Mandatory Requirement & Guidance For Valuations - Module 1 Flashcards
What is the full title of the Red Book?
RICS Valuation - Global Standards
When did the current edition of the Red Book come into force?
31st January 2020
What is the Supplement to the Red Book?
RICS Valuation - Global Standards 2017 UK national supplement.
Who are the International Valuation Standards Council?
A not for profit organisation that acts as the global standard setter for the valuation professions, serving the public interest.
What editions of the Red Book have been in effect during your APC training period?
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
What is the purpose of the Red Book?
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.
What is the purpose of the UK supplement?
Sets out specific requirements and guidance for valuations in the UK. The content is SUPPLEMENTAL and NOT a SUBSTITUTION for it.
To what valuations does the Red Book apply?
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
What valuations are exceptions to the Red Book?
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.
What is the difference between an Expert Witness and an Independent Expert?
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.
What is the difference between Valuation Technical and Performance Standards (VPS) and Valuation Practice Guidance - applications (VPGA)?
VPS is Mandatory
VPGA is advisory
What are the possible consequesnces if a Valuer does not comply with a VPS?
The valuer is open for a claim of negligence.
The valuer can be disciplined by RICS
What are the possible consequences if a valuer does not comply with a VPGA?
A VPGA is not mandatory but Advisory.
A VPGA is regarded as best practice.
Describe how Departure from the Red Book mandatory requirements may be possible?
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.
What information would you require from a telephone enquirer who asked: Can you do me a valuation?
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
What do your valuation files contain?
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
What are the main contents of the Terms of Engagement for a Valuation?
- Status of the Valuer
- Client name & address
- Intended users
- The assets/liabiliities to be valued
- Currency £
- Purpose of the valuation
- Basis of value adopted
- Valuation date Extent of investigaiton and any limitations
- Sources of infromation the valuer intends to rely on
- All assumptions and special assumptions made
- format of the report
- Restrictions of use and distribution and publication of the report
- Confirmation the the valuation will be undertaked in accordance with IVS
- The fee
- Reference to the firms CHP (complaints handling Procedure)
- A statement that compliance with the standards is subject tro monitoring.
- A statement setting out any limitations that have been agreed.
How would you respond to a request to value a property from a Drive-by only?
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.
Name the Red Book Global Bases of Value?
The Basis of Value was defined in the Red Book 6th Edition.
- Market Value
- Market Rent
- Ivestment Value/Worth
- Fair Value
Please name the UK-Specific Bases of Value
- EUV - Existing Use Value
- EUVSH - Existing Use Value for Social Housing
- Projected Market Value
What is the difference between the basis of value and a Method of Valuation?
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.
Describe three Assumptions that are usually made in producing a valuation?
- The property has good title
- That there are is no contamination or hazardous substances
- It is assumed that the property is being valued with vacant possession.
What is a special assumption?
A special assumption is made by a valuer where an assumption either assumes facts that differ from those existing at the valuation date.
Give three situations when it would be appropriate to make a Special Assumption?
- When planning consent has been or will be granted
- The property is vacant (when occupied at the valuationd date)
- Where the property has been damaged but will be assumed to have been reinstated.
- Where refurbishment or redevelopment for a different use.
Define Martket Value?
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.
What do you consider proper marketing to be in the Market Value definition?
Proper marketing is where the property has been advertised on the open market through different property portals and press etc.
- By Private Treaty
- Auction or Tender
- Advertising the property correctly
- To allow the property to be on the market for a reasonable amount of time.
What is an Arms length transaction?
There is no relationship between the parties.
What is synergistic value?
Marriage Value
What is a Special Purchaser?
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.
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?
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.
When is Fair Value the appropriate valuation basis?
When assets or liabilities are transefered in an orderly transaction between market participants.
What is a Regulated Purpose Valuation?
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.
What is an Asset Valuation?
A valuation for Financial Reporting.
In the UK the financial frameworks is (UK GAAP)
When is Existing Use Value the valuation basis?
LA & CENTRAL GOVERNEMENT ACCOUNTING - UK VPGA 6
RSLS ASSETS FOR FINANCIAL STATEMENTS - UK VPGA 7
PMV (PROJECTED MARKET VALUE) UK VPGA 11.2
What is the fundamental difference between Market Value and Existing Use Value?
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.
When is DRC used in Asset Valuations?
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.
Name three situations that can adversely affect the Certainty of Valuations.
- May have characteristics that make it difficult to value (like unique or potential planing permission)
- Limited or restricted infrormation (not inspected, no lease)
- Disrupted markets - Brexit, COVID-19
Can you name some valuations that are carried out for a Statutory Functuion?
- Compulsory Purchase ?Order
- Rating
- Rent/Lease Renewal under Sec 34 of L&T Act 1954
- Leasehold Ennfranchisement
- Diminuation Valuation under Sec 18 L&T Act 1927
Name three situations that can adversely affect the Certainty of valuations?
- Property hay have unusual or unique characteristics.
- When you have not inspected say the material of the property.
- Not been able to read a lease.
- Disrupted by world wide events such as COVID, BREXIT.
