PE Valuation - Red Book Flashcards
Are the UK sections of the Red Book issued separately to the global sections?
Yes
When was the UK Red Book last updated?
With effect from 14 January 2019
When was the Red Book Global last updated?
31 January 2022
What is the full title of the Red Book?
RICS Valuation - Global Standards
What were key changes to the last Red Book update?
IVS changes incoporated
Articulating in more detail the need for clear, unambigious and documented terms of engagement when members apply and exceptions to VPS 1-5 under PS1 section 5, Exceptions
More detailed commentary on matters relating to sustainability/resilience and environmental. Social and governance (ESG)
Improving and/or clarifying some of the existing Red Book Global text in light of feedback, experience and evolving needs
What does IVS stand for?
International Valuation Standards
Which sections of the global Red Book are mandatory?
PS 1-2
VPS 1-5
What does PS1 relate to?
Compliance with standards where a written valuation is provided
What does the Red Book apply to?
Written valuation advice
AVM-derived output
Oral valuation advice (to the fullest extent possible)
What are excepted valuations under PS1?
> Agency or brokerage advice (not a purchase report)
> Acting as an expert witness
> Statutory functions
> Internal purposes
> In the course of negotiations/litigation
Which section(s) of the Red Book do excepted valuations not have to comply with?
VPS 1-5
Can an external valuer provide an internal purposes valuation?
Yes
What does PS2 relate to?
Ethics, competency, objectivity and disclosures
What needs to be satisfied in order to be competent to provide a valuation?
> Appropriate academic/professional qualifications, demonstrating technical competence
> Member of a professional body, demonstrating a commitment to ethical standards
> Sufficient current local, national and international (as appropriate) knowledge of the asset type and its particular market, and the skills and understanding necessary
> Compliance with any country or state legal regulations governing the right to practise valuation
> Where applicable, compliance with the RICS Valuer Registration (VR) requirements
If you decide to provide preliminary advice or a draft valuation report, what should you state in writing?
> That your opinion is provisional and subject to completion of the final report
That your advice is provided for the client’s internal purposes only
That any draft is on no account to be published or disclosed
What type of valuations may be relied upon by a third party?
- Published financial statement
- Stock exchange, or similar body
- Publication, prospectus or circular
- Investment schemes
- Takeovers or merges
If you have previously valued an asset for any purpose, what additional disclosures must you make?
- Relationship with the client and previous involvement
- Rotation policy
- Time as signatory
- Proportion of fees
If your firm is too small to have a rotation policy or valuation panel, what else could you do to ensure objectivity?
7 yearly (or less) review by another member
Could a conflict of interest exist if you or your firm have been involved with the asset (i.e. purchase or valuation) during the last 12 months?
Yes
In relation to the proportion of fees additional disclosure, what would a significant amount be considered as?
5-25%
What does VPS 1 relate to?
Terms of engagement (scope of work)
Do your terms of engagement have to be in writing?
Yes
Can the valuation date be different to the report date?
Yes
Can you provide a restricted valuation service?
Yes - if it is reasonable with regard to the purpose and subject to appropriate conditions
What is an assumption?
Something that is reasonable to accept as fact without specific investigation or verification
What is a special assumption?
Something that assumes facts that differ from the actual facts existing at the valuation date or that would not be made by a typical market participant in a transaction on the valuation date
What does VPS 2 relate to?
Inspections, investigations and records
How can you deal with limitations or restrictions on inspection, inquiry or analysis?
Record them in your terms of engagement and report
Can you revalue a property without reinspecting it?
Yes - but only if there are no material changes to the physical attributes or location
What does VPS 3 relate to?
Valuation reports
What is an internal valuer?
A valuer ho is in the employ of either the enterprise that owns the assets, or the accounting firm responsible for preparing the enterprises’s financial records and/or reports
What should you do if market conditions change between the valuation date and date of the report?
Comment that values change over time
Draw attention to this
What does VPS 4 relate to?
Bases of value, assumptions and special assumptions
What are the bases of value recognised under the Red Book (not wider IVS)?
Market value
Market rent
Investment value (worth)
Fair value
What is market value?
The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion
Should you reflect special value (from a special purchaser, not a general market expectation) or marriage value in market value?
No
What is Market Rent?
The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where parties had each acted knowledgeably, prudently and without compulsion
What is investment value (worth)?
The value of an asset to a particular owner or prospective owner for individual investment or operational objectives
What is fair value?
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
Where does the fair value definition come from?
IFRS 13
Is there generally any difference between market value and fair value?
No
When would fair value generally be used?
Financial statement valuations
Can you refer to forced sale value?
No
What does VPS 5 relate to?
Valuation approaches and methods
What is the cost approach?
Based on the economic principle that a purchaser will pay no more for an aset than the cost to obtain one of equal utility whether by purchase or construction
What is the market approach?
Based on comparing the subject asset with identical or similar assets (or liabilities) for which price information is available, such as a comparison with market transactions in the same, or closely similar, type of asset (or liability) within an appropriate time horizon
What is the income approach?
Based on capitalisation or convesation of present and predicted income (cash flows), which may take a number of different forms, to produce a single current capital value
How do RICS regulate valuation work?
Valuer Registration Scheme (VRS)
Do you have to pay to become a Registered Valuer?
Yes
