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RICS 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 the RICS Valuation Global Standards?

A
  • RICS Valuation- Global Standards (Red Book) effective from 31st January 2022
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2
Q

What parts make up the Red Book? (6 parts)

A
  1. Introduction
  2. Glossary
  3. Professional Standards (PS1 &PS2)
  4. Valuation Technical and Performance Standards (VPS1-5)
  5. Valuation Practice Guidance Applications (VPGA1-10)/( UK VPGA 1-17)
  6. International Valuation Standards (IVS, Summary of changes)
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3
Q

What does the Red Book set out?

A
  • Sets out valuation profession, technical and performance standards
  • Ensures that valuations undertaken by RICS Members are consistent and objective
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4
Q

What is PS1 & PS2?

A
  • PS1: Compliance with standards
    where a written valuation is
    provided
  • PS2: Ethics, Competency,
    Objectivity and Disclosures
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5
Q

What does VPS refer to?

A

Valuation Technical and Performance Standards

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6
Q

What are VPS 1- VPS 5?
(TIRBAM)

A
  • VPS 1: Terms of Engagement
  • VPS 2: Inspections, Investigation and Records
  • VPS 3: Valuation Report
  • VPS 4: Bases of Value and
    Assumptions
  • VPS 5: Approaches and Methodology
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7
Q

What does VPGA refer to?

Part 5 (Valuation Applications)

A
  • Valuation Practice Guidance Applications
  • For valuations for specific purposes
  • UK supplement has 17
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8
Q

What are VPGA 1 - 10?

A

Valuation for:

-VPGA 1: Inclusion in Financial Reporting
- 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 (arts/antiques)
- VPGA 8: Real Property Interests
- VPGA 9: Portfolios
- VPGA 10: Matters that may give rise to material valuation uncertainty

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9
Q

What else forms a core component of the Red Book?

A

The International Valuation Standards (IVS)

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10
Q

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

A
  1. Terms of reference must be clear and unambiguous in that valuations are RGB or not
  2. Sustainability and ESG Factors- Valuers should have regard for the relevance and significance and should form approach and reasoning
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11
Q

Can you give some of the changes that have been made within IVS?

A
  • Extended Glossary
  • List of Core Principles added to Introduction
  • Wording changes to IVS 101, 104 & 105
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12
Q

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

A
  • To promote confidence and
  • provide assurance to clients that a valuation undertaken by a RICS registered valuer will be to the highest professional standard
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13
Q

What are the main benefits of Global Valuation Standards?

A
  • They are financially acceptable
  • Reduces risk
  • Standards comparable on global basis
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14
Q

What are the benefits of Global Valuation Standards to clients?

A
  • Consistency in approach in approach (creditable valuations)
  • Transparency (clarity)
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15
Q

The Red Book was devised to establish… (CCT)?

A
  • Consistency
  • Confidence
  • Transparency
    in valuation practice
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16
Q

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

A
  • Development Property IVS 410
  • Real Property Interests IVS 400
  • Inventory IVS 230
  • Plant & equipment IVS 300
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17
Q

For RICS members is compliance with the Red Book mandatory?

A

Yes

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18
Q

When does a valuation have to be Red Book complaint?

A
  • Mandatory for all valuations expect 5 circumstances
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19
Q

What are the 5 exceptions to using the Red Book Global VPS1-5?

A
  1. During negotiation/ligation
  2. Valuer is performing statutory function
  3. Internal Valuation Purposes
  4. Agency work for disposal/acquisition instruction
  5. Evidence for Expert Witness
20
Q

VPS 1- What is included with Terms of Engagement as a minimum requirement of a Valuation Report?

A
  1. Indentification and Status of Valuer
  2. Client
  3. Other intended users
  4. Assets to be valued
  5. Currency
  6. Purpose of Valuation
  7. Basis of Value
  8. Extent of investigation
  9. Nature and Sources of Information
  10. Assumptions and Special Assumptions
  11. Format of Report
  12. Restrictions of Use
  13. Red Book Global/IVS compliance
  14. Fee Basis
  15. Complaints Handling Procedure
  16. Statement that report may be monitored by RICS
  17. PI Liability
21
Q

Who is the Red Book primarily aimed at?

A

RICS Members undertaking valuations

22
Q

What does the Bases of Value refer to?

A

The fundamental measurement assumptions of a valuation

23
Q

What are the Bases of Value?

A
  1. Market Value
  2. Market Rent
  3. Investment Value
  4. Fair Value
  5. Equitable Value
  6. Liquidation Value
24
Q

Define Market Value?

A
  • The estimated amount for which an asset or liability should exchange
  • On the valuation date
  • Between a willing buyer and willing seller
  • In an arms length transaction
  • After proper marketing
  • Where the parties had each acted knowledgeably, prudently and without compulsion
25
Q

Define Market Rent?

A
  • The estimated amount for which an interest in a real property should be leased for
  • On the valuation date
  • Between a willing lessor and willing lessee
  • On appropriate lease terms
  • In an arms length transaction
  • After proper marketing
  • Where the the parties had each acted knowledgeably, prudently and without complusion
26
Q

Define Fair Value?

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
27
Q

Define Investment Value?

A
  • The value of an asset to a particular owner based on individual investment or operational value
28
Q

What is a Secured Lending Valuation?

A
  • Valuation for the purposes of a Commercial loan
  • Property is used as security against a loan amount
29
Q

Which part of the of the Global Red Book refers to Secured Lending?

A
  • VPGA 2
  • UK VPGA 10
30
Q

When is a secured lending valuation carried out?

A

Loan security purpose for the Bank

31
Q

When would banks not lend?

A
  • Construction type (non trad)
  • Contaminated Land
  • Title Issues
  • Moral (criminal activity)
32
Q

Can Depreciated Replacement Cost Method be used for Secured Lending?

A

No

33
Q

What issues can arise from Secured Lending Valuations?

A
  • Conflicts of Interest
  • Disclosure of any previous involvement in the property
  • Addition requirements to the Valuation Report

eg) Suitability for mortgage purposes, affects on price

34
Q

Provide examples of a Conflict of Interest?

A
  1. Acting for Buyer and Seller
  2. Valuing property previously valued for another client
  3. Valuing for a lender, where advice is given to the borrower
35
Q

Valuation is a fast changing profession due to?

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

What does ESG refer to?

A
  • Environmental, Social, 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
37
Q

What are the IFRS ?

A
  • International Financial Reporting Standards
  • Set out by International Accounting Standards Board to achieve universal accounting principles
38
Q

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

A
  1. IVS: International Valuation Standards
  2. IES: International Ethics Standards
  3. IPMS: International Property Measurement Standards
39
Q

Are Professional Standards (PS1 & PS2) mandatory?

A
  • Yes for all Valuers providing written valuations
40
Q

VPS3 - Valuation Reports. What makes up a report?

Hamilton Road and Hardengreen

A
  1. Indentification and status of valuer
  2. Client
  3. Purpose of Valuation
  4. Asset to be valued
  5. Basis of Value
  6. Valuation Date
  7. Extent of Investiagtion
  8. Nature and source of information
  9. Assumptions and Special Assumptions
  10. Consent and publication restrictions
  11. Red Book Compliance
  12. Valuation approach and reasoning
  13. Valuation figure
  14. Commentary on market uncertainty
  15. Limitations on liability
41
Q

Discuss the time line of a Valuation instruction?

A
  1. Receive Instruction
  2. Check Competence
  3. Check Conflict of Interest
  4. TOE (signed)
  5. Gather information
  6. Inspect and Measure
  7. Draft Report
  8. Finalised and sign report
  9. Report to client
  10. Issue invoice
  11. File away securely
42
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
  • Can usually be a building that has been destroyed by fire or badly dilapidated
43
Q

Is a reinstatement value a red book opinion of value ?

A

No

44
Q

Can you issue draft Valuation Advice?

A
  • Yes
  • Must be marked as Draft and for internal purposes only
  • Must be discussed with client and valuer cant be influenced
45
Q

Is there room for margin of error in valuations?

A
  • Yes
  • Typically 10% either way
46
Q

Under VPG2 what is considered previous involvement?

A
  • Any involvement within past 2 years with borrower
47
Q

Under VPGA 2 how can secured lending result in Conflict of Interest?

A
  • Longstanding professional relationship with borrower or owner
  • Financial interest in property or borrower

RICS APC (24 decks)

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