6

What is the purpose of the Red Book?

Answer 6

To assure users that a valuation provided anywhere in the world is to the highest professional standards. The standards impose mandatory obligations regarding competence, objectivity and transparency which expressly comply with the RICS Rules of Conduct.

Question 7

What is the purpose of the UK supplement?

Answer 7

Sets out specific requirements and guidance for valuations in the UK. The content is SUPPLEMENTAL and NOT a SUBSTITUTION for it.

Question 8

To what valuations does the Red Book apply?

Answer 8

1) Capital Valuations

a) Purchase and Sale

b) Secured lending

c) Financial Statements (e.g. accounts)

d) Internal Purposes

2) Rental Valuations

a) Leasing/Letting

b) Rent Review/Lease Renewal

c) Rating

d) As part of a Capital Valuation

Question 9

What valuations are exceptions to the Red Book?

Answer 9

1) Agency of brokerage work in anticipation of disposal or acquisition instructions. The exception does not cover a purchase report that includes a valuation.

2) An expert witness - Must follow rules and directions laid down by the court, tribunal etc.

3) Performing statutory functions - where statutory provisions define the task and govern the manner in which it is to be carried out. A valuation provided in accordance or compliance with legislation (L&T Act 1954, CPO & Rating)

4) Dilapidation’s relating to - Diminution in value are not covered by the Red Book.

5) Internal Purposes - Without liability and without communication to a third party.

6) Vital in Terms Of Engagement that prohibition on disclosure to any other party is explicit.

Question 10

What is the difference between an Expert Witness and an Independent Expert?

Answer 10

1) An expert witness is employed by a to a dispute.

2) An Independent Expert is employed by the parties to the dispute to determine the outcome for them.

Question 11

What is the difference between Valuation Technical and Performance Standards (VPS) and Valuation Practice Guidance - applications (VPGA)?

Answer 11

VPS is Mandatory

VPGA is advisory

Question 12

What are the possible consequesnces if a Valuer does not comply with a VPS?

Answer 12

The valuer is open for a claim of negligence.

The valuer can be disciplined by RICS

Question 13

What are the possible consequences if a valuer does not comply with a VPGA?

Answer 13

A VPGA is not mandatory but Advisory.

A VPGA is regarded as best practice.

Question 14

Describe how Departure from the Red Book mandatory requirements may be possible?

Answer 14

A departure could be from not inspecting a property due to a violent person who may reside within t he property.

The departure needs to be agreed with client with a clear statement in the Terms of Engagement, Refereence within the Report.

The reasons must be justified.

Question 15

What information would you require from a telephone enquirer who asked: Can you do me a valuation?

Answer 15

1) Name and Address of Client

2) Property address to be valued

3) The interest to be valued

4) The purpose of the value

5) A brief description of the property

6) A fee to be quoted (subject to COI Check)

7) Conflict of Interest Check

Question 16

What do your valuation files contain?

Answer 16

1) Contact details of client.
2) Information of property to be surveyed/valued
3) Address of subject property to be valued/surveyed
4) Conflict of Interest check
5) Signed Terms of Engagement including limitations to the report/inspection
6) Inspection notes/photos (might be digital copies)
7) Copy of the report

Question 17

What are the main contents of the Terms of Engagement for a Valuation?

Answer 17

1. Status of the Valuer
2. Client name & address
3. Intended users
4. The assets/liabiliities to be valued
5. Currency £
6. Purpose of the valuation
7. Basis of value adopted
8. Valuation date Extent of investigaiton and any limitations
9. Sources of infromation the valuer intends to rely on
10. All assumptions and special assumptions made
11. format of the report
12. Restrictions of use and distribution and publication of the report
13. Confirmation the the valuation will be undertaked in accordance with IVS
14. The fee
15. Reference to the firms CHP (complaints handling Procedure)
16. A statement that compliance with the standards is subject tro monitoring.
17. A statement setting out any limitations that have been agreed.

Question 18

How would you respond to a request to value a property from a Drive-by only?

Answer 18

Explain to the client that a drive by will have its limitation as to accuracy.

As the internal condition cannot be seen I do not know if it requires complete decoration and modernisation.

Does the property suffer from any strucutral issues?

If the valuer considers that it is not possible to provide a valuation on the basis of restricted information then the instructuion should be declined.

Question 19

Name the Red Book Global Bases of Value?

Answer 19

The Basis of Value was defined in the Red Book 6th Edition.

1. Market Value
2. Market Rent
3. Ivestment Value/Worth
4. Fair Value

Question 20

Please name the UK-Specific Bases of Value

Answer 20

1. EUV - Existing Use Value
2. EUVSH - Existing Use Value for Social Housing
3. Projected Market Value

Question 21

What is the difference between the basis of value and a Method of Valuation?

Answer 21

A bassis of value is a statment oof the fundamental measurement assumptions of a valuation.

A Method of valuation is a procedure or technique used to arrive at the value described by a basis of value.

Question 22

Describe three Assumptions that are usually made in producing a valuation?

Answer 22

1. The property has good title
2. That there are is no contamination or hazardous substances
3. It is assumed that the property is being valued with vacant possession.

Question 23

What is a special assumption?

Answer 23

A special assumption is made by a valuer where an assumption either assumes facts that differ from those existing at the valuation date.

Question 24

Give three situations when it would be appropriate to make a Special Assumption?

Answer 24

1. When planning consent has been or will be granted
2. The property is vacant (when occupied at the valuationd date)
3. Where the property has been damaged but will be assumed to have been reinstated.
4. Where refurbishment or redevelopment for a different use.

Question 25

Define Martket Value?

Answer 25

**THE ESTIMATED AMOUNT FOR WHICH AN ASSET OR LIABILITY SHOULD EXCVHANGE ON THE VALUATION DATE BETWEEN A WILLING BUYER AND A WILLING SELLER IN AN ARM'S LENGTH TRANSACTION, AFTER PROPERTY MARKETING AND WHERE THE PARTIES HAS EACH ACTED KNOWLEDGEABLY, PRUDENTLY AND WITHOUT COMPULSION.**

Question 26

What do you consider proper marketing to be in the Market Value definition?

Answer 26

**Proper marketing is where the property has been advertised on the open market through different property portals and press etc.** 1. **​By Private Treaty** 2. **Auction or Tender** 3. **Advertising the property correctly** 4. **To allow the property to be on the market for a reasonable amount of time.**

Question 27

What is an Arms length transaction?

Answer 27

There is no relationship between the parties.

Question 28

What is synergistic value?

Answer 28

**Marriage Value**

Question 29

What is a Special Purchaser?

Answer 29

**A person who can pay more for a property.** **Maybe a neighbour of a property.** **Might release access to a site for a site assembly.**

Question 30

When is Market Rent not appropriate as a Basis of Value in providing a report on the rental value of a property and why not?

Answer 30

**Market rent is not suitable for rent reviews.** **Tenants improvement have to be ignored as per S34 of L&T Act 1954.** **And definitions and assumptions have to be used.**

Question 31

When is Fair Value the appropriate valuation basis?

Answer 31

**When assets or liabilities are transefered in an orderly transaction between market participants.**

Question 32

What is a Regulated Purpose Valuation?

Answer 32

**A valuation where the public has an interest or upon a third which third parties may rely.** **Valuation for financial statements** **Vaaluation reprot included within prospectuses and circulars which are issued to companies.**

Question 33

What is an Asset Valuation?

Answer 33

**A valuation for Financial Reporting.** **In the UK the financial frameworks is (UK GAAP)**

Question 34

When is Existing Use Value the valuation basis?

Answer 34

**LA & CENTRAL GOVERNEMENT ACCOUNTING - UK VPGA 6** **RSLS ASSETS FOR FINANCIAL STATEMENTS - UK VPGA 7** **PMV (PROJECTED MARKET VALUE) UK VPGA 11.2**

Question 35

What is the fundamental difference between Market Value and Existing Use Value?

Answer 35

Market Value referes to the Price a property can be sold for and we can take into account development value or alternative use value. EUV - Shows what a property is WORTH in its current form.

Question 36

When is DRC used in Asset Valuations?

Answer 36

We use DRC to value specialised properties. These are properties that would not sell on the market only as part of the sale of a business transaction. To value specialised properties that rarely come on to the market. Such as Churches etc.

Question 37

Name three situations that can adversely affect the Certainty of Valuations.

Answer 37

1. May have characteristics that make it difficult to value (like unique or potential planing permission) 2. Limited or restricted infrormation (not inspected, no lease) 3. Disrupted markets - Brexit, COVID-19

Question 38

Can you name some valuations that are carried out for a Statutory Functuion?

Answer 38

1. Compulsory Purchase ?Order 2. Rating 3. Rent/Lease Renewal under Sec 34 of L&T Act 1954 4. Leasehold Ennfranchisement 5. Diminuation Valuation under Sec 18 L&T Act 1927

Question 39

Name three situations that can adversely affect the Certainty of valuations?

Answer 39

1. Property hay have unusual or unique characteristics. 2. When you have not inspected say the material of the property. 3. Not been able to read a lease. 4. Disrupted by world wide events such as COVID, BREXIT.