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APC Commercial Real Estate 2021 - Core > Red Book COPY > Flashcards

Red Book COPY Flashcards

1
Q

What is the full name of the Red Book? And when was it effective from?

A

RICS Valuation - Global Standards 2017.

Effective 1st July 2017

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2
Q

What is the purpose of the Red Book?

A

To provide an effective framework within Rules of Conduct so that users of valuation services can have confidence that the valuation of an RICS member is consistent with IVSC internationally recognised standards.

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3
Q

Why was the red book updated?

A
  1. Now takes into account the significant changes to the International Valuation Standards (IVS) introduced in 2017
  2. Make it clear that Professional Standards (PS) and Valuation technical and performance standards (VPS) are both mandatory, and Valuation Practice Guidance Applications (VPGA) are advisory
  3. Now incorporates IPMS and changes to Conflicts of Interest
  4. Currency must now be included in ToE
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4
Q

What are the changes to the Red Book?

A

• Glossary now defines valuer and valuation
• It also includes the new requirements for members dealing with Conflicts of Interest and the adoption of IPMS.
• When the use of the Red Book is not mandatory, as set out in VPS 1, the emphasis is on the preparation of appropriate terms of engagement to suit the specific case in an acceptable business format
• VPS 1 includes 3 additional requirements for terms of engagement
 > (C) is now Identification of other intended users as opposed to purpose of valuation (now f)
 > (E) is currency as opposed to basis of value (now g)
 > (R) is now a statement of any limitations on liability that have been agreed
• Added VPS 5 Valuation Approaches and methods
• Added a new VPGA 8 on valuation of real property interests
• 2 new addition in VPS 3 Valuation reports
 > (O) Commentary on any material uncertainty in relation to the valuation where it is essential to ensure clarity on the part of the valuation user
 > (P) A statement setting out any limitations on liability that have been agreed

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5
Q

What are the different sections in the Red Book?

A

o Part 1 – Introduction
o Part 2 – Glossary
o Part 3 – Professional standards (PS) (mandatory)
o Part 4 – Valuation technical and performance standards (VPS) (mandatory)
o Part 5 – Valuation Practice Guidance Applications (VPGA) (guidance)
o Part 6 – The international Valuation Standards, 2017 (IVS) (mandatory

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6
Q

What are the different sections of the UK national Supplement?

A
  • Part 1: Introduction
  • Part 2: UK Professional and Valuation Standards – Mandatory
  • Part 3: UK Valuation Practice Standards (UK VPGAs) – advisory
  • Part 4: Summary of changes from Red Book UK 2014 (revised January 2015)
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7
Q

What is PS 1?

A

PS 1 - Compliance with standards where a written valuation is provided.

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8
Q

What is PS -2?

A

PS 2 - Ethics, competency, objectivity and disclosures.

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9
Q

What is VPS 1 -5?

A

VPS 1 - Terms of engagement (scope of work)
VPS 2 - Inspections, investigations and records
VPS 3 - Valuation Reports
VPS 4 - Bases of value, assumptions and special assumptions.
VPS 5 - Valuation approaches and methods.

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10
Q

What is included under a terms of engagement for VPS 1?

A

a. Identification and status of the valuer
b. Client and any other intended users
c. Purpose of the valuation
d. Details of the property/site being valued (Details)
e. Basis of value
f. Valuation date (FD)
g. Extent of investigation (2 UP)
h. Nature & source of information to be relied upon (hinformation)
i. Assumptions and special assumptions (issumptions)
j. Restrictions on use, distribution and publication (JR)
k. Confirmation of Red book / IVS compliance (Konfirmation)
l. Limitation on liability statement (Limitation)
m. Currency (Millions)
n. Format of the report (nothing)
o. Fee basis 
p. Complaints handling procedure to be made available (CHP)
q. Statement that the valuation may be subject to compliance by the RICS (Q..RICS)

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11
Q

What is included under a valuation report in VPS 3? (IVVDC)

A
  1. Identification and status of the valuer
  2. Client and any other intended users
  3. Purpose of valuation
  4. Details of the property/site being valued
  5. Basis of value
  6. Valuation date
  7. Extent of investigation
  8. Nature & source of information relied upon
  9. Assumptions and special assumptions
  10. Restrictions on use, distribution and publication
  11. Confirmation of Red Book / IVS compliance
  12. Limitation on liability statement
  13. Instructions undertaken in accordance with IVS standards
  14. Valuation approach and reasoning
  15. Valuation figure (s)
  16. Date of valuation report
  17. Comment on market uncertainty
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12
Q

When does a valuation not need to be ‘Red Book’ compliant?

A
  1. Valuation advice is provided for litigation negotiations
  2. For a statutory function
  3. For internal purposes (without liability and not communicated to a third party)
  4. Agency purposes (in anticipation of receiving instructions)
  5. Valuation provided in anticipation of giving evidence of an expert witness
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13
Q

Whats the difference between assumptions and special assumptions?

A
  • Assumptions – where valuer can accept something is true without specific investigation
  • Special assumptions – valuer takes something to be true (even though it isn’t e.g. planning)
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14
Q

What does the Red Book say about ‘Restricted Information’ (Desktop Valuations) (RIN)

A
  1. Nature of restriction must be agreed in writing in the Terms of Engagement
  2. The possible valuation implications must be confirmed in writing
  3. Valuer should consider if the restrictions are reasonable
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15
Q

What is the VPS 4 definition of Market Value? (OBIAW)

A

Market Value – ‘The estimated amount for which an asset or liability should exchange’ (OBIAW)
• On the valuation date
• Between a willing buyer and a willing seller
• In an arm’s length transaction
• After proper marketing
• Where the parties had each acted knowledgably, prudently, and without compulsion

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16
Q

What is the VPS 4 definition of Market Rent? (OBOIAW)

A

Market Value – ‘The estimated amount for which an asset or liability should exchange’
• On the valuation date
• Between a willing buyer and a willing seller
• In an arm’s length transaction
• After proper marketing
• Where the parties had each acted knowledgably, prudently, and without compulsion

17
Q

What is the VPS 4 definition of fair value? (TIBA)

A
  • 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.
18
Q

What is the VPS 4 definition of Investment Value? (TFO)

A
  • The value of an asset to a particular owner (or prospective owner)
  • for individual assessment
  • or operational objectives.
19
Q

What is the Red Book definition of Internal Valuer?

A
  • A valuer employed by the company to value the assets of the company
  • Valuations are for internal use only and are not for third party reliance
20
Q

What is the Red Book definition of External Valuer?

A

• A valuer who has no external links with the asset to be valued or the client

21
Q

What does the Red Book say about Draft Valuation reports?

A
  1. Reports must be marked as draft

2. They must not be relied upon or published (internal only)

22
Q

What does the Red Book say about secured lending valuations? (VPGA 2) (SIR)

A
  1. If a valuation uses a special assumption the value must be reported with and without that assumption
  2. Any previous, current, or anticipated involvement between the valuer and the prospective borrower or the property must be disclosed to the lender (must be disclosed in TOE)
  3. Additional reporting requirements
23
Q

What are the additional reporting standards for secured lending valuations? (VPGA 2)
(MEF)

A
  1. Comment on the suitability of the property for mortgage purposes
  2. Comment on any environmental considerations
  3. Comment on any other factor that potentially conflicts with the definition of Market Value
24
Q

What UK VPGA is commercial secured lending valuations?

A

UKVPGA 7 – Valuation for commercial secured lending purposes

25
Q

What are the different ‘Valuation Approaches’ in the Red Book? (MIC)

A
  1. Market approach – (comparable)
  2. Income approach – converting income/cash flows into a capital value (investment, residual and profit)
  3. Cost approach – (DRC)
26
Q

What is the relationship between RICS Global Valuation Standards, 2017 and the UK Red Book, 2018

A

The UK Red Book, 2018 supplements RICS Global Valuations Standards, 2017.

27
Q

What are the Red Book UK Professional and Valuation Standards - mandatory?

A

UK VPS 1: Terms of engagement (scope of work) and reporting: Red Book compliance
UK VPS 2: Terms of engagement (scope of work): supplementary provisions in Scotland.
UK VPS 3: Regulated purpose valuations: supplementary requirements

28
Q

What are Regulated Purpose valuations?

A
  • Valuations relied on by third parties, who have not commissioned the valuation
  • They are subject to valuation monitoring
29
Q

What are the 5 types of Regulated Purpose valuations? (FCUTS)

A
  1. Financial Statements
  2. Collective investment schemes
  3. Unregulated property unit trusts
  4. Takeovers and mergers
  5. Stock Exchange listings
30
Q

What does the Red Book say about valuations for charities?

A
  • Valuer must follow the requirements of the Charities Act 2011
  • Valuer must comment as to whether the purchase or sale is in the charity’s best interest
31
Q

What is the RICS Valuer Registration Scheme?

A
  • A monitoring scheme for all valuers carrying our Red Book Valuations
  • To improve the quality and raise status of valuers as a profession
32
Q

What is the overriding objective in regards to a VPGA 2 valuation for secured lending purposes?

A

The overriding objective is that the valuer should understand the lender’s needs and objectives, including the terms of the loan being contemplated, and the lender should understand the advice that is given.

33
Q

What else is of particular importance in a VPGA 2 valuation for secured lending purposes?

A

Members are reminded that in accordance with PS 2 section 3, they must at all times act with integrity, independence and objectivity, and avoid conflicts of interest and any actions or situations that are inconsistent with their professional obligations – this is of increased importance for secured lending valuation.

34
Q

What are some matters that will frequently require consideration and comment in a report prepared for secured lending?

A
  • the current marketability of the interest and whether it is likely to be sustainable over the life of the loan
  • comment on the suitability of the property as security for mortgage purposes, bearing in mind the length and terms of the loan being contemplated. Where the terms are not known, the comment should be restricted to the general marketability of the property.
  • any circumstances of which the valuer is aware that could affect the price
  • any other factor that potentially conflicts with the definition of the basis of value or its underlying assumptions must be noted and its effect explained
  • details of any significant comparable transactions relied upon and their relevance to the valuation
35
Q

What are some additional report contents if that property will be held as an investment?

A
  • summary of occupational leases, indicating whether the leases have been read or not, and the source of any information relied on
  • A statement of, and commentary on, current rental income, and comparison with current market rental value
  • an assumption as to covenant strength
  • Comment on maintainability of income over the life of the loan
  • comment on any potential for redevelopment or refurbishment at the end of the occupational lease(s)
36
Q

What are some typical special assumptions for a VPGA 2 valuation for secured lending purposes?

A
  • a different rent has been agreed or determined, eg. after a rent review
  • any existing leases have been determined, and the property is vacant and to let or
  • a proposed lease on specified terms has been completed

APC Commercial Real Estate 2021 - Core (17 decks)

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