Red Book Flashcards
What is the Red Book Global?
- Red book is used to build consistency, transparency, confidence so that users of valuation services are confident with the valuation of an RICS member
- Red Book comprises of Global addition and UK National Supplement
- Includes the international valuation standards in the second part of the Red Book
Key changes to Red Book Global?
- Written valuation now includes electronic format and automated valuation models
- Professional scepticism must be applied when considering evidence
- Importance of discussing sustainability and environmental matters when valuing interests in real estate
- VPGA 8 sustainability should only be reflected in value where market evidence indicates
What is a registered Valuer:
A registered valuer is a regulated and qualified professional can conduct a Red Book valuation
What does the Red Book say constitutes a written valuation?
All forms of communication other than purely oral. This includes automated valuation models
What does the Red Book say about oral valuations?
Oral advice is still liable to negligence claims therefore it is stated that the Red Book should still be adhered to
What does the Red Book say about professional scepticism?
You should exercise scepticism. This is applying a questioning mind and critically assessing evidence relied upon
What is meant by valuation approach and by valuation method?
Valuation method refers to the procedure or technique used to calculate the value. Valuation approach is the overall manner in which a valuation task is undertaken
Material uncertainty?
Material change in circumstance causing uncertainty which means less weight is attached to evidence. VPGA 10. This must be excluded from the market commentary
Inherent material uncertainty?
This is general market risk which is assumed to always be present
Material uncertainty forum?
Meeting of members to discuss the need for material uncertainty in valuation. This is judgement and not mandatory for valuers
When is it appropriate to include material uncertainty?
Down to valuers discretion
What is a working group?
Panel of RICS expert who discuss valuation matters in certain subject e.g. development appraisal
What does Red Book state about sustainability?
Must reflect in valuation if evidence shows. If not must be recorded regardless. This is included in VPGA 8
What is sustainability?
Meeting the needs of today without compromising future generations
Natural environmental constraints?
Subsoils, rivers, radon
Non-natural environmental constraints?
Contamination
What does PS1 say about VPS 1-5?
That they are mandatory
What is basis of value?
Market value, market rent, existing use value, investment value, fair value
What is special value?
Value over and above what the market would pay to reflect a special purchaser
Marriage value?
Value which can be achieved by the combination of 2 or more assets or interests
What are assumptions?
Something reasonable to assume without the verification of facts
What are special assumptions?
Something that would not particularly be assumed by a market participant
What is a projected value?
Assumed value likely to be achieved in the future
What is investment value?
Worth to an individual person
Do you need a terms of engagement if there is an SLA?
There is still a requirement for terms of engagement even if there is an SLA e.g. DRRS
When must terms of engagement be issued?
Prior to taking on work, should not be sent on the same day as sending out the valuation report
What sections contain inspection in the Red Book?
VPS2 and VPGA8
What should be captured on inspection?
Age, construction, dimensions, locality, environment, state of repair, fixtures and fittings, environmental and sustainability conditions, date, weather, eligible notes
Does a Red Book valuation require an inspection?
Depends on the necessity and proportionality of your instruction
Should the client share the report with a third party?
Must be redacted by us to see if any information is confidential or might compromise a client
Who must sign the report?
The person responsible for the valuation
What part of measurement guidance applies to all properties?
Part 1 of Property Measurement 2nd edition which outlines the need for a scale, date of measurement, method used, annotations etc to be noted on the document
What must be contained in a valuation report?
Must cover all matter discussed in the terms of engagement e.g. identification of site, purpose, method used, and information relied on
What does a signing signatory need to demonstrate?
Taking accountability and responsibility for the valuation and being able to defend the figure if challenged
What should happen if market change has occurred since valuation date?
Valuer should draw attention to this
What must you do when writing a draft report?
Prior agreed with client, state opinion is provisional and subject to change, use draft watermark
What is valuation reasoning?
Process at how the figure was arrived at. All key inputs must be recorded and evidence to support them
What is the structure of the National Supplement?
PS1 Compliance
VPS 1-3 terms of engagement
VPGA 1-18
What does the 2020 Red Book say about valuing development property for secured lending?
Valuer must apply a minimum of 2 valuation methods
What are the 4 bases of value for Red Book global
Market Value
Market Rent
Investment value
Fair value
What is investment value
The worth of an asset to a particular owner
What is fair value
The price to be received in order to sell an asset in an orderly fashion
Name the key terms included in a terms of engagement form and where you would find these
VPS1 and includes:
o Identification of valuer o Identification of client o Identification of asset o Identifying users o Reason for instruction o Basis of valuation o Date of valuation o Assumptions or special assumptions made o Material uncertainty? o Basis on which fee is agreed
Where is it stated that members must have regard to IPMS?
VPS2
What preliminary checks will need to be undertaken before undertaking work for a client
- Are you competent enough to take on the work
- Is there a conflict of interest
- Will PII cover any potential claim for damages
- Identify the site and purpose of valuation
- Identify any special assumptions with the client
- Agree on extent of inspection
- Will this be a written valuation
What desktop due diligence checks would you undertake when conducting a valuation?
Past records, planning, flood map, coal map, google street view and a remote risk assessment
