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Valuation L3 EP APC Residential 2022 > *Red Book > Flashcards

*Red Book Flashcards

1
Q

What is the Red Book?

A

The Red Book contains mandatory rules, best practice guidance and related commentary for all members undertaking valuation work across the globe.

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2
Q

Who can carry out Red Book Valuations?

A

Registered valuers under the Valuer Registration Scheme.

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3
Q

Why was the Red Book created?

A

To improve consistency and transparency in valuation approach across the globe.

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4
Q

What is on the front cover of the RICS Valuation - Global Standards?

A

RICS Logo
IVSC Logo
Title of document
Effective from date
Red spherical globe

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5
Q

What are the different sections of the Red Book?

A
  1. Introduction
  2. Glossary
  3. PS - Professional Standards
  4. VPS - Valuation Technical and Performance Standards
  5. VPGA - Valuation Practice Guidance Applications
  6. International Valuation Standards
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6
Q

What are the Professional Standards?

A

PS 1 - Compliance with standards where a written valuation is provided.

PS 2 - Ethics, competency, objectivity and disclosures.

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7
Q

What is PS 1 of the Red Book?

A

PS 1 - Compliance with standards and practice statements where a written valuation is provided.

Looks at application - when a valuation needs to be Red Book Global compliant.

Details the 5 exemptions.

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8
Q

What is PS 2 of the Red Book?

A

PS 2 - Ethics, competency, objectivity and disclosures.

Members must act in accordance with 5 RICS Global and Ethical Standards and be bound by the RICS Rules of Conduct for Firms and Members.

Valuer must act objectively and independently - apply professional scepticism.

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9
Q

What types of valuations are excluded from the Red Book?

A

Statutory
Agency
Internal
Negotiation/Litigation
Expert Witness

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10
Q

Which sections of the Red Book are mandatory?

A

Professional Standards
Valuation Technical and Performance Standards
International Valuation Standards

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11
Q

Are the exemptions excluded from the mandatory sections?

A

They are excluded from the mandatory Valuation Technical and Performance Standards.

Still have to adhere to the Professional Standards.

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12
Q

Are you still liable for valuation advice that’s provided orally?

A

Professional Standards should still be adhered to.

Just because it’s oral, doesn’t mean its provided without liability.

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13
Q

What are the Valuation Technical and Performance Standards?

A

VPS 1 - Terms of Engagement (scope of work)
VPS 2 - Inspections, investigations and records
VPS 3 - Valuation reports
VPS 4 - Bases of value, assumptions and special assumptions
VPS 5 - Valuation approaches and methods.

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14
Q

VPS 1 - What is included with your standard Terms of Engagement?

A

In accordance with VPS 1:

  1. ID & Status of Valuer
  2. ID of Client
  3. ID of other users
  4. The property
  5. Currency
  6. Purpose of valuation
  7. Basis of Valuation
  8. Valuation date
  9. Nature and source of information to be relied upon
  10. All assumption and special assumptions
  11. Format of the report
  12. Restrictions on use
  13. Confirmation that it will be undertaken in accordance with IVS.
  14. Fee
  15. Firm registration and CHP
  16. Compliance
  17. PII Caps
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15
Q

VPS 2 - why must valuers inspect?

A

To verify the necessary information being relied upon for a valuation to ensure the information is professionally adequate for its purpose.

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16
Q

VPS 2 - are desktop reports Red Book compliant?

A

Yes - unless for one of the exemptions.

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17
Q

VPS 2 - What factors must a valuer consider when undertaking a desk-top valuation?

A
  1. Must be agreed in writing in the Terms of Engagement
  2. Must disclose possible valuation implications in writing
  3. Must consider whether it is reasonable with regard to the purpose of valuation
  4. Must refer to the restriction in the report.
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18
Q

VPS 2 - can you conduct a re-valuation of a property and not inspect?

A

Yes you can, only if you’re satisfied that there have been no material changes to the property or the nature of its location since the previous report.
Must confirm this in the terms of engagement.

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19
Q

What is VPS 3 of the Red Book?

A

This is relating to Valuation Reports and covers what should be included within a report.

i.e. what is included within VPS 1 - Terms of Engagement

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20
Q

VPS 3 - can you give preliminary (draft) valuation advice?

A

Yes, however it must be:

  • marked as a draft, subject to completion of the final report
  • marked for internal purposes only
  • stated that it cannot be relied upon and can’t be published.
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21
Q

VPS 3 - can you discuss the valuation report with the client prior to issuing?

A

Yes you can, however, you must not be influenced by the client in any way.

Any information given by the client in the discussion, must be stated within the report

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22
Q

Where are the definitions in the Red Book?

A

VPS 4 - Basis of value, assumption and special assumptions.

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23
Q

VPS 4 - Define an assumption?

A

An assumption is where it is reasonable for the valuer to accept that something is true without the need for specific investigation.

e.g. on the assumption that there is no contamination.

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24
Q

VPS 4 - Define a special assumption?

A

A special assumption is a supposition that is taken to be true and accepted as fact, even though it is not true.

e.g. special assumption of a 90 day sale period.

A special assumption must be agreed with a client in writing at the commencement of an instruction.

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25
Q

VPS 4 - how many bases of value are there?

A

6:
Market Value
Market Rent
Fair Value
Investment Value
Equitable Value
Liquidation Value

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26
Q

VPS 4 - Define 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.

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27
Q

VPS 4 - Define 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 knowledgeably, prudently and without compulsion.

28
Q

VPS 4 - Define 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.

29
Q

VPS 4 - Define Investment Value?

A

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

30
Q

VPS 5 - what are the three valuation approaches?

A
  1. Income Approach (Investment, Residual & Profits)
  2. Cost (DRC)
  3. Market (comparable)
31
Q

What are the relevant Valuation Practice Guidance Applications?

A

VPGA 2 - Valuation of interests for secured lending

VPG8 - Valuation of real property interests

VPGA 10 - Matters that may give rise to material valuation uncertainty.

32
Q

What is VPGA 1 of the Red Book?

A

Valuation for inclusion in financial accounts.

Fair value will be adopted for all IFRS adopted accounts.

Prescribed “performance standards” must be adhered to.

33
Q

What is VPGA 2 of the Red Book?

A

VPGA 2 - Valuations for Secured Lending

Details how to deal with conflicts of interest for secured lending valuations.

Reporting procedures - additional information is required for loan security reports.

34
Q

What is VPGA 8 of the Red Book?

A

VPGA 8 - Valuation of Real Property Interests

Covers inspections and investigations, with particular emphasis on environmental constraints and sustainability issues.

35
Q

What is VPGA 10 of the Red Book?

A

VPGA 10 - Matters which give rise to Material Uncertainty

  • valuation report must not be misleading
  • comment on issues resulting in material uncertainty
  • standard caveat should not be used.
36
Q

VPGA 10 - What is the material uncertainty clause?

A

Material uncertainty clause is used where the level of uncertainty is expected to be higher than normal circumstances.

The RICS and my company provided advisory wording to include within ToE and my valuation reports during the March – September period. The advice to use this clause has now been lifted, but it is still important to ensure that the uncertainty is assessed on a case by case basis.

37
Q

VPGA 10 - Can a lender still rely on a report with a material uncertainty clause?

A

Yes it can still be relied upon, however less certainty and a higher degree of caution should be attached when having regard of the report.

38
Q

What is Part 6 of the Red Book?

A

The International Valuation Standards

39
Q

IVS - What are general standards?

A

“general standards” - set requirements for all valuations, of any asset and for any purpose.

40
Q

IVS - What are asset standards?

A

“asset standards” - provides requirements relating to specific types of assets. Must be followed in conjunction with the general standards.

41
Q

What are the recent 2020 & 2022 updates to the Red Book?

A

2022 updates (31 Jan 2022)

  • Emphasising the need to agree clear and unambiguous terms of engagement
  • The terms quasi, partial or non Red Book should not be used in terms of engagement or reporting.
  • Requiring more detailed commentary on sustainability/resilience and environmental, social and governance (ESG) matters in VPGA 8 Valuation of Real Property Interests.

2020

  • now known as the Red Book Global
  • effective 31 January, however it is now not dated in order to allow for regular updates
  • PS1 “written” now means any valuation conveyed by paper, or electronic means on in the form of recorded media.
  • VPGA 8 reinforce the importance of considering current and historic land uses in the context of Sustainability when valuing property.
42
Q

What other RICS information is key to UK valuation?

A

RICS Valuation Global Standards: UK national supplement:

  • published 2018, effective January 2019
  • augments the Red Book Global, not a supplement
  • contains 18 VPGAs,
  • most advice is advisory guidance
43
Q

What is the purpose of the RICS Valuation - Global Standards (UK National Supplement) 2018?

A
  • To make it easier to read and more user-friendly.
  • Clear advice on what is and isn’t mandatory.
  • New UK VPGAs included for the valuation of central government assets, local authority assets and registered social housing provider’s assets.
44
Q

What are the UK VPGAs?

A

18:
1. Valuation for financial reporting
7. Valuation for registered social housing providers’ assets for financial statements
8. Valuation for charity assets
10. Valuation for commercial secured lending purposes
11. Valuation for residential mortgage purposes
15. Valuation of CGT, IT, SDLT and ATED

45
Q

What are the proposed changes to the Red Book?

A

Proposed to be revised in January 2022

  • ESG has been added to the Glossary
  • VPS 1: Stressing still needing ToE for exemptions
  • VPGA 8: sustainability issues can be a consideration for investors, insures and lenders.
46
Q

Can you name some of the IVS general standards?

A

Similar to the Redbook

  • IVS 101 - Scope of work
  • IVS 102 - Investigations and Complience
  • IVS 103 - Reporting
  • IVS 104 - Bases of Value
  • IVS 105 - Valuation Approaches and Methods
47
Q

Can you name some of the IVS asset standards?

A
  • IVS 300 - Plant and Equipment
  • IVS 400 - Real Property Interests
  • IVS 410 - Development Property
48
Q

Where do you find information on the valuation methods?

A

IVS 105 - Valuation Approaches and Methods

49
Q

Red Book name

A

RICS Valuation - Global Standards

50
Q

Purpose of Red Book

A

Provide consistency, objectivity and transparency of valuation practice globally

Provides public confidence that valuation undertaken by RICS Registered Valuer is consistent with international valuation standards

51
Q

What is a departure?

A

A special circumstance where you state that application of a mandatory standard may be inappropriate

52
Q

What is a special purchaser?

A

A particular buyer where that property has a special value because they own the property

53
Q

Elements of the Red book

A

Professional standards

Valuation technical and performance standards

Valuation practice guidance applications

54
Q

Professional standards

A

PS1 – compliance with Redbook

PS2 – acting ethically, being competent, and acting objectively and independently

55
Q

VPS

A

1 – terms of engagement

2 – investigations inspections and records

3 – valuation reports

4 – bases of value

5 – valuation approaches and methods

56
Q

Desktop valuations

A

Still Red book compliant however value a must consider for factors:

Must be agreed in terms of engagement that not inspecting

Must be confirmed in writing

Consider if restriction of inspection is reasonable

Restriction must be referred to in report

57
Q

International valuation standards

A

International guidance for valuation professionals and underpins consistency transparency and confidence in valuations

Red book is the RICS document that supports the delivery of IVS by RICS members

58
Q

VPGA

A

VPGA 1 - financial reporting
VPGA 2 - secured lending valuations
VPGA 10 - material valuation uncertainty

59
Q

VPGA 10

A

Valuer must clearly draw attention to and comment on any issues relating to valuation uncertainty at the valuation date relating to the risk surrounding the valuation

Eg Covid

60
Q

Covid 19 valuation uncertainty clause

A

March 2020 – RICS guidance on material valuation uncertainty in reports

November 2020 – RICS advise no longer need material uncertainty clause unless very limited transactional data

61
Q

RICS RB UK National Supplement

A

Augments the Redbook setting out specific requirements for valuations undertaken in the UK

62
Q

UK VPS 3

A

Regulated purpose valuations

Valuations relied on by third parties

E.g. financial statements/stock exchange listings/takeovers and mergers

NOT SECURED LENDING

63
Q

UK VPGAs

A

VPGA 1 - financial reporting

VPGA 11 - Residential mortgages

VPGA 12 - Residential property for miscallaneous purposes

VPGA 13 - Residential secured lending guidance for other related purposes including RICS HomeBuyer Service

VPGA 15 - CGT/ Inheritance Tax/ SDLT etc

64
Q

RICS Valuer Registration Scheme effective date

A

October 2011

65
Q

Aims of VRS

A
  1. Improve the quality valuations and ensure the highest possible professional standards
  2. Meet RICS’ requirement self regulate effectively
  3. Protect and raise the status of valuation professional as the leading expert in valuation
66
Q

Requirements to register as a Registered Valuer

A

Level 3 Vals competency

Number of vals and types of vals undertaken
Firms total fee income for Red book vals over last year

Don’t need to be registered if don’t do red book vals

Valuation L3 EP APC Residential 2022 (2 decks)

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