Red Book Flashcards
What is the red book?
It sets out strict standards and guidance to promote high standards of valuation worldwide
What is the structure of the Red Book?
- Introduction
- Glossary
- Professional standards (PS) MANDATORY
- Valuation technical and performance standards (VPS) MANDATORY
- Valuation applications (VPGAs)
- The International Valuation Standards (IVS)
What is the latest version?
RICS Valuation - Global Standards 2021 - effective from 31st January 2022
What are the main changes from the previous version?
- The need for compliance withthe Red Book Global and appropriate and unambiguous terms of reference
- Valuation for financial reporting - with reference to IFRS16
- Reference to the use of profits method for non-trade related property (PBSA, self-storage, flexi-offices)
- Introduced definitions with reference to ESG and sustainability
What is PS1?
Compliance with standards and practice statements where a written valuation is provided
What are the 5 exceptions for the mandatory use?
- Related to agency work in anticipation of an instruction
- Advice is provided as part of litigation
- Advice is for internal purposes only
- Advice provided in anticipation of providing evidence as an expert witness
- When the valuer is undertaking a statutory function
What is PS2?
Ethics, competency, objectivity and disclosures
- Valuer must act in accordance with the Rules of Conduct
- Valuer must act objectively, apply professional scepticism an deal with conflicts of interests
- Members must understand the client’s requirements, demonstrate professional competence and comply with minimum TOEs
What is VPS 1?
Terms of engagement
What are the minimum matters that must be confirmed in writing to the client?
- Status of the valuer
- Identification of the client
- Identification of any other users
- The asset / portfolio to be valued
- Currency
- Purpose of valuation
- Basis of value
- Valuation date
- Extent of investigation
- Nature and source of information
- Assumptions / special assumptions
- Format
- Restrictions
- Confirmation of RBG compliance
- Fee basis
- CHP
- Limitation of liability
What is an assumption and a special assumption?
Assumptions are made where it is reasonable for the valuer to accept that something is true without the need for specific investigation
A special assumption is a supposition that is taken the true and accepted as fact, even though it is not true
*Must be agreed with the client within ToEs
What is VPS2?
Inspections, Investigations and Records
Why should a valuer inspect?
- Valuers must verify the information being relied upon for a valuation to ensure information is professional adequate
What should a valuer consider when undertaking a desk top valuation?
- Nature of restriction must be agreed in ToEs
- Implications of the restriction on valuation
- Valuer should consider whether restriction is reasonable
- Restriction must be referred to in report
What is VPS3?
Valuation reports
What are the minimum requirements for a report?
- Identification and status of valuer
- Client
- Purpose of valuation
- Identification of asset
- Basis of value
- Valuation date
- Extent of investigation
- Nature of information
- Assumptions / special assumptions
- Valuation approach
- Valuation figure
- Date of valuation report
- Commentary
What is preliminary advice?
- Must be marked as draft and for internal purposes only
- Must be subject to completion of a final report
What is VPS4?
Bases of value, Assumptions and special assumptions
What is market value / rent?
- Estimated amount for which should exchange / lease for
- On the valuation date
- Between willing buyer and seller / lessor and lessee
- In an arm’s length transaction
- With full and proper marketing
- Both parties acting knowledgeably, prudently and without compulsion
What is fair value?
The price that would be received to sell an asset or paid to transfer a liability
- in a orderly transaction between market participants
- at the measurement date
What is Investment value?
The value of an asset to a particular owner for individual investment or operational objectives
What is VPS 5?
Valuation approaches and methods
What are the VPGAs?
Valuation Practice Guidance Applications
VPGA 1 - Valuation for inclusion in financial accounts
VPGA 2 - Valuations for secured lending
VPGA 8 - Valuation of real property interests
VPGA 10 - Matters that may give rise to material valuation uncertainty
What are the International Valuation Standards (Part 6 of RBG?)
- General standards address matters such as ToEs,
What is the UK supplement 2018?
- Effective from January 2019
- Augments the Red Book global and is not a substitute
- Provides specific requirements for for members on the application of the VPGAs based on UK jurisdiction.
- Contains 18 UK specific VPGAs to make more user friendly
What are the contents of the UK Supplement?
- Introduction
- UK PS
- UK VPS
- UK VPGAs
- Summary of changes from Red Book 2014
What are the key changes from the RBG to the UK supplement?
- Easy to read and more user friendly
- Clear advice on what is mandatory and what is not
- Provides mandatory statements and advice for UK valuations
- Introduced new UK VPGAs for valuation of central government assets, local authority assets etc
- Greater differentiation between UK GAAP and IFRS
- New section on valuation for commercial lending
Name some UK VPGAs:
- Valuation for financial reporting
- Valuation of registered housing provider’s assets
- Valuation of charity assets
- Valuation for commercial secured lending purposes
- Valuation of residential mortgage purposes
When did the latest UK supplement come into place?
October 2023 effective from May 2024
