Red Book Flashcards
Red Book name
RICS Valuation - Global Standards
Effective date of Red Book
31st January 2022
Purpose of Red Book
Provide consistency, objectivity and transparency of valuation practice globally.
Provides public confidence that valuation undertaken by RICS Registered Valuer is consistent with international standards.
Difference between Red Book 2020 and 2022
- Greater focus on sustainability and ESG factors
- Reference to IFRS 13 and IFRS 16 and the need to provide reasonably possible fair value measurements.
When is it mandatory?
For ALL valuations.
5 exceptions
What are the exceptions?
- Negotiation and litigation
- Statutory function
- Internal vals
- Agency and brokerage vals
- Expert witness
What is an assumption?
Something that is reasonable to believe to be true without undertaking specific investigations
What is a special assumption?
Something that you know not to be true but for the purposes of the valuation you assume to be fact
What is a departure?
A special circumstance where you state that application of a mandatory standard may be inappropriate
What is a special purchaser?
A particular buyer where that property has a special value because they own the property.
Elements of the Red Book
- Professional standards
- Valuation technical and performance standards
- Valuation practice guidance applications
VPS 1
Terms of Engagement (IVS 101 Scope of Work)
VPS 2
Inspections, Investigations and Records (IVS 102)
VPS 3
Valuation reports (IVS 103 Reporting)
VPS 4
Bases of Value, Assumptions and Special Assumptions (IVS 104)
VPS 5
Valuation Approaches and Methods (IVS 105)
VPGA 1
Valuation for inclusion in financial accounts
VPGA 2
Valuations for secured lending
VPGA 8
Valuation of real estate property interests
Covers inspections and investigations, with particular emphasis on ESG and specific environmental constraints and sustainability issues.
Direct valuation factors (e.g. storm or flood risk)
Indirect valuation factors (e.g. resilience or carbon emissions)
Physical risks (e.g. through heat or wildfire)
Transition risks (regulatory change or carbon emissions)
VPGA 10
Matters that may give rise to material valuation uncertainty
Market Value definition
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
- where the parties had each acted knowledgeably, prudently and without compulsion
Market Rent definition
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
- when the parties had each acted knowledgeably, prudently and without compulsion
Fair Value definition
The price that would be received to sell as asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
- the RICS view is that this definition is generally consistent with the definition of MV
Investment Value definition
The value of an asset to a particular owner, or prospective owner for individual investment or operational objectives
What are three internationally defined valuation approaches recorded in the Red Book?
- The Market Approach
- The Income Approach
- The Cost Approach
Minimum requirements for Terms of Engagement under VPS1
- identification and status of valuer
- identification of client
- identification of any other intended users
- the asset to be valued
- currency
- purpose of valuation
- basis of value
- valuation date
- extent of investigation
- nature and source of information to be relied upon
- assumptions and special assumptions to be made
- format of report
- restrictions of use, distribution and publication
- confirmation of Redbook/IVS compliance
- fee basis
- CHP
- statement that the valuation may be subject to compliance by RICS
- limitation on liability agreed
Minimum requirements to be stated in a report under VPS3?
a) identification and status of valuer
b) client and any other intended users
c) purpose of valuation
d) identification of asset to be valued
e) basis of valuation
f) valuation date
g) extent of investigation
h) nature of source of info relied upon
i) assumptions and special assumptions
j) restrictions on use, distribution & publication
k) instruction undertaken in accordance with IVS standards
l) valuation approach & reasoning
m) valuation figure(s)
n) date of valuation report
o) comment on market uncertainty
p) statement setting out any limitations on liability that have been agreed
