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APC > RICS - Global Standards - Red Book (Jan 2022) > Flashcards

RICS - Global Standards - Red Book (Jan 2022) Flashcards

1
Q

What is the latest edition of RICS Valuation – Global Standards

A

Red Book– Global Standards ‘Red Book’ Effective from 31st of January 2022.

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2
Q

What does the Red Book consist off? (6 Parts)

A

Introduction
Glossary
Professional Standards (PS1 7 PS2)
Valuation Technical & Performance Standards
Valuation Applications
International Valuation Standards

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3
Q

In reference to Valuation what is an ‘Assumption’

A

A supposition taken to be true, based on a variety of factors effecting the approach to valuation.

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4
Q

Global standards for valuation have continued
to evolve and now take three different but closely interrelated forms, which are:

A
  1. Professional Standards
  2. Technical Standards
  3. Performance Standards
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5
Q

In the Red Book the PS reference number refers to what ?

A

Global professional and ethical standards

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6
Q

What are PS1 and PS2 ? (C ECOD)

A

PS1: Compliance with standards where a written valuation is provided.
PS2: Ethics, competency, objectivity and disclosures

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7
Q

In the Red Book the VPS reference number refers to what ?

A

Global valuation technical and performance standards.

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8
Q

What are VPS1 - VPS5 ? (TIRBAM)

A
  1. VPS1 - Terms of Engagement
  2. VPS2 - Inspection, investigation and records
  3. VPS3 - Valuation Report
  4. VPS4 - Bases of Value and assumptions.
  5. VPS5 - Approaches and methodology
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9
Q

In the Red Book the VPGA refers to what ?

A

RICS valuation practice guidance – applications. Most notably for valuations for specific purposes.

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10
Q

What are VPGA 1 - 10

A

VPGA 1 – Inclusion in financial statements
VPGA 2 – Secured lending
VPGA 3 – Businesses & business interests
VPGA 4 – Individual trade related properties
VPGA 5 – Plant & equipment
VPGA 6 – Intangible assets
VPGA 7 – Personal property
VPGA 8 – Real property interests
VPGA 9 – Portfolios
VPGA 10 – Matters that may give rise to material valuation uncertainty.

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11
Q

What was the main reason for issuing an update to Red Book Global Standards ?

A

To take account of the changes to the International Valuation Standards (IVS), which Red Book Global Standards adopts and applies.

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12
Q

What are the key changes to the Red Book ? (2022)

A
  1. Increased emphasis on the need to agree clear and unambiguous terms of engagement.

2.Requiring more detailed commentary on sustainability and environmental, social and governance (ESG) matters.

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13
Q

The Red Book was devised to establish… (CCT)

A

Consistency, confidence and transparency in valuation practice.

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14
Q

Who is the Red Book primarily aimed at ?

A

RICS members undertaking valuations.

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15
Q

What else forms a core component of the Red Book ?

A

The International Valuation Standards (IVS)

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16
Q

Who are the International Valuation Standards Council (IVSC)?

A

An independent, not-for-profit, global standards organisation committed to advancing quality in the valuation profession.

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17
Q

What is the IVSC key objective ?

A

Building confidence and public trust in valuation by formulating standards.

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18
Q

Basis of value refers to..?

A

The fundamental measurement assumptions of a valuation.

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19
Q

What is the ‘cost approach’?

A

Indication of value based on the economic principle that the price a buyer should pay for a piece of property is equal the cost to build an equivalent building.

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20
Q

When is the ‘date of the report’?

A

The date that the valuer signs the report.

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21
Q

What is the Depreciated Replacement Cost ?

A

The current cost of replacing a an asset with it’s modern equivalent, less deductions for physical deterioration and recent forms of obsolescence.

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22
Q

What does ESG refer to?

A

Environmental, social and governance.

It is the criteria that establishes the framework for assessing the impact of sustainability and ethical practices of a company on it’s financial performance.

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23
Q

What is ‘fair value’?

A

The price that would be received to sell and asset or paid to transfer a liability in an orderly transaction between market participant at the measurement date.

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24
Q

What does ‘goodwill’ refer to?

A

Future economic benefit arriving from a business.

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25
Q

Summarise the ‘income approach’ to valuation ?

A

This is a valuation approach that converts future cash flows to a single capital value.

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26
Q

What are the IFRS ?

A

International Financial Reporting Standards. These are set by the IASB to achieve universal accounting principles.

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27
Q

What is ‘investment value’?

A

The value of an asset to a particular owner, or prospective owner for individual or operational objectives.

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28
Q

Explain the term ‘special assumptions’?

A

An assumption that would not typically be made on the valuation date.

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29
Q

Define ‘valuation’..?

A

An opinion on value of an asset at a specified date.

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30
Q

Discuss the recent changed made to RICS Valuation - Global Standards ‘Red Book’ (2022)

A

The document incorporates changes of the International Valuation Standards (IVS) 2022, as well as changes to technical updates - most notable relating to ESG and sustainability.

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31
Q

The Red Book offers high quality valuation advice in order to meet the expectations of ?

A

Clients
Public
Governments/Regulatory bodies.

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32
Q

What type of standards impact the real estate sector ?

A

International Financial Reporting Standards (IFRS) - Global accounting standards.

International Valuation Standards Council (IVSC)

Property Measurement Standards Coalition (IPMSC)

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33
Q

What is the main objective of the ‘Red Book’?

A

To promote confidence and to provide assurance to clients that a valuation undertaken by a RICS registered valuer will be of the highest professional standards.

34
Q

What do valuers need to offer the highest professional standards ?

A
  • Appropriate skills and knowledge
  • Demonstrate the highest degree of ethical standards.
35
Q

Valuation is a fast changing profession due to?

A
  • Technology
  • Sustainability
  • Global standards and recognition
36
Q

Explain the hierarchy of RICS Standards…

A
  1. RICS Professional Statements - Mandatory
  2. RICS Guidance Notes - Advisory
  3. RICS Insights - Information status.
37
Q

For RICS members is compliance with the Red Book mandatory ?

A

YES

38
Q

What are the main benefits of Global Valuation Standards ?

A
  • They are financially acceptable
  • Reduce risk
    -Benchmarking in standards and performance
  • Standards are comparable on a global basis.
39
Q

What are the benefits of Global Standards to clients?

A
  • Consistency in approach
    -Credible valuations
  • Transparency
    -Clarity
40
Q

What is inside the Red Book - Global Standards (2022)

A
  1. Introduction
  2. Glossary
  3. Professional Standards (PS1 + PS2)
  4. Valuation technical & performance standards (VPS 1-5)
  5. Valuation Application (VPGA’s 1 - 10)
  6. International Valuation Standards (summary of main changes)
41
Q

Give examples of the differing Assest Standard in the International Valuation Standards (IVS) ?

A
  • Intangible Assets
  • Inventory
    -Plant & Equipment
  • Development property
42
Q

A valuation can give very different answers depending on ?

A
  • Entity (Leasehold/freehold)
  • Purpose (financial reporting/secured lending)
  • Basis (method used)
  • Approach
43
Q

How is the overall application of RICS Red Book in the UK market ?

A

The red book has created consistency in reporting, as well as quality assurance.

44
Q

Are Professional Standards (PS1 & PS2) mandatory ?

A

Yes for all valuers providing written valuations.

45
Q

What is the main focus of PS1 & PS2?

A

These standards focus on ethics and conduct.

46
Q

What does PS1 cover ?

A

Compliance

47
Q

What does PS2 cover ?

A

Ethics, competency, objectivity and disclosures.

48
Q

The Global Red Book recognises 3 international standards. What are they? (VEM)

A
  • IVS: International Valuation Standards
  • IES: International Ethics Standards
  • IPMS: International Property Measurement Standards
49
Q

In what circumstance are VPS 1- 5 not mandatory ?

A
  1. Valuer is performing a statutory function.
  2. During a litigation
  3. Internal valuation purposes.
  4. Agency work.
  5. Evidence as an expert witness.
50
Q

What is the needed criteria for a person to under a valuation ?

A
  1. Academic/professional qualifications
  2. Members of a professional body.
  3. Sufficient knowledge.
51
Q

Provide example of conflicts of interest ?

A
  1. Acting for the buyer and seller
  2. Acting for two competing parties.
  3. Valuing for a lender, where advice is given to the borrower.
  4. Valuing a property previously valued for another client.
52
Q

Define market value ?

A

The estimated amount than an asset or liability should exchange on a specific date, between a willing buyer and seller at an arm length transaction - after a proper marketing period with all parties acting knowledgably and without compulsion.

53
Q

VPS1 - What is included in the minimum terms of engagement?

A
  1. Name and status of the valuer.
  2. Client
  3. Identification of other intended users.
  4. Identification of assets
  5. Currency
  6. Purpose of the valuation.
  7. Basis of valuation
  8. Valuation date.
  9. Extent of investigations / Any limitation
  10. Nature and source of information
  11. Assumptions and Special assumptions
  12. Description of report
  13. Restrictions of use
  14. Red Book Compliance
  15. Fee basis
  16. Complaints handling
  17. Statement that the report can be audited by RICS
  18. Limit on PII Liability
54
Q

VPS3 - Valuation Reports. What is in them?

A
  1. Identification of the status of the valuer
  2. Client
  3. Purpose of the valuation
  4. Asset
  5. Basis of Value
  6. Valuation date
  7. Extent of investigation
  8. Nature and source of info
  9. Assumptions/ Special Assumptions
  10. Consent and publication restrictions
  11. Red Book Compliance
  12. Valuation report and reasoning
  13. Valuation figure
  14. Date of valuation
  15. Commentary on any material uncertainty.
  16. Limitations to liability.
55
Q

When would banks not lend ? (Munt C)

A

Moral Reasons - criminal activity
Non traditional forms of constructions
Unsatisfactory ground reports
Contaminated land
Title issues

56
Q

Service letter agreement. What’s in it ?

A

Letter to carry out valuation works for lenders or repeated clients.

Usually dictated to us.

Broadly same as terms of engagement.

S

57
Q

Can you tell me what loan criteria a bank would provide to us ?

A

Most banks on a commercial basis it’s unlikely that you will get loan to value (50 - 60%) of the value of the property.

Term loan - how long are you borrowing the money for and when are you paying it back.

Loan Type - Interest only. Capital repayment with interest. Or a blend.

58
Q

What is the purpose of the Red Book?

A

Set of global valuation standards created to achieve a high level of integrity and clarity of the valuation process.

59
Q

What an exit value ?

A

Looking at the value once the loan matures.

60
Q

Groundsure survey?

A

State as lender action point and ask the bank to investigates it further.

We are qualified.

61
Q

Discuss the time line of a Valuation instruction?

A
  1. Receive Instruction
  2. Check competence
  3. Check conflicts
  4. TOE - Signed
  5. Gather info
  6. Inspect/ Measure
  7. Draft report - Peer review
  8. Finalise and sign report
  9. Report to client
  10. Issue invoice
  11. File everything securely.
62
Q

Discuss the profits method of valuation ?

A
  • It’s for trade related properties - in a monopoly position
  • Requires 3 years of audited accounts.

Income

(minus) Costs

= Gross Profit

(minus) Expenses + Operators costs

= Adjusted Net Profit

Which is capitalised at an appropriate yield.

63
Q

What is the DRC method?

A

Depreciated Replacement cost. Used for unusual buildings. Usually public sector.

  • Value land in existing use
  • Add costs of building modern equivalent
  • Less discount for obsolescence/ depreciation
64
Q

Can a DRC be used for loan security ?

A

No

65
Q

When are valuations exempt from the Red Book?

A
  1. Expert Witness
  2. Agency
  3. Statutory Purposes
  4. Internal Accounts
66
Q

Talk me through VPS 1 - 5 ?

A
  1. Terms of Engagement
  2. Inspection and Investigation
  3. Valuation Reports
  4. Basis of Value - MV, Fair Value, Investment Value
  5. Valuation Approaches and Methods
67
Q

What is market value ?

A

Market value is

  • The estimated amount that an asset or liability should exchange on the valuation date, between a willing buyer and seller.
  • At arms length transaction after a proper marketing period.
  • With all parties acting knowledgably and without compulsion.
68
Q

What is fair value ?

A

The price that would be received to sell an asset in an orderly transaction between market participants at the valuation date.

69
Q

What’s a marriage value ?

A
  • Negotiated outcome after valuations.
70
Q

What is Investment value ?

A

The value of an asset to the owner , for individual investment or operational objectives.

71
Q

What is a reinstatement value?

A

A reinstatement value of a property is the amount it would cost to rebuild it from scratch completely. It may have been brought to the ground by fire or another catastrophic event, or it may be so dilapidated, it needs to be knocked down.

72
Q

Is a reinstatement value a red book opinion of value ?

A

NO

73
Q

What is an assumption?

A

An assumption is something Reasonable for valuer to accept as true, without the need for specification.

For example (services are connected to mains)

74
Q

What is a special assumption ?

A

A special assumption is a supposition that is taken to be true and accepted as fact, even though it is not true.

For example planning permission.

75
Q

What is a ground lease ?

A

A ground lease is a long term lease of land. It is granted at a ground rent, disregarding the value of any buildings.

76
Q

What is ESG ?

A

Environmental, social, governance

Refers to framework for assessing the impact of sustainability and ethical practices of a company on it’s financial performance.

77
Q

What are the 3 approached to valuations ?

A

Income
Market
Cost

78
Q

What do VPGA’s focus on ?

A

Valuation Practice Guidance Application

Offer applications of standards based on asset type.

79
Q

What is the main aim of the Red Book?

A

To promote confidence
To provide assurance to client

80
Q

Valuation is fast changing. Why is this ?

A
  • Technology
  • Sustainability
  • Global standards and regulation
81
Q

How would you value long leasehold interest?

A

Rent received lees ground rent = Net Rental Income
Capitalised at a yield

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