Red book

Question 1

What is the Red Book?

When is it effective from

Answer 1

The Red Book details the mandatory practices for RICS members undertaking valuations.

Supports and promotes highest standards in valuation delivery.

RICS Valuation – Global Standards
Effective from 31 January 2022

Question 2

What is VPS1

Answer 2

Terms of Engagement

Outlines the minimum requirements within TOE that must be confirmed in writing.
-Identification of valuer
-asset
-date
-fee
-currency
-basis of value
-purpose of val
-assumptions and special assumptions
-extend of investigations
-liability limit
-red book compliance
-CPH
- Restrictions
-format
-nature of evidence
-other users
-subject to RICS compliance

Question 3

What is VPS2

Answer 3

Investigations, Inspections and Records

Valuers must take all necessary steps to verify the info to be relied upon

For Desktop vals, valuer must consider the nature of restriction,
implications of restriction
whether its reasonable?
must be referenced in report.

For re-vals valuer must be satisfied that there has been no material change on site since last inspection.
must be confirmed in instructions

Proper record keeping must be held of the instruction and investigation.

Question 4

What is VPS3

Answer 4

Valuation Reports

Outlines the min requirements needed to be included in valuation reports.

-identity of valuer
-client/intended users
-asset
-basis of value
-val date
-purpose
-extend of investigations
-sources
-assumptions and special assumptions
-restrictions
-val approach/s
-market commentary
-limitation of liability
-val figure
-date

Question 5

What is VPS5

Answer 5

Valuation Approaches and Methods

Valuers are responsible for choosing and justifying their valuation approach.

More than one approach may be appropriate.

Question 6

Definition of MV

Answer 6

The estimated amount for which an asset or liability will exchange at on the valuation date between a willing buyer and willing seller in an arms length transaction after proper marketing where each party has acted knowledgeable prudently and without compulsion.

Question 7

Definition of MR

Answer 7

The estimated amount an interest in a real property should be leased on the valuation date between a willing lessor and lessee with appropriate lease terms in an arms length transaction where each party has acted knowledgably, prudently and without compulsion.

Question 8

What the VPGA’s

Answer 8

Valuation Practice Guidance Applications

Question 9

What VPGA’s are you aware of?

Answer 9

VPGA2 - Secured Lending Vals

VPGA4 - Trade related valuations

VPGA8 - Real property assets

VPGA10 - Material Valuation Uncertainty

Question 10

What is VPGA2

Answer 10

Secured Lending Valuations

Within conflict checks - must be taken over a two year period.
Must detail if you anticipate a conflict

Additional reporting procedures such as:
-disclosure of prior involvement
-comment on suitability for loan security
-comment if aware of purchase price and that your valuation is not for supporting the price but for loan sec purposes.

Question 11

What is VPGA 4

Answer 11

Trade Related Properties

Sets out relevant and guidance when conducting a profits method valuation.

Assumes trade will continue.

Details how valuers within these markets are usually specialist and knowledge of the individual transactions are fundamental.

Question 12

What are the key changes in the 2022 RBG Update?

Answer 12

The main reason for issuing an update to Red Book Global Standards is to take
account of the changes to the International Valuation Standards (IVS), which Red Book
Global Standards adopts and applies.
Some changes are:

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.

Valuers should have regard to significance of sustainability matters and potentially commentate on the maintainability of income, future liabilities and investor expectations.

VPGA 8 mentions the direct (flood risk), indirect (carbon emissions), physical (damages) and transitional risks (regulatory change) of sustainability matters.
Amendments made to VPGA 4 Individual Trade Related Properties

Question 13

What is the structure of the RBG?

Answer 13

Part 1 - Introduction
Part 2 - Glossary
Part 3 - Professional Standards (PS)
Part 4 - Valuation technical and performance standards (VPS)
Part 5 - Valuation applications (VPGA)
Part 6 - International Valuation Standards, 2022 (IVS)

Question 14

What are the IVS?

Answer 14

Standards for undertaking valuation assignment using greatly recognised concepts that promote transparency and consistency.

The RBG incorporates these standards and they include:
1. Ethics
2. Competency
3. Compliance
4. Basis
5. Date of Value
6. Assumptions and Conditions
7. Intended Use
8. Intended Users
9. Scope of Work
10. Identification of subject of valuation
11. Data
12. Valuation Methodology
13. Communication of Valuation
14. Record Keeping

Question 15

What is VPGA10

Answer 15

Relates to Material Valuation Uncertainty.

Last used during Covid. The main requirement is that the report is not misleading. Valuer should comment on the issue causing the uncertainty,

This is not a standard caveat and raises issues of uncertainty on a specific valuation date.

Question 16

What other document supports Valuations?

Answer 16

RGB Global Standards 2023 UK Supplement - effective May 2024.

National supplement of the RBG to assist application of standards in a local context.

Question 17

What is the VRS?

Answer 17

Introduced 2011 as a monitoring scheme for all valuers undertaking Red Book Valuations.

The aims were:
1.Improve the quality of valuations and ensure highest possible standards
2.To meet RICS requirement to self-regulate effectively
3. To protect and raise the status of the valuation profession.

Question 18

Has there been any recent updates?

Answer 18

Update to the Red Book UK supplement from 19th Oct, eff. 1 May 24. Inline with IVS update Red Book updated in 2025

Introduced mandatory rotation rules to Prevent Firms From Valuing an Asset For More Than 10 Years.

The rotation requirements include:
* a maximum single engagement period of five years,
* a maximum period of ten years before the rotation of a valuation firm - this might include multiple engagements,
* a maximum period of five years before the rotation of an individual ‘responsible’ valuer,
* a minimum three-year break after rotating off an engagement,

Improve standards
Enhance integrity and transparency
Grow confidence in the sector
Increase public trust

Question 19

Vals: What vals are exempt from RGB compliance?

Answer 19

Detailed in PS1
-Agency or Brokerage purposes
-Internal with not liability or third party reliance
-For litigation purposes
-When undertaking a statutory function
-In anticipation of working as a expert witness

Question 20

LSV: Why are LSV needed and why are they important?

Answer 20

to establish whether the value of the loan requested from the lender will be secure.

For the lender it reduces the risk exposure of an asset as it provides them with the market value and mv subject to distressed circumstances which provides comfort in understanding how much they could get for the property if the borrower defaults on their loan.

Question 21

LSV: what are the risks to valuers when undertaking a valuation report?

Answer 21

Main risk that the valuers have not been provided with the relevant or correct information that is needed to undertake a valuation which therefore effects the valuing figure and then the lender lends against that valuation.

Question 22

LSV: What are the risks to lenders?

Answer 22

That the valuation report is wrong and the valuer has been negligent.

This can increase the lenders risk exposure and in the event a borrower defaults can affect the amount the Bank can receive from a distressed asset sale.

Similarly if the lender is commissioning another valuation during there monitoring of a property with a new valuer and the value has decreased, this could pose a risk of the borrower being over leveraged.

Question 23

LSV Cornwall: Are you qualified to interpret the findings of the environmental report?

Answer 23

I only comment on the findings and what information has been provided by the borrower and then make an appropriate assumption but reserve the right the amend my valuation accordingly.

I also recommend further investigations if requested or required.

Question 24

LSV Cornwall: How could the enviro matters impact a valuation?

Answer 24

These could affect the valuation as they could affect the future profitability and income generation of the site and therefore could devalue or increase the value of the site.

If the property has a very high flood risk and the borrower has confirmed that the site regularly floods this could affect the marketability and a potential purchaser would reflect this in their bid. . Similarly the cost of remediation elements may be taken off the value.

Question 25

LSV Cornwall: Why did you inform your client that the flood risk an acceptable commercial risk?

Answer 25

In this instance I was informed by the borrower that the property had not flooded during their ownership of the property. Similarly they informed me that they had appropriate flood insurance in place on standard industry terms with no onerous clauses. They had a high flood risk which is 3.3% likelihood.

Question 26

LSV North Wales LV3: How did you work out the number of units in the leasehold area?

Answer 26

This was done using the online mapping software and via conversations with the borrower.

This enabled me ot count the number of pitches and remove them from my calculation and reduce the YP accordingly.

Question 27

LSV North Wales LV3: How did you sensitise the YP? What did you do?

Answer 27

I sensitised the YP based on my Market knowledge and experience. Due to the small nature of the leasehold area and its location within the the park I reduced the YP by 0.25 to 9.75.

Question 28

LSV Lincolnshire LV3: What enables the individual owners to remain?

Answer 28

owners are protected by their individual ownership agreements

Question 29

LSV Lincolnshire LV3 : What was your more suitable assumptions?

Answer 29

The assumptions that were considered in my Valuation were:

MV2 - Business Closed, no trading records available

MV3 - Business Closed, no trading record available and restricted marketing

The above factors were chosen to replicate a distressed sake can effect MV from 10-50% based on comparable evidence.

Question 30

LSV North Wales: LV3: Why did you assume it was all freehold?

Answer 30

As the rest of the site was held freehold this was a reasonable assumption. But based on the lack of certification that’s why I recommended the Bank forward on the report on title.