RICS Redbook definitions

Question 1

Assumption

Answer 1

A supposition taken to be true. It involves facts, conditions or situations
affecting the subject of, or approach to, a valuation that, by agreement,
do not need to be verified by the valuer as part of the valuation process.
Typically, an assumption is made where specific investigation by the valuer
is not required in order to prove that something is true.

Question 2

Basis of Value

Answer 2

A statement of the fundamental measurement assumptions of a valuation.
In some jurisdictions, the basis of value is also known as the ‘standard of
value’.

Question 3

Cost Approach

Answer 3

An approach that provides an indication of value using the economic
principle that a buyer will pay no more for an asset than the cost to obtain
an asset of equal utility, whether by purchase or construction.

Question 4

date of the
report

Answer 4

The date on which the valuer signs the report.

Question 5

date of
valuation

Answer 5

See valuation date.

Question 6

departure

Answer 6

Special circumstances where the mandatory application of these global
standards may be inappropriate or impractical. (See PS 1 section 6.)

Question 7

depreciated
replacement
cost (DRC)

Answer 7

The current cost of replacing an asset with its modern equivalent asset
less deductions for physical deterioration and all relevant forms of
obsolescence and optimisation.

Question 8

equitable value

Answer 8

The estimated price for the transfer of an asset or liability between
identified knowledgeable and willing parties that reflects the respective
interests of those parties (see IVS 104 paragraph 50.1).

Question 9

external valuer

Answer 9

A valuer who, together with any associates, has no material links with
the client, an agent acting on behalf of the client or the subject of the
assignment.

Question 10

Environmental,
social and
governance
(ESG)

Answer 10

‘The criteria that together establish the framework for assessing the
impact of the sustainability and ethical practices of a company on its
financial performance and operations. ESG comprises three pillars:
environmental, social and governance, all of which collectively contribute
to effective performance, with positive benefits for the wider markets,
society and world as a whole.’ IVS 2020 Agenda Consultation (p14).
Although ESG principally refers to companies and investors, ESG-related
factors are also used to describe the characteristics and, where relevant,
operation of individual assets. It is used throughout these standards in
this context.

Question 11

fair value

Answer 11

‘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.’ (This definition derives from International Financial
Reporting Standards IFRS 13.)

Question 12

financial
statements

Answer 12

Written statements of the financial position of a person or a corporate
entity, and formal financial records of prescribed content and form. These
are published to provide information to a wide variety of unspecified third
party users. Financial statements carry a measure of public accountability
that is developed within a regulatory framework of accounting standards
and the law.

Question 13

firm

Answer 13

The firm or organisation for which the member works, or through which
the member trades.

Question 14

goodwill

Answer 14

Any future economic benefit arising from a business, an interest in a
business, or from the use of a group of assets that is not separable.

Question 15

income
approach

Answer 15

An approach that provides an indication of value by converting future cash
flows to a single current capital value.

Question 16

inspection

Answer 16

A visit to a property or inspection of an asset, to examine it and obtain
relevant information, in order to express a professional opinion of
its value. However, physical examination of a non-real estate asset,
for example, a work of art or an antique, would not be described as
‘inspection’ as such.

Question 17

intangible
asset

Answer 17

A non-monetary asset that manifests itself by its economic properties.
It does not have physical substance but grants rights and/or economic
benefits to its owner.

Question 18

internal valuer

Answer 18

A valuer who is in the employ of either the enterprise that owns the
assets, or the accounting firm responsible for preparing the enterprise’s
financial records and/or reports. An internal valuer is generally capable of
meeting the requirements of independence and professional objectivity
in accordance with PS 2 section 3, but may not always be able to
satisfy additional criteria for independence specific to certain types of
assignment, for example under PS 2 paragraph 3.4.

Question 19

International
Financial
Reporting
Standards
(IFRS)

Answer 19

Standards set by the International Accounting Standards Board (IASB)
with the objective of achieving uniformity in accounting principles. The
standards are developed within a conceptual framework so that elements
of financial statements are identified and treated in a manner that is
universally applicable.

Question 20

investment
property

Answer 20

Property that is land or a building, or part of a building, or both, held by
the owner to earn rentals or for capital appreciation, or both, rather than
for:
a) use in the production or supply of goods or services, or for administrative
purposes, or
b) sale in the ordinary course of business.

Question 21

investment
value, or worth

Answer 21

The value of an asset to the owner or a prospective owner for individual
investment or operational objectives (see IVS 104 paragraph 60.1). (May
also be known as worth.)

Question 22

investment
value, or worth

Answer 22

The value of an asset to the owner or a prospective owner for individual
investment or operational objectives (see IVS 104 paragraph 60.1). (May
also be known as worth.)

Question 23

market
approach

Answer 23

An approach that provides an indication of value by comparing the
subject asset with identical or similar assets for which price information is
available.

Question 24

market rent
(MR)

Answer 24

The estimated amount for which an interest in real property should
be leased on the valuation date between a willing lessor and willing
lessee on appropriate lease terms in an arm’s length transaction, after
proper marketing and where the parties had each acted knowledgeably,
prudently and without compulsion (see IVS 104 paragraph 40.1).

Question 25

market value
(MV)

Answer 25

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 and where the parties had
each acted knowledgeably, prudently and without compulsion (see IVS 104
paragraph 30.1).

Question 26

marriage value

Answer 26

An additional element of value created by the combination of two or more
assets or interests where the combined value is more than the sum of the
separate values.

Question 27

member

Answer 27

A Fellow, professional member, associate member or honorary member of
the Royal Institution of Chartered Surveyors (RICS).

Question 28

personal
property

Answer 28

Personal property means assets (or liabilities) not permanently attached to
land or buildings:
∫ including, but not limited to, fine and decorative arts, antiques,
paintings, gems and jewellery, collectables, fixtures and furnishings, and
other general contents
∫ excluding trade fixtures and fittings, plant and equipment, businesses or
business interests, or intangible assets.

Question 28

plant and
equipment

Answer 28

Plant and equipment may be broadly divided into the following categories:
∫ plant: assets that are combined with others and that may include items
that form part of industrial infrastructure, utilities, building services
installations, specialised buildings, and machinery and equipment
forming a dedicated assemblage
∫ machinery: individual, or a collection or a fleet or system of, configured
machines/technology (including mobile assets such as vehicles, rail,
shipping and aircraft) that may be employed, installed or remotely
operated in connection with a user’s industrial or commercial processes,
trade or business sector (a machine is an apparatus used for a specific
process) or
∫ equipment: an all-encompassing term for other assets such as sundry
machinery, tooling, fixtures, furniture and furnishings, trade fixtures and
fittings, sundry equipment and technology and loose tools that are used
to assist the operation of the enterprise or entity.

Question 29

registered for
regulation/
registered by
RICS

Answer 29

a) A firm that is registered for regulation by RICS under the RICS byelaws.
b) A member who is registered as a valuer under RICS Valuer Registration
(VR).

Question 30

special
assumption

Answer 30

An assumption that either assumes facts that differ from the actual facts
existing at the valuation date or that would not be made by a typical
market participant in a transaction on the valuation date.

Question 31

special
purchaser

Answer 31

A particular buyer for whom a particular asset has a special value because
of advantages arising from its ownership that would not be available to
other buyers in a market.

Question 32

special value

Answer 32

An amount that reflects particular attributes of an asset that are only of
value to a special purchaser.

Question 33

specialised
property

Answer 33

A property that is rarely, if ever, sold in the market, except by way of a sale
of the business or entity of which it is part, due to the uniqueness arising
from its specialised nature and design, its configuration, size, location or
otherwise.

Question 34

sustainability

Answer 34

Sustainability is, for the purpose of these standards, taken to mean the
consideration of matters such as (but not restricted to) environment
and climate change, health and wellbeing, and personal and corporate
responsibility that can or do impact on the valuation of an asset. In broad
terms it is a desire to carry out activities without depleting resources or
having harmful impacts.
There is as yet no universally recognised and globally adopted definition
of ‘sustainability’. Therefore, members should exercise caution over the
use of the term without additional appropriate explanation. In some
jurisdictions, the term ‘resilience’ is being adopted to replace the term
‘sustainability’ when related to property assets.
Sustainability may also be a factor in environmental, social and
governance (ESG) considerations.

Question 35

terms of
engagement

Answer 35

Written confirmation of the conditions that either the member proposes or
that the member and client have agreed shall apply to the undertaking and
reporting of the valuation. Referred to in IVS as scope of work – see IVS 101
paragraph 10.1.

Question 36

third party

Answer 36

Any party, other than the client, who may have an interest in the valuation
or its outcome.

Question 37

trade related
property

Answer 37

Any type of real property designed for a specific type of business where
the property value reflects the trading potential for that business.

Question 38

trading stock

Answer 38

Stock held for sale in the ordinary course of business, for example, in
relation to property, land and buildings held for sale by builders and
development companies.

Question 39

valuation

Answer 39

An opinion of the value of an asset or liability on a stated basis, at a
specified date. If supplied in written form, all valuation advice given by
members is subject to at least some of the requirements of the Red Book
Global Standards – there are no exemptions (PS 1 paragraph 1.1). Unless
limitations are agreed in the terms of engagement, a valuation will be
provided after an inspection, and any further investigations and enquiries
that are appropriate, having regard to the nature of the asset and the
purpose of the valuation.

Question 40

valuation date

Answer 40

The date on which the opinion of value applies. The valuation date should
also include the time at which it applies if the value of the type of asset
can change materially in the course of a single day.

Question 41

worth

Answer 41

See investment value.