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EHAPC > PE Valuation - Red Book > Flashcards

PE Valuation - Red Book Flashcards

1
Q

Are the UK sections of the Red Book issued separately to the global sectors?

A

Yes

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2
Q

When was the UK Red Book last updated?

When was the Red Book Global last updated?

A

UK RED BOOK: With effect from 14 January 2019

RED BOOK GLOBAL: 31 January 2022

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3
Q

What is the full title of the Red Book?

A

RICS Valuation - Global Standards

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4
Q

What key changes were made to the last Red Book update?

A

IVS changes incorporated

Articulating in more detail the need for clear, unambigious and documented terms of engagement when memebrs 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

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5
Q

What does IVS stand for?

A

International Valuation Standards

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6
Q

What sections of the global Red Book are mandatory?

A

PS 1-2
VPS 1-5

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7
Q

What does PS1 relate to?

A

Compliance with standards where a written valuation is provided

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8
Q

The Red Book applies to what?

A

Written valuation advice
AVM-derived output
Oral valuation advice (to the fullest extent possible)

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9
Q

What are excepted valuations under PS1?

A

Agency or brokerage advice (not a purchase report)
Acting as an expert witness
Statutory functions
Internal purposes
In the course of negotiations/litigation

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10
Q

What sections of the Red Book do excepted valuations not have to comply with?

A

VPS 1-5

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11
Q

Can an external valuer provide an internal purpose valuation?

A

Yes

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12
Q

What does PS2 relate to?

A

Ethics, competency, objectivity and disclosures

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13
Q

What do you need to satisfy in order to be competent to provide a valuation?

A

Appropriate academic/professional qualifications, demonstrating technical competence

Membership 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 practice valuation

Where applicable, compliance with the RICS Valuer Registration (VR) requirements

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14
Q

If you decide to provide preliminary advice or a draft valuation report, what should you state in writing?

A

That your opinion is provisional and subject to completion of the final report

That any draft is on no account to be published or disclosed

That your advice is provided for the client’s internal purposes only

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15
Q

What type of valuations may be relied upon by a third party?

A

Published financial statement

Stock exchange, or similar body

Publication, prospectus or circular

Investment schemes

Takeovers or mergers

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16
Q

If you have previously valued an asset for any purpose, what additional disclosers must you make?

A

Relationship with the client and previous involvement

Rotation policy

Time as signatory

Proportion of fees

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17
Q

If your firm is too small to have a rotation policy or valuation panel, what else could you do to ensure objectivity?

A

7 yearly (or less) review by another member

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18
Q

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?

A

Yes

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19
Q

In relation to the proportion of fees additional disclosure, what would a significant amount be considered as?

A

5-25%

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20
Q

What does VPS 1 relate to?

A

Terms of engagement (scope of work)

21
Q

Do your terms of engagement have to be in writing?

A

Yes

22
Q

Can the valuation date be different to the report date?

A

Yes

23
Q

Can you provide a restricted valuation service?

A

Yes - if it is reasonable to accept as fact without specific investigation or verification

24
Q

What is an assumption?

A

Something that is reasonable to accept as fact without specific investigation or verification

25
Q

What is a special assumption?

A

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

26
Q

What does VPS 2 relate to?

A

Inspections, investigations and records

27
Q

How can you deal with limitations or restrictions on inspection, inquiry or analysis?

A

Record them in your terms of engagement and report

28
Q

Can you revalue a property without reinspecting?

A

Yes - but only if there are no material changes to the physical attributes or location

29
Q

What does VPS 3 relate to?

A

Valuation reports

30
Q

What is an internal valuer?

A

A valuer who is in the employ of either the enterprise that owns the assets, or the accounting firm responsible for preparing the enterprise’s financial records and/or reports

31
Q

What should you do if market conditions change between the valuation date and date of the report?

A

Comment that values change over time
Draw attention to this

32
Q

What does VPS 4 relate to?

A

Bases of value, assumptions and special assumptions

33
Q

What are the bases of value recognised under the Red Book (not wider IVS)?

A

Market value
Market rent
Investment value (worth)
Fair value

34
Q

What is market value?

A

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

35
Q

Should you reflect special value (from a special purchaser, not a general market expectation) or marriage value in market value?

A

No

36
Q

What is market rent?

A

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 the parties had each acted knoweldgeably, prudently and without compulsion

37
Q

What is investment value (worth)?

A

The value of an asset to a particular owner or prospective owner for individual investment or operational objectives

38
Q

What is fair value?

A

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

39
Q

Where does the fair value definition come from?

A

IFRS 13

40
Q

Is there generally any difference between market value and fair value?

A

No

41
Q

When would fair value generally be used?

A

Financial statement valuations

42
Q

Can you refer to forced sale value?

A

No

43
Q

What does VPS 5 relate to?

A

Valuation approaches and methods

44
Q

What is the cost approach?

A

Based on the economic principle that a purchaser will pay no more for an asset than the cost to obtain one of equal utility whether by purchase or construction

45
Q

What is the market approach?

A

Bsed 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

46
Q

What is the income approach?

A

Based on capitalisation or conversion of present and predicted income (cash flows), which may take a number of different forms, to produce a single current capital value

47
Q

How do RICS regulate valuation work?

A

Valuer Registration Scheme (VRS)

48
Q

Do you have to pay to become a Registered Valuer?

A

Yes

EHAPC (41 decks)

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