Red Book Flashcards
What is the purpose of the Red Book?
Set of global valuation standards:
- Created to achieve high standards of integrity, clarity and objectivity in adopting valuation best practice
- Promotes public trust in RICS valuations
What changes were made in 2022?
1) Sustainability & ESG – uses clearer and more robust terminology. Provides more definitions and gives details on inspecting and reporting implications and factors.
2) VPGA 4 - Reference to the use of the profit’s methods for certain trade related property valuations. A list of properties includes self-storage, flexible workspace, and purpose built-student housing.
What is the structure of the 2022 Red Book?
- Introduction
- Glossary
- RICS Professional Standards - PS
- RICS Valuation technical and performance standards – VPS
- RICS Valuation applications – VPGA
- RICS International Valuation Standards – IVS
What sections outline Proffesional Standards?
PS1 – Compliance with standards & practice statements. Red Book Mandatory except for 5 purposes (ALIES)
PS2 – Ethics, Competency, objectivity & disclosures – should act in accordance with 5 ROC, act objectively and independently, understand and comply with ToE, comply with RICS Valuer Registration Scheme requirements
What is exempt from the Red Book - outlined in PS1?
A – Agency & brokerage apart from Purchase Report
L – Litigation
E – Expert witness
I – Internal accounts
S – Statutory purposes
What sections outline the Valuations Technical and Performance Standards (VPS)?
VPS 1 – Terms of Engagement (scope of work)
VPS 2 – Inspections, investigations, and records
VPS 3 – Valuation reports – min. requirements
VPS 4 – Basis of value, assumptions and special assumptions
VPS 5 – Valuation approaches and Methods
What sections are important in Valuation Practice Guidance Applications? (VPGA 1-10)
VPGA 1 – Valuation for inclusion in financial statements/ accounts
VPGA 2 – Valuation for secured lending/ loan security (UK VPGA 10)
VPGA 4 – Profits Valuation Method
VPGA 8 – Valuation of Real Property Interests (inspection)
VPGA 10 – Matters that may give rise to material uncertainty
Outline the International Valuations Standards (IVS 2022)
IVS 101 – Scope of Works
IVS 102 - Investigations and Compliance
IVS 103 – Reporting
IVS 104 – Bases of Value
IVS 105 – Valuation Approaches and Methods
What is the Margin of Error?
Permissible range allowed by courts
Dunfermline Building Society v CBRE (2017) assumed an acceptable margin of error of +/ - 15%. Claim was dismissed on this basis as the Court determined that the MV of the property was within this margin of error
Definition of Market Value (Rent)?
The estimated amount that an asset or liability should exchange:
* On the valuation date
* Between a willing buyer and seller
* Arm’s length transaction
* (Appropriate lease terms (Market Rent))
* After proper marketing
* Knowledgably, prudently & without compulsion
Definition of 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
* RICS view this as consistent with MV
Hope Value
Value arising from any expectation that future circumstances affecting the property may change. E.g., future prospect of securing planning permission, or realisation of marriage value.
Marriage Value
Created by a merger of interest where the value of the interests together are worth more than they are separately. Typically negotiated and split 50:50 or divide and pro-rata to value of individual interests.
Net Effective Rent
- Headline rent takeaway any rent free/ incentive periods
- Normally 3 months fit out period deducted from RF
