RICS Valuation - Global standards 2021 - Red Book Global Flashcards
Briefly outline the structure of the Redbook
Divided into six parts
Part 1. Introduction.
Part 2. Glossary
Part 3. Professional standards (PS) - 2
Part 4. Valuation technical and performance standards (VPS) - 5
Part 5. Valuation applications (VPGA) - 10
Part 6. The International Valuation Standards (IVS)
What are the five exceptions for when a valuation does not have to be Redbook?
- Advice only during negotiations or litigation.
- Valuer is performing a statutory function
- Only for internal purposes without liability, and not communicated to any third-party
- Valuation is provided as part of agency or brokerage in anticipation of receiving instructions to dispose of or, acquire an asset
- Valuation advice provided in anticipation of giving evidence as an expert witness.
What is PS1?
Compliance with standards and practices statements are written valuation is provided
What is PS2?
Ethics, competency, objectivity, and disclosures
Includes: professional and ethical standards, must act in accordance with RICS RoC
Must be independent and at objectively must manage conflicts of interest
Terms of engagement- must understand clients requirements and comply with minimum terms of engagement and must demonstrate professional competence
What are the five Valuation and Technical Performance Standards?
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
What is in VPS 1 terms of engagement?
The minimum matters (18) to be confirmed in writing prior to commencing a Redbook valuation, eg:
ID and status of valuer
ID of Client,
Valuation date
Currency
Purpose of valuation
Format of report
Basis of Value
Assumptions and special assumptions
The basis
Restrictions on use and publication
Complaints handling procedure made available
Limitation of liability
What is the difference between an assumption and a special assumption?
Assumption is reasonable to assume or accept is true without the need for specific investigation.
Special assumption is taken to be true and accepted as fact, even though it is not .
What are the key things in VPS 2 - inspections, investigations, and records?
Must take steps to verify info, that is being relied upon.
Restricted information (desktop) valuations - Must refer to in ToE and in report
- Must assess if the restriction is reasonable in regard to the valuation
Revaluation (without re-inspection)
- Only if they have the new material changes in the property location last inspected
- must be confirmed in writing in the report
Records - all records must be properly recorded and held in a file
VPS 3- valuation reports
Minimum matters to be stated in report (16)
Minimum matters to be stated in the report include:
ID and status of value
Client and intended users
Purpose of valuation
ID of asset to be valued
Basis of value
Valuation date
Extent of investigation
Assumptions and special assumptions
Valuation figures
Date of valuation report
Comment on market uncertainty
Statement setting out any limitations on liability that have been a great
How can you give draft advice as discussed in VPS 3?
Can be given that must be marked as draft for internal purposes only. Cannot be relied upon.
It can be discussed with the client, but the valuer must not be influenced by the client .
Any changes to the draft must be knighted on file with reasoning
VPS 4 - Basis of value, assumptions, and special assumptions.
What are the 6 bases of value?
Market value
Market rent
Fair value
Investment 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 seller in an arms length transaction after proper marketing, where parties have acted in knowledgeably, prudently, without compulsion
Define 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 of transaction after proper marketing where the parties have acted knowledgeably, prudently, and without compulsion
Define for 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 measurements date.
This is required if international financial reporting standards have been adopted
Define investment value
The value of an asset to a particular owner or prospective owner for individual investment or operational objectives
VPS 5 valuation approaches and methods
Values must be able to justify their valuation approach.
I.e. income market or cost
How many VPGAs are there?
10
What is VPGA 1?
Valuation for inclusion in financial accounts.
Where IFRS is adopted by the client
What VPGA would you look at for secured lending? And what does it provide guidance on?
VPGA 2.
Dealing with conflicts in secured lending:
Any previous involvement with borrower the property must be disclosed to the lender.
Previous involvement is normally defined as the past two years .
Instruction should be declined if valuer or Client considers any involvement create a conflict that cannot be avoided
States valuer should refer to RICS rules of conduct, when deciding whether they should accept or decline an instruction .
If valuer and Client agree, conflict can be avoided then must be recorded in writing and included in ToE and in report
What additional reporting procedures are there under VPGA 2 - Secured lending?
Disclose previous involvement
State valuation methodology adopted supported where appropriate with calculation
Comment on environmental consideration
Comment on suitability for loan purposes
Any circumstances of which the valuer is aware that could affect price
State the material difference between the reported value and the value on the special assumption (if any)
Where would you look for valuation of real property interests?
VPGA 8 - this covers actual characteristics of property such as the state of repair, use location, construction, age, etc
There is a big emphasis on ESG and specific environmental constraints/sustainability issues, including EPCs, flood issues, carbon emissions and wellness
What is the VPGA 10?
Matters that give rise to material valuation uncertainty
- valuation reports must not be misleading
- valuer, should clearly draw attention to and comment on any issues resulting in material uncertainty in the valuation
- for example, Covid clause,
- Should not use standard caveats for material uncertainty matters
What is part six of the RICS valuation global standards?
The International valuation standards, effective from, 2022- Mandatory
There are two main parts
1. General standards. - essentially mirror VPS 1 - 5
2. Asset standards - similar to VPGAs - revise requirements on specific types of assets e.g. real property
What other legislation might to you consider when undertaking a valuation in the UK?
RICS valuation - global standards (UK national supplement 2018, with effect from January 2019.
