The Red Book Flashcards
Why has the Red Book been updated?
Because the IVS are updated on a rolling program every 2 years - new IVS in 2019.
What changes have been made to the Red Book?
PS1 - the output of an AVM is explicitly included
PS2 - professional skepticism - valuer should have a questioning mind
VPS 3 (reporting) - must mention sustainability where relevant
What are VPS 1-5?
VPS1 = Terms of Engagement VPS2 = Inspections VPS 3 = Reporting VPS 4 = Bases of Valuation VPS 5 = Valuation approach
What are the 3 valuation approaches?
Income, Market and Cost
What are the key points in PS1?
- Includes when VPGA doesnt apply
- Says no departure from PS1 or PS2 in written valuations
When dont VPGA 1-5 apply?
ALIES:
A: Agency - marketing appraisal
L: Litigation or Negotiation e.g. Rent Review
I: Internal Purposes only
E: expert witness valuation - duty to court
S: Statutory basis - where carried out by statutory officer
What is the purpose of the Red Book?
Supports High valuation Standards Worldwide
COT
Consistency, Objectivity and Transparency
What is in VPS 1?
Terms of Engagement
What are the minimum terms of Engagement? (18)
1) Identification and Status of the Valuer
2) Identification of the client
3) Identification of any other user
4) Identification of the asset
5) Valuation currency
6) Purpose of the valuation
7) Basis of valuation adopted
8) Valuation Date
9) Nature and Extent of valuers work - incl. limitations
10) Nature and source of information relied upon
11) All assumptions and special assumptions
12) Format of the report
13) Restrictions on use
14) Confirmation of valuation in accordance with IVS
15) Basis of fee calculation
16) For RICS regulated firms, reference to complaints handling procedure
17) Statement that compliance to standards may be subject to monitoring under RICS
18) statement setting out limitations to liability
What are the 10 VPGA in 2020 Red Book (Global)?
VPGA 1: Financial Statements VPGA 2: Loan Security VPGA 8: Valuation of Real property (inspection checklist) VPGA 9: Portfolio Valuation VPGA 10: Uncertainty
VPGA 3: Business Valuation VPGA 4: Trade-related valuation VPGA 5: Plant and Equipment VPGA 6: Intangible Assets VPGA 7: Personal Property
What is VPS 4?
Basis of Value - Market Value, Market Rent, Investment Value, Fair Value
What is the definition of Assumptions, Special assumptions and what VPS are they in?
VPS4
Assumptions - made where it is reasonable for the valuer to accept that something is true without the need for specific investigation or verification.
Special Assumptions- is made by the valuer where an assumption either assumes facts that differ from those existing at the valuation date or that would not be made by a typical market participant in a transaction on that valuation date.
What is the structure of the Global Red Book?
- Introduction
- Glossary
- Professional Standards
- Valuation Technical and Performance Standards
- Valuation Applications
- International Valuation Standards
What is PS1?
Compliance with standards where a written valuation is provided
- Sets out exceptions to the Red Book
- States Red Book applies in all written valuations (except ALIES)
- A replacement cost valuation is not a written valuation
What is PS2?
Ethics, Competency, Objectivity and Disclosures
- Must comply with minimum TOE
- Act in accordance with all RICS ethical standards and codes of conduct
- Apply professional skepticism
- Deal appropriately with Conflicts of Interest
- Act objectively and transparently.
What is VPS 2?
Inspections, Investigations and Records
What does the Red Book say about Inspections?
You must inspect to take steps to verify necessary information
What should you do if you can only provide a desktop inspection?
- Agree restriction in TOE with client
- Confirm possible valuation impacts in writing
- Consider whether the restriction is reasonable
- Include in report
Can you revalue without reinspection?
You should not revalue without reinspection unless you are satisfied there have been no material changes.
What is VPS3?
Valuation Reports
- Name and Status of Valuer
- Name of Client + any other users
- Purpose of Valuation
- Identification of Asset
- Basis of Value
- Valuation Date
- Extent of Investigation
- Nature and source of the information to be relied upon
- Assumptions and Special Assumptions
- Restrictions on use/ publication/ distribution
- Instruction in accordance with IVS
- Valuation approach and reasoning
- Valuation Figure
- Date of Valuation report
- Comment on Market Uncertainty
- Limitations Liability.
What is VPS 4?
Bases of Value, Assumptions and Special Assumptions
What are the Bases of Value
SIX
- Market Value
- Market Rent
- Fair/Equitable Value
- Investment Value
- Synergistic Value
- Liquidation Value
What is the definition of Market Value?
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.
What is the definition of Market Rent?
The estimated amount for which an interest in real property
should be leased on the valuation date
between a willing lessor and a 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.
What is the definition of 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 measurement date
What is the definition of Investment Value?
The value of an asset to the owner or a prospective owner for individual investment or operational objectives
What is VPS 5?
Valuation Approaches and Methods
Sets out the 3 main approaches - Income, Market and Cost.
What is VPGA 1?
Fair Value
Provides additional commentary on the valuation of property, assets and liabilities for inclusion in financial statemen
What is VPGA 2?
Secured Lending
- Pay particular consideration to Conflicts of Interest (where there has been any involvement in the last 2 years)
- Also, to additional info in reports that is important for other parties to rely upon e.g. any external circumstances that could affect price
What is VPGA 8?
Valuation of Real Property Assets
Sets out the importance of Inspections, Investigations and Assumptions.
Investigations - a) Characteristics of location, b) Characteristics of Property c) Characteristics of site d) Potential for redevelopment
What is VPGA 10?
Material Uncertainty
- Valuation must not be misleading
- Valuer should clearly draw attention to and comment on any issues resulting in material uncertainty
Can arise due to:
- Being an unusual asset
- Lack of Information
- Market Issues
What is the purpose of the UK National Supplement?
Provides specific requirements for applications in the UK Jurisdiction
What is UK PS1?
Ensures compliance with UK Law.
What is UK VPS1?
States all valuations deemed ‘in accordance with the Red Book’ in the UK are in accordance with Global Red book and UK supplement
What is UK VPS2?
Relates to Residential in Scotland
What is UK VPS 3?
Regulated Purpose Valuation
What are the 5 purposes forming a Regulated Purpose Valuation?
- Inclusion in Financial Statements
- Stock Exchange Listing
- Takeovers + Mergers
- Unregulated Property Unit Trusts
- Collective Investment Schemes
What are some rules around Regulated Purpose Valuations?
- Must declare annually how long you have acted as valuer (RICS recommend no more than 7 years)
- Must declare whether the fees from the client represent more than 5% of total fee income
- If a firm has been the agent in acquisition they cannot value for a minimum of 12 months.
What are some key UK VPGA’s?
VPGA1 - Financial Reporting (IFRS and UK GAAP)
VPGA10 - Commercial Secured Lending
VPGA 8 - Valuation for Charities
VPGA 11 - Residential Mortgages
VPGA 15 - Valuation for elements eg. CGT, SDLT or Inheritance Tax
What do you need to remember about Special ASssumptions
Must be agreed in writing before commencement of the instruction.
