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APC > The Red Book > Flashcards

The Red Book Flashcards

1
Q

Why has the Red Book been updated?

A

Because the IVS are updated on a rolling program every 2 years - new IVS in 2019.

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2
Q

What changes have been made to the Red Book?

A

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

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3
Q

What are VPS 1-5?

A 
VPS1 = Terms of Engagement
VPS2 = Inspections
VPS 3 = Reporting
VPS 4 = Bases of Valuation
VPS 5 = Valuation approach
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4
Q

What are the 3 valuation approaches?

A

Income, Market and Cost

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5
Q

What are the key points in PS1?

A
  • Includes when VPGA doesnt apply

- Says no departure from PS1 or PS2 in written valuations

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6
Q

When dont VPGA 1-5 apply?

A

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

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7
Q

What is the purpose of the Red Book?

A

Supports High valuation Standards Worldwide

COT
Consistency, Objectivity and Transparency

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8
Q

What is in VPS 1?

A

Terms of Engagement

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9
Q

What are the minimum terms of Engagement? (18)

A

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

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10
Q

What are the 10 VPGA in 2020 Red Book (Global)?

A 
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
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11
Q

What is VPS 4?

A

Basis of Value - Market Value, Market Rent, Investment Value, Fair Value

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12
Q

What is the definition of Assumptions, Special assumptions and what VPS are they in?

A

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.

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13
Q

What is the structure of the Global Red Book?

A
  1. Introduction
  2. Glossary
  3. Professional Standards
  4. Valuation Technical and Performance Standards
  5. Valuation Applications
  6. International Valuation Standards
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14
Q

What is PS1?

A

Compliance with standards where a written valuation is provided

  1. Sets out exceptions to the Red Book
  2. States Red Book applies in all written valuations (except ALIES)
  3. A replacement cost valuation is not a written valuation
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15
Q

What is PS2?

A

Ethics, Competency, Objectivity and Disclosures

  1. Must comply with minimum TOE
  2. Act in accordance with all RICS ethical standards and codes of conduct
  3. Apply professional skepticism
  4. Deal appropriately with Conflicts of Interest
  5. Act objectively and transparently.
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16
Q

What is VPS 2?

A

Inspections, Investigations and Records

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17
Q

What does the Red Book say about Inspections?

A

You must inspect to take steps to verify necessary information

18
Q

What should you do if you can only provide a desktop inspection?

A
  1. Agree restriction in TOE with client
  2. Confirm possible valuation impacts in writing
  3. Consider whether the restriction is reasonable
  4. Include in report
19
Q

Can you revalue without reinspection?

A

You should not revalue without reinspection unless you are satisfied there have been no material changes.

20
Q

What is VPS3?

A

Valuation Reports

  1. Name and Status of Valuer
  2. Name of Client + any other users
  3. Purpose of Valuation
  4. Identification of Asset
  5. Basis of Value
  6. Valuation Date
  7. Extent of Investigation
  8. Nature and source of the information to be relied upon
  9. Assumptions and Special Assumptions
  10. Restrictions on use/ publication/ distribution
  11. Instruction in accordance with IVS
  12. Valuation approach and reasoning
  13. Valuation Figure
  14. Date of Valuation report
  15. Comment on Market Uncertainty
  16. Limitations Liability.
21
Q

What is VPS 4?

A

Bases of Value, Assumptions and Special Assumptions

22
Q

What are the Bases of Value

A

SIX

  1. Market Value
  2. Market Rent
  3. Fair/Equitable Value
  4. Investment Value
  5. Synergistic Value
  6. Liquidation Value
23
Q

What is the definition of Market Value?

A

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.

24
Q

What is the definition of Market Rent?

A

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.

25
Q

What is the definition of Fair Value?

A 
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
26
Q

What is the definition of Investment Value?

A

The value of an asset to the owner or a prospective owner for individual investment or operational objectives

27
Q

What is VPS 5?

A

Valuation Approaches and Methods

Sets out the 3 main approaches - Income, Market and Cost.

28
Q

What is VPGA 1?

A

Fair Value

Provides additional commentary on the valuation of property, assets and liabilities for inclusion in financial statemen

29
Q

What is VPGA 2?

A

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
30
Q

What is VPGA 8?

A

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

31
Q

What is VPGA 10?

A

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
32
Q

What is the purpose of the UK National Supplement?

A

Provides specific requirements for applications in the UK Jurisdiction

33
Q

What is UK PS1?

A

Ensures compliance with UK Law.

34
Q

What is UK VPS1?

A

States all valuations deemed ‘in accordance with the Red Book’ in the UK are in accordance with Global Red book and UK supplement

35
Q

What is UK VPS2?

A

Relates to Residential in Scotland

36
Q

What is UK VPS 3?

A

Regulated Purpose Valuation

37
Q

What are the 5 purposes forming a Regulated Purpose Valuation?

A
  1. Inclusion in Financial Statements
  2. Stock Exchange Listing
  3. Takeovers + Mergers
  4. Unregulated Property Unit Trusts
  5. Collective Investment Schemes
38
Q

What are some rules around Regulated Purpose Valuations?

A
  1. Must declare annually how long you have acted as valuer (RICS recommend no more than 7 years)
  2. Must declare whether the fees from the client represent more than 5% of total fee income
  3. If a firm has been the agent in acquisition they cannot value for a minimum of 12 months.
39
Q

What are some key UK VPGA’s?

A

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

40
Q

What do you need to remember about Special ASssumptions

A

Must be agreed in writing before commencement of the instruction.

APC (17 decks)

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