RICS Standards Flashcards
What is the purpose of the Red Book?
To ensure there is a consistent approach to valuation and to promote objectivity and transparency in the valuation process
What is in the Red Book?
PS 1 - Compliance with standards where a written valuation is provided
PS 2 - Ethics, Objectivity and Disclosure
VPS 1 - Terms of Engagement
VPS 2 - Inspections and Investigations
VPS 3 - Valuation Reports
VPS 4 - Bases of Value, Assumptions and Special Assumptions
VPS 5 - Valuation Approach and Methodology
10 VPGA’S - Guidance on how to value specific assets
What are the 10 VPGA’s?
VPGA 1 - Valuation for inclusion in financial statements
VPGA 2 - Valuation of interests for secured lending
VPGA 3 - Valuation of businesses and business interests
VPGA 4 - Valuation of individual trade related properties
VPGA 5 - Valuation of plant and equipment
VPGA 6 - Valuation of intangible assets
VPGA 7 - Valuation of personal property, including arts and antiques
VPGA 8 - Valuation of real property interests
VPGA 9 - Identification of portfolios, collections and groups of properties
VPGA 10 - Matters that may give rise to material valuation uncertainty
What changes to the Red Book were made in 2020?
The key changes that were made were to reflect the latest version of the IVS, which will now be updated on a rolling basis.
- PS 1 clarifies that a written valuation includes paper and electronic format and automated valuation models.
- PS 2 introduces the concept that valuers should critically assess evidence being relied on in the valuation and be alert to conditions which may cause information to be misleading.
- VPS 3 - Amendments to wording to discuss difference between approach and method. Emphasises the importance of discussing sustainability and environmental matters when valuing real estate.
- VPGA 1 - added guidance in relation to performance standards, professionalism and professional competence, ToE, sources and verification of information and documentation and reports.
- VPGA 8 - Clarifies that the impact of sustainability characteristics should influence the value being reported where the evidence supports it or in the valuers judgement, market participants would reflect such matters in their bids
What is PS 1 - Compliance with standards where a written valuation is provided about?
Requires members to comply with valuation standards where a written valuation is provided, including International Valuation Standards and other standards adopted by the RICS such as International Ethical Standards and International Property Measurement Standards.
When does the Red Book not apply?
- Internal report
- Providing an agency service
- Litigation
- Expert witness (duty to the court)
- Statutory basis
What is PS 2 - Competency, Objectivity and Disclosures about?
Requires members to have the appropriate skill, experience and judgement for the valuation task and act in an ethical manner free from undue influence, bias and conflict of interest.
Valuer may rely on input from other experts to assist in the valuation, subject to express consent from the client.
What are the terms of engagement?
a. Identification and status of the valuer
b. Identification of the client
c. Identification of any other intended users
d. Identification of the asset or liability to be valued
e. Valuation currency
f. Purpose of the valuation
g. Basis of the valuation
h. Valuation date
i. Nature and extent of the Valuer’s work
j. Nature and source of information the valuer will rely on
k. Assumptions and special assumptions
l. Format of the report
m. Restrictions on use, distribution and publication of the report
n. Confirmation the valuation will be undertaken with the IVS
o. The basis on which the fee will be calculated
p. Reference to the firms complaints handling procedure
q. A statement that compliance with these standards are subject to monitoring by the RICS
r. A statement setting out any limitations on liability that have been agreed.
What is VPS 2 - Inspections and Investigations about?
- Requires valuers to carry out an inspection to the extent necessary to produce a valuation that is professionally adequate for its purpose.
- Any limitations with the inspection or investigations must be agreed and recorded in the ToE and the report. Any assumptions and special assumptions as a result of the limitations must be agreed and recorded in the ToE.
- Valuer must take reasonable steps to verify information being relied on in the valuation.
- A proper record of inspections and invitations should be kept. The length of time records are kept are subject to regulatory requirements.
What are the minimum reporting requirements?
Should mirror the terms of engagements and all matters should be dealt with that has been agreed with the client within the ToE prior to issuing the report
a. Identification and status of the valuer
b. Identification of the client and any other intended users
c. Purpose of the valuation
d. Identification of the asset or liability to be valued
e. Basis of the valuation
f. Valuation date
g. Nature and extent of the Valuer’s work
h. Nature and source of information the valuer will rely on
i. Assumptions and special assumptions
j. Restrictions on use, distribution and publication of the report
k. Confirmation the valuation will be undertaken with the IVS
l. Valuation approach and reasoning
m. Valuation amount
n. Date of valuation report
o. Commentary on material uncertainty in relation to the valuation.
p. A statement setting out any limitations on liability that have been agreed.
What is the definition of Market Value?
The estimated amount for which an asset or liability should exchange for on the valuation date between a willing buyer and willing seller in an arms length after proper marketing and where each party had acted knowledgeably, prudently and without compulsion.
What is the definition of Liquidation Value?
The amount that would be realised when an asset or group of assets are sold on a piecemeal basis.
What is the definition of Market Rent?
The estimate amount for which an interest in real property should be leased for at the valuation date between a willing lessee and willing lessor in an arms length transaction on appropriate lease terms, after proper marketing and where each party had acted knowledgeably, prudently and without compulsion
What is the definition of Investment Value?
The value of an asset to a particular owner or prospective owner for individual investment or operational purposes.
What is the definition of Equitable / Fair Value?
The price that would be received to transfer an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
