RICS Red Book 2021 Flashcards
What is the Red Book?
Sets out the standards that valuers should follow
Why does the Red Book exist?
Part of RICS commitment to promote and support high standards in valuation delivery worldwide
Tell me about a factor which may impact value.
Whether site has planning permission or not
What is your duty of care as a surveyor when valuing?
- Duty of care exists to clients and third parties to use ‘reasonable care and skill’
- If the duty of care is breached there is a potential loss or claim for damages available
- Case law: Yianni v Evans 1981 - residential valuer instructed by mortgage lending institution could owe a duty of care in tort to mortgage purchaser relying on valuation
Is there a separate UK Red Book?
- RICS Valuation Global Standards 2017 (UK National Supplement)
- Applies from 14 January 2019
- To provide advice on specific requirements and supporting guidance on the application of the global Red Book to UK valuation works
When was the Red Book last updated?
Effective 31 January 2022, the same date as the latest edition of IVS becomes effective
What changes were made to the IVS?
- Technical revisions consulted on throughout 2020 and 2021
- Glossary updated to include new terms and provide additional clarity
Which sections of the Red Book are mandatory and which are advisory?
- Professional Standards 1-2 are mandatory for all written valuations
- Valuational Technical and Performance Standards 1-5 are mandatory unless otherwise stated
- VPGA 1-10 are advisory and guide best practice
What does PS1-2 / VPS1-5 / VPGAs relate to?
- PS 1 = Compliance with standards where written valuation is provided
- PS 2 = Ethics, competency, objectivity and disclosures
- VPS 1 = Terms of engagement
- 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
- VPGAs = Valuation applications
What type of advice does the Red Book cover?
- Procedural rules and guidance to comply with Rules of Conduct
- Uniform framework
- Consistency in approach
- Ensures competence of valuers
- Independence, objectivity and transparency
- Clarity for Terms of Engagement
- Clarity for basis of value plus assumptions or material considerations
- Clarity in reporting, proper and adequate disclosure of matters for third parties
If you provide preliminary advice / draft valuation report, what should you state in writing to your client?
In providing preliminary advice or a draft report in advance of completion the member must state that:
* Opinion is provisional and subject to completion of final report
* Advice is provided for internal purposes
* Draft - on no account to be published or disclosed
What must be included in your terms of engagement / valuation report?
VPS 1 - Terms of Engagement
* Identification and status of valuer, client, intended users, assets being valued
* Currency
* Purpose
* Basis of value and date
* Nature and extent of investigations and limitations
* Nature and source of information relied upon
* Assumptions / special assumptions
* Format of report
* Restrictions on use, distribution and publication
* Confirmation of compliance with IVS
* Fee basis
* Reference to CHP
* Statement to monitoring by RICS
* Limitations on liability
What are the 3 approaches under VPS5?
1 Market approach - comparing the subject asset to identical or similar assets for which the price information is available
2 Income approach - capitalising present or predicted income into a single current capital value
3 Cost approach - i.e. pay no more than cost to obtain and cost to construct
Are there any instances where certain sections of the Red Book may not apply?
PS 1-2 Mandatory
VPS 1-5 doesn’t apply in 5 exceptions:
1 Advice in preparation or during litigation
2 Valuer performing statutory function except for provision of valuation for inclusion in a statutory return to tax authority
3 Valuation for internal purpose only (no liability and no communication to third party)
4 Valuation provided as part of agency and brokerage work in anticipation of receiving instruction to dispose, acquire, except when a purchase report is required
5 Valuation for advice as expert witness
Which sections are advisory?
VPGA 1-10 are advisory and provide guidance on best practice. They typically relate to valuations for specific purposes or of specific asset types e.g. financial statements, secured lending, trade related property and portfolios
