RICS - Global Standards - Red Book (Jan 2022) Flashcards
What is the latest edition of the RICS Valuation Global Standards?
- RICS Valuation- Global Standards (Red Book) effective from 31st January 2022
What parts make up the Red Book? (6 parts)
- Introduction
- Glossary
- Professional Standards (PS1 &PS2)
- Valuation Technical and Performance Standards (VPS1-5)
- Valuation Practice Guidance Applications (VPGA1-10)/( UK VPGA 1-17)
- International Valuation Standards (IVS, Summary of changes)
What does the Red Book set out?
- Sets out valuation profession, technical and performance standards
- Ensures that valuations undertaken by RICS Members are consistent and objective
What is PS1 & PS2?
- PS1: Compliance with standards
where a written valuation is
provided - PS2: Ethics, Competency,
Objectivity and Disclosures
What does VPS refer to?
Valuation Technical and Performance Standards
What are VPS 1- VPS 5?
(TIRBAM)
- 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
What does VPGA refer to?
Part 5 (Valuation Applications)
- Valuation Practice Guidance Applications
- For valuations for specific purposes
- UK supplement has 17
What are VPGA 1 - 10?
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
What else forms a core component of the Red Book?
The International Valuation Standards (IVS)
Discuss the recent changed made to RICS Valuation - Global Standards ‘Red Book’ (2022)?
- Terms of reference must be clear and unambiguous in that valuations are RGB or not
- Sustainability and ESG Factors- Valuers should have regard for the relevance and significance and should form approach and reasoning
Can you give some of the changes that have been made within IVS?
- Extended Glossary
- List of Core Principles added to Introduction
- Wording changes to IVS 101, 104 & 105
What is the main objective of the ‘Red Book’?
- To promote confidence and
- provide assurance to clients that a valuation undertaken by a RICS registered valuer will be to the highest professional standard
What are the main benefits of Global Valuation Standards?
- They are financially acceptable
- Reduces risk
- Standards comparable on global basis
What are the benefits of Global Valuation Standards to clients?
- Consistency in approach in approach (creditable valuations)
- Transparency (clarity)
The Red Book was devised to establish… (CCT)?
- Consistency
- Confidence
- Transparency
in valuation practice
Give examples of the differing Asset Standard in the International Valuation Standards (IVS)?
- Development Property IVS 410
- Real Property Interests IVS 400
- Inventory IVS 230
- Plant & equipment IVS 300
For RICS members is compliance with the Red Book mandatory?
Yes
When does a valuation have to be Red Book complaint?
- Mandatory for all valuations expect 5 circumstances
What are the 5 exceptions to using the Red Book Global VPS1-5?
- During negotiation/ligation
- Valuer is performing statutory function
- Internal Valuation Purposes
- Agency work for disposal/acquisition instruction
- Evidence for Expert Witness
VPS 1- What is included with Terms of Engagement as a minimum requirement of a Valuation Report?
- Indentification and Status of Valuer
- Client
- Other intended users
- Assets to be valued
- Currency
- Purpose of Valuation
- Basis of Value
- Extent of investigation
- Nature and Sources of Information
- Assumptions and Special Assumptions
- Format of Report
- Restrictions of Use
- Red Book Global/IVS compliance
- Fee Basis
- Complaints Handling Procedure
- Statement that report may be monitored by RICS
- PI Liability
Who is the Red Book primarily aimed at?
RICS Members undertaking valuations
What does the Bases of Value refer to?
The fundamental measurement assumptions of a valuation
What are the Bases of Value?
- Market Value
- Market Rent
- Investment Value
- Fair Value
- Equitable Value
- Liquidation Value
Define Market Value?
- 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
Define Market Rent?
- 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
Define Fair Value?
- 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
Define Investment Value?
- The value of an asset to a particular owner based on individual investment or operational value
What is a Secured Lending Valuation?
- Valuation for the purposes of a Commercial loan
- Property is used as security against a loan amount
Which part of the of the Global Red Book refers to Secured Lending?
- VPGA 2
- UK VPGA 10
When is a secured lending valuation carried out?
Loan security purpose for the Bank
When would banks not lend?
- Construction type (non trad)
- Contaminated Land
- Title Issues
- Moral (criminal activity)
Can Depreciated Replacement Cost Method be used for Secured Lending?
No
What issues can arise from Secured Lending Valuations?
- 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
Provide examples of a Conflict of Interest?
- Acting for Buyer and Seller
- Valuing property previously valued for another client
- Valuing for a lender, where advice is given to the borrower
Valuation is a fast changing profession due to?
- Technology
- Sustainability
- Global Standards and recognition
What does ESG refer to?
- 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
What are the IFRS ?
- International Financial Reporting Standards
- Set out by International Accounting Standards Board to achieve universal accounting principles
The Global Red Book recognises 3 international standards. What are they?
- IVS: International Valuation Standards
- IES: International Ethics Standards
- IPMS: International Property Measurement Standards
Are Professional Standards (PS1 & PS2) mandatory?
- Yes for all Valuers providing written valuations
VPS3 - Valuation Reports. What makes up a report?
Hamilton Road and Hardengreen
- Indentification and status of valuer
- Client
- Purpose of Valuation
- Asset to be valued
- Basis of Value
- Valuation Date
- Extent of Investiagtion
- Nature and source of information
- Assumptions and Special Assumptions
- Consent and publication restrictions
- Red Book Compliance
- Valuation approach and reasoning
- Valuation figure
- Commentary on market uncertainty
- Limitations on liability
Discuss the time line of a Valuation instruction?
- Receive Instruction
- Check Competence
- Check Conflict of Interest
- TOE (signed)
- Gather information
- Inspect and Measure
- Draft Report
- Finalised and sign report
- Report to client
- Issue invoice
- File away securely
What is a reinstatement value?
- 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
Is a reinstatement value a red book opinion of value ?
No
Can you issue draft Valuation Advice?
- Yes
- Must be marked as Draft and for internal purposes only
- Must be discussed with client and valuer cant be influenced
Is there room for margin of error in valuations?
- Yes
- Typically 10% either way
Under VPG2 what is considered previous involvement?
- Any involvement within past 2 years with borrower
Under VPGA 2 how can secured lending result in Conflict of Interest?
- Longstanding professional relationship with borrower or owner
- Financial interest in property or borrower
