RICS Valuation - Global Standards Flashcards
Define the sections of the RICS Valuation - Global Standards
- Introduction
- Glossary
- Professional Standards
PS1: Compliance with standards and practice statements where a written valuation is provided
PS2: Ethics, competency, objectivity and disclosures - Valuation technical and Performance Standards (mandatory unless otherwise stated)
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 - Valuation applications
- International Valuation Standards 2017
Describe the overall purpose of the Red Book 2020
consistency, objectivity and transparency are fundamental to building and sustaining public confidence and trust in valuation.
Describe changes to the 2020 version of the Red Book
- Very little changes from the 2017 version, date dropped from the title
- In PS2 – valuers must now apply independence and objectivity to their work and apply professional scepticism whilst reviewing data ie to assess evidence critically and aware of information being misleading
- IVS 410 – a requirement for valuers of development property to apply a minimum of two appropriate methods to valuing development property for each valuation project – ie development appraisal and comparable method
- VPS 3 – now reinforces the need for valuation reports to state, clearly and understandably to users of reports what the valuation approach was and relevant reasoning which led to their findings
Name requirements and exceptions under PS1 of the Redbook
All valuations must include Part 4, PS1/PS2
- The areas of exemption in relation to VPS 1-5 include:
1. Providing an agency/brokerage service in respect of the acquisition or disposal of one or more assets, except when a purchase report is required which includes a valuation. Guidance provided in ‘Real estate agency and brokerage guidance, 3rd edition 2016’.
2. Acting or preparing to act as an expert witness; exception is to recognise that a member acting as an expert witness must follow very strict rules / procedures laid down by the courts
3. Performing statutory functions except for the provision of a valuation for inclusion in a statutory return to a tax authority
4. Advice is expressly provided in preparation for or during course of negotiations or litigations
5. The valuation is provided for a client for internal purposes and not communicated to any third party
Name main points under PS2
Professional and ethical standards
- Members undertaking valuations must act in accordance with the 5 RICS professional and ethical standards 2015 and be bound by RICS Rules of Conduct for Members and Firms, 2007
Member qualifications
- Individuals must be appropriately qualified to accept responsibility for a valuation
- Have appropriate academic / professional qualifications
- Membership of a professional body
Independence, objectivity and the identification and management of conflicts of interest
- Valuer and firm must act objectively and independently always and not be influenced by anu situation which could threaten professional objectivity – should apply professional scepticism, when reviewing information and data before relying upon it (new change for 2020)
- No member should advice/represent a client were doing so would involve a conflict of interest. Members should keep records of the obtaining of informed consent, any measures taken to avoid conflicts of interest arising.
Terms of Engagement
- Members must understand client’s requirements and comply with the minimum terms of engagement. Members must be able to demonstrate professional competence
Under VSP1 Terms of Engagement, name minimum terms of engagement
The minimum matters must be confirmed in writing to a client prior to commencing a Red Book valuation
a) Identification and status of the valuer
b) Identification of the client
c) Identification of any other intended users
d) The asset to be valued – if portfolio, lotting of assets should be considered
e) Currency
f) Purpose of valuation
g) Basis of Value
h) Valuation Date
i) Extent of investigation
j) Nature and source of the information to be relied upon
k) Assumptions and special assumptions to be made.
l) Format of the report
m) Restrictions for use, distribution, publication
n) Confirmation of Red Book Global / IVS compliance
o) Fee basis
p) Complaints Handling Procedure to be made available
q) Statement that the valuation may be subject to compliance by RICS
r) Limitation on liability agreed
Define assumption and special assumption
Assumptions – are made where it is reasonable for the valuer to accept something is true without the need for a specific investigation.
Special Assumption – is a supposition that is taken to be true and accepted as fact, even though it is not, for example, disregarding HS2 for CPO as a no scheme world assumption
Note, both assumptions and special assumptions to be agreed in writing prior to an instruction, included within ToE as shown as minimum in VPS1
Under VPS 2, describe information on inspections
- Inspections and investigations must always be carried out to the extent necessary to produce a valuation that is professionally adequate for its purpose
- Valuer must take reasonable steps to verify the information relied on in the preparation of the valuation, and the clarification with the client for any necessary assumptions to be relied upon.
- When measurements undertaken, need to regard International Property Measurement Standards (IPMS)
Under VPS2 describe restricted information
- Red Book unless set out for specific purposes set out in PS1
- When valuer is instructed to undertake valuation on basis of restricted information, the following four factors should be considered:
1. The nature of the restriction must be agreed in the terms of engagement.
2. The possible valuation implications of the restriction are confirmed in writing before the value is reported
3. The valuer should consider whether the restriction is reasonable with regard to the purpose of the valuation.
4. The restriction must be referred to in the report
Under VPS2 describe Revaluations
Revaluation (without re-inspection) – relevant for case study
- Must not be revalued without re-inspection of the property unless the valuer is satisfied that there have been no material changes to the property or nature of its location since its last inspection.
- This assumption of no material changes must be confirmed in the ToE and in the valuation report
Records - Proper records must be held of the inspections and investigations and of other key inputs in an appropriate business format (CJ Valuation Checklist)
Under VPS 3, describe minimum content required
Minimum content required for Red Book compliant reports -
(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(s) or liability(ies) valued
(e) Basis(es) of value adopted
(f) Valuation date
(g) Extent of investigation
(h) Nature and source(s) of the information relied upon
(i) Assumptions and special assumptions
(j) Restrictions on use, distribution and publication of the report
(k) Confirmation that the valuation has been undertaken in accordance with the IVS
(l) Valuation approach and reasoning
(m) Amount of the valuation or valuations
(n) Date of the valuation report
(o) Commentary on any material uncertainty in relation to the valuation where it is essential to ensure clarity on the part of the valuation user
(p) A statement setting out any limitations on liability that have been agreed.
Under VPS3 describe preliminary draft advice
Preliminary draft valuation advice –
• Preliminary advice can be given but must be marked draft, for internal purposed only and must be subject to the completion of the final report
• Changes to preliminary valuations must be noted on file and reasons provided
Under VPS 4 - Name 4 main bases of value
Market Value, Market Rent, Fair Value, Investment Value
Define Market Value
- 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 parties had acted knowledgeably, prudently and without compulsion.
Define Market Rent
- Market Rent – 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 arms-length transaction
• After proper marketing
• Where parties had acted knowledgeably, prudently and without compulsion.
