RICS Valuation - Global Standards Definitions

Question 1

Define Assumption?

Answer 1

A supposition taken to be true

It involves facts, conditions or situations affecting the:
- Subject of
- Approach to
- A valuation that

Does 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

Define Basis of Value?

Answer 2

A statement of the fundamental measurement assumptions of a valuation.

In some jurisdictions the basis of value is also know as the ‘standard of value’

Question 3

Define the Cost Approach?

Answer 3

An approach that provides an indication of value using economic principle that a buyer will pay no more for an asset than the cost to obtain the 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 deduction 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

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.

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

Market Approach

Answer 22

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 23

Market Rent

Answer 23

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 24

Market Value

Answer 24

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 25

Marriage Value

Answer 25

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 26

Member

Answer 26

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

Question 27

Personal Property

Answer 27

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: 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)

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

Question 29

Real Estate

Answer 29

Land and all things that are a natural part of the land (e.g. trees, minerals) and things that have been attached to the land (e.g. buildings and site improvements) and all permanent building attachments (e.g. mechanical
and electrical plant providing services to a building), that are both below and above the ground. (Note that a right of ownership, control, use or occupation of land and buildings is defined as a real property interest in
IVS 400 at paragraph 20.2.)

Question 30

Registered for regulation / registered by RICS

Answer 30

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 31

Special Assumption

Answer 31

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 32

Special Purchaser

Answer 32

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 33

Special Value

Answer 33

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

Question 34

Specialised Property

Answer 34

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 35

Sustainability

Answer 35

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 36

Terms of Engagement

Answer 36

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 37

Third Party

Answer 37

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

Question 38

Trade Related Property

Answer 38

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

Question 39

Trading Stock

Answer 39

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 40

Valuation

Answer 40

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 41

Valuation Date

Answer 41

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 42

Asset

Answer 42

Generally refers to items that might be subject to a valuation engagement

Unless specified in the standard - these terms can be considered to mean ‘asset, group of assets, liability, group of liabilities or group of assets and liabilities’

Question 43

Client

Answer 43

Refers to the person or entity for whom the valuation is performed

This can be both internal and external clients

Question 44

Cost

Answer 44

The consideration or expenditure required to acquire or create an asset

Question 45

Discount Rate

Answer 45

A rate of return used to convert a monetary sum, payable or receivable in the future, into a present value

Question 46

Fair Market Value

Answer 46

As the price a willing buyer would pay a willing seller in a transaction on the open market

Question 47

Intended Use

Answer 47

The use of a valuers report valuation or valuation review results as identified by the valuer based on communication with the client

Question 48

Intended User

Answer 48

The client and any other party as identified, by name or type, as users of the valuation or valuation review report by the valuer based on communication with the client

Question 49

Liquidation Value

Answer 49

The amount that would be realised when an asset or group of assets are sold on a piecemeal basis. Liquidation value should take into account the costs of getting the assets into saleable condition as well as those of the disposal activity.
Liquidation value can be determined under two different premises of value (see IVS 104 Bases of Value, section 80):
(a) an orderly transaction with a typical marketing period; or
(b) a forced transaction with a shortened marketing period.

Question 50

Synergistic Value

Answer 50

The result of a combination of two or more assets or interests where the combined value is more than the sum of the separate values. If the synergies are only available to one specific buyer, then synergistic value
will differ from market value, as the synergistic value will reflect particular attributes of an asset that are only of value to a specific purchaser. The added value above the aggregate of the respective interests is often
referred to as marriage value

Question 51

Value

Answer 51

The opinion resulting from a valuation process that is compliant with IVS. It is an estimate of either the most probable monetary consideration for an interest in an asset or the economic benefits of holding an interest in an asset on a stated basis of value.

Question 52

Weight

Answer 52

The word “weight” refers to the amount of reliance placed on a particular indication of value in reaching a conclusion of value (eg, when a single method is used, it is afforded 100% weight).

Question 53

Weighting

Answer 53

The word “weighting” refers to the process of analysing and reconciling differing indications of values, typically from different methods and/or approaches. This process does not include the averaging of valuations, which is not acceptable.