Red Book Flashcards
6 parts of the RICS red book?
Part 1 - introduction
2 glossary
3 professional standards
4 valuation technical and professional standards
5 valuation professional guidance application
6 international valuation standards
Part 3 of red book is what?
Professional standards
What is Professional standard 1
Compliance with standards and practice statements where written valuation is provided
Is professional standards? (Aka part 3 of red book) mandatory for all members
Yes although exceptions
- provided for or during course of negotiations or litigation
- valuer is performing a statutory function
- provided for internal use only and is without liability
- valuation provided as part of agency work
- provided as giving evidence as an expert witness
What is PS 2 of part 3 of the red book?
PS 2 ethics competency objectivity and disclosures
Professional and ethical standards: must work in accordance with RICS 5 rules of conduct
What is part four of the red book 2021?
VPS - valuations technical and performance standards (VPS)
What is VPS 1 in valuation?
Terms of engagement
Under VPS 1 in valuation, what matters must be confirmed in the terms of engagement?
- Identification and status of the valuer
- Identification of the client
- Identification of any other intended users
- The asset to be valued - if a portfolio then lotting of assets should be considered
- Currency
- Purpose of the valuation
- Basis of value
- Valuation date
- Extent of investigation
- Nature and source of the information to be relied upon
- Assumptions and special assumptions to be made
- Format of the report
- Restrictions for use, distribution and publication
- Confirmation of Red Book Global/IVS compliance
- Fee basis
- Complaints handing procedure to be made available
- Statement that the valuation may be subject to compliance by the RICS
- Limitation on liability agreed
What is an assumption in a valuation?
Made where it is reasonable for the valuer to accept that something is true without the need for specific investigation
What is a special assumption in valuation?
Supposition taken to be true and accepted as fact even though it is not true
What must you do with special assumptions prior to undertaking the valuation?
Agree in writing with the client are the commencement of the instruction
Give an example of a special assumption?
Assuming the property is vacant when it is let or vice versa
What is VPS 2?
VPS 2 inspections investigations and records
Under VPS 2 what should a valuer do in relation to inspection?
Valuers must take steps to verify the necessary information being relied upon for the valuation to ensure information is professionally adequate for its purpose
What is a desk top valuation also known as?
Restricted information valuation
Is a restricted information inspection RICS compliant?
Yes unless it is for a specific purpose outlined in PS 1
What four factors should a valuer consider when undertaking a valuation on basis of restricted information?
1- the nature of the restriction must be agreed in writing in the terms of engagement
2- possible valuation implications of the restriction confirmed in writing before the value is reported
3- the valuer should consider whether the restriction is reasonable with regard to the purpose of the valuation
4- the restriction must be referred to in the report
In the revaluation of a property, should the valuer re inspect?
No if the valuer believes there has been no material changes to the property or nature of location since last inspection
Must be confirmed in the terms of engagement
Should you keep records of the inspections?
Yes
Also note the importance and ESG
What is VPS 3
Mandatory guidance on valuation reports
Minimum requirements to be stated within the report are
- Identification and status of the valuer
- Client and any other intended users
- Purpose of valuation
a identification of the asset to be valued - Basis of value
- Valuation date
- Extent of investigation
g. Nature & source of information relied upon - Assumptions and special assumptions to. Restrictions on use, distribution and publication
- Valuation approach and reasoning
- instruction undertaken in accordance with |VS standards
- Valuation figure(s)
- Date of valuation report
- Comment on market uncertainty
- Statement setting out any limitations on liability that have been agreed
What is preliminary valuation advice?
Can be given but must be marked as draft for internal uses only
Must state that the valuation is subject to the final report
Any additional information provided by the client following the draft report should be stated in the report
What is VPS 4
The valuer must determine the basis of value that is appropriate for every valuation to be reported
What are the 6 bases of value?
Market Value
Market Rent
Fair Value
Investment Value
(Equitable Value)
(Liquidation value)
What is VPS 5?
VPS 5 Valuation approaches and methods
Valuers are responsible for choosing the appropriate valuation approach and justifying their use of model
What does VPGA stand for?
Valuation practice guidance applications
How many VPGAs are there?
10
VPGA 2 is for what?
Valuations for secured lending
What does VPGA 2 set out?
Dealing with conflicts of interest for secured lending
Any previous current or anticipated involvement with the prospective borrower or the property to be valued must be disclosed to the lender
Define “previous involvement” under VPGA 2
Being within the past two years but under certain circumstances it can be longer
If the valuer or client considered that any involvement creates a conflict that cannot be managed or avoided what should you do?
The instruction should be declined
Give examples of a conflict of interest under VPGA 2
Having a long standing relationship with the prospective borrower or owner
When the valuer will gain a fee from introducing the transaction to the lender
If there is financial interest in the property holding to the prospective borrower
When the valuer is retained to act on the disposal or letting of the completed development subject property
What should a valuer have in mind when deciding whether or not to take an instruction?
RICS Rules of Conduct 2021
What should be done if a valuer and client agree that a conflict can be managed?
Clearly state within the terms of engagement and in the report
