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VALUATION 2020 > The Red Book > Flashcards

The Red Book Flashcards

1
Q

Why is a comprehensive set of global standards required?

A

Consistency in approach.

Credible and high standards or integrity, clarity, objectivity.

Valuation best practice

Reduce risk of negligence claims

Quality assurance

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2
Q

What is the structure of the Red Book?

A
  1. RICS Professional Standards (PS)
  2. Valuation technical and performance standards (VPS)
  3. RICS Global Valuation Practice Guidance - applications (VPGA).
  4. International Valuation Standards
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3
Q

When does a valuation have to be Red Book compliant (Professional Standard 1)?

A

All cases except:

  1. Advice expressly provided in preparation for or during course of NEGOTIATION or LITIGATION.
  2. Valuer performing a STATUTORY FUNCTION except valuation for inclusion within statutory tax return.
  3. Valuation provided for INTERNAL PURPOSES without liability and not communicated to any third party.
  4. Valuation provided as part of AGENCY and BROKERAGE WORK in anticipation of receiving instructions to dispose of/acquire an asset.
  5. Valuation provided in anticipation of giving evidence as an EXPERT WITNESS.
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4
Q

What are the minimum terms of engagement to be confirmed to the client before commencing a Red Book valuation?

A
  1. Name and status of valuer, disclosure of any previous involvement.
  2. Name of client (and any other intended users).
  3. Purpose of valuation.
  4. Identification of asset.
  5. Basis of value.
  6. Valuation date.
  7. Extent of investigations.
  8. Nature and source of information to be relied upon.
  9. Assumptions and special assumptions.
  10. Restrictions for use/distribution/publication.
  11. Confirmation of Red Book/IVS compliance.
  12. Description of report.
  13. Fee basis
  14. CHP
  15. Statement that valuation may be investigated by the RICS for monitoring regulations to comply with their conduct and disciplinary regulations.
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5
Q

When are assumptions made?

A

When it is reasonable to accept that something is true without the need for specific investigation.

CLEARLY STATE IN REPORT AND TERMS OF ENGAGEMENT

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6
Q

What is a supposition that is stated to be true and accepted as fact, even though it is not?

A

A special assumption.

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7
Q

What sort of assumption can be agreed at the beginning of the instruction?

A

Assuming planning consent granted for a particular use

Assuming property let or vacant at valuation date

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8
Q

What dosed VPS 2 state about inspections?

A

Must always be carried out to the extend necessary to produce a valuation that is professionally adequate for its purpose.

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9
Q

Is a restricted information (desktop) valuation Red Book complaint?

A

Yes, unless for one of five purposes that are exempt.

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10
Q

What are the four requirements set out within VPS2 where a valuer is instructed to undertake a valuation on the basis of restricted information or without a physical inspection?

A
  1. Nature of restriction must be agreed on TOE.
  2. Possible valuation implications to be confirmed in writing before value reported.
  3. Valuer should consider whether restriction reasonable with regard to purpose of valuation.
  4. Restriction must be referred to in report.
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11
Q

What must the valuer be satisfied with in order to do a revaluation without inspection of the property?

A

That there have been no material changes to the property or nature of its location since last inspected.

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12
Q

What does VPS3 state are the minimum requirements of a report?

A
  1. Identification and status of valuer.
  2. Identification of client and other intended users.
  3. Purpose of valuation.
  4. Identification of asset to be valued.
  5. Basis of value.
  6. Valuation date.
  7. Extent of investigations.
  8. Nature and source of information relied upon.
  9. Assumption and special assumptions.
  10. Consent, or restrictions to publication.
  11. Confirmation valuation undertaken in accordance with Red Book.
  12. Valuation approach and reasoning.
  13. Valuation figure(s).
  14. Date of valuation report.
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13
Q

Can preliminary/draft advice be given?

A

Yes, but must be marked as draft, for internal purposes only.

It cannot be relied upon or be published/disclosed.

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14
Q

Can a draft report be discussed with the client?

A

Yes, but the valuer is not to be influenced in respect of the final valuation figure.

Any additional information supplied as a result of discussion of the draft must be detailed in the final report.

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15
Q

What must the valuer determine in accordance with VPS 4?

A

Bases of value.

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16
Q

What are the most common bases of valuation defined by IVS?

A
  1. Market Value
  2. Market Rent
  3. Investment value (worth)
  4. Equitable Value (fair value)
  5. Synergistic Value
  6. Liquidation Value
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17
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 where the parties had each acted knowledgeably, prudently and without compulsion.

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18
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 arms’ length transaction after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion.

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19
Q

What is the definition of Equitable value?

A

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

20
Q

The IASB definition of Fair Value is believed to be generally consistent with what?

A

Market Value

21
Q

What is the definition of Fair Value for IVS compliant valuations?

A

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.

22
Q

What is the definition of Investment Value?

A

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

23
Q

What is VPGA 2?

A

Valuations for commercial secured lending purposes.

24
Q

For company accounts, UKGAAP states that property valuations should adopt what basis?

A

Fair Value (historical or current cost).

25
Q

What impacts upon the choice of current or historical cost?

A

What has been adopted previously.

26
Q

The RICS equates Fair Value to Market Value for what properties?

A

Surplus and investment

27
Q

When should existing use value be used?

A

All owner occupied properties where current cost accounting has been adopted. UK only.

28
Q

What is the definition of Existing Use Value?

A

The estimated amount for which an asset or liability should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion

ASSUMING that the buyer is granted vacant possession for all parts of the asset required for the business and disregarding potential alternative uses and any other characteristics of the asset that would cause its market value to differ from that needed to replace the remaining service potential at least cost.

29
Q

What are the five purposes for regulated purpose valuations?

A
  1. Financial statements (company accounts)
  2. Stock exchange listings
  3. Takeovers and mergers
  4. Collective investment schemes
  5. Unregulated property unit trusts.
30
Q

Who relies upon a regulated purpose valuation?

A

Third parties who have not commissioned the valuation.

Subject to valuation monitoring.

31
Q

How is marriage value created?

A

By a merger of interests

32
Q

How is a building cost reinstatement valuation done?

A

Cost of reinstating a building without a profit.

Use BCIS adopting a GIA for commercial and GEA for residential.

Add VAT, demolition costs, professional fees

Red Book compliance not required as not a written opinion of value.

33
Q

What is Hope Value?

A

The value arising from any expectation that circumstances affecting the property may change in the future.

e.g. future prospect of securing planning permission for the development of land where none exists currently.

The realisation of marriage value arising from merger of two interests in land.

34
Q

What level of hope value can be included within market value?

A

Extent that it would be reflected in offers made by prospective purchasers on the open market.

35
Q

What may be generated when a transaction is not at arm’s length when a special purchaser has advantages arising from its ownership not available to other buyers?

A

Special value

e.g. tenant purchasing freehold interest

36
Q

What is the title of the Red Book?

A

RICS Valuation - Global Standards

37
Q

When was the latest Red Book effective from?

A

31 Jan 2020

38
Q

What is an assumption?

A

A supposition taken to be true. It involves facts, conditions or situationsaffecting the subject of, or approach to, a valuation that, by agreement,do not need to be verified by the valuer as part of the valuation process.

39
Q

What is an External Valuer?

A

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.

40
Q

What is Goodwill?

A

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.

41
Q

International Financial Reporting Standards

A

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

42
Q

Define 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 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.

43
Q

Define 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

44
Q

What is a special assumption?

A

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.

45
Q

What is a Special Purchaser?

A

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.

46
Q

When was the UK Red Book last updated?

A

With effect from 14 January 2019

47
Q

Which RICS information paper outlines the process of identifying and using comparable evidence?

A

Comparable evidence in real estate valuation 2019

VALUATION 2020 (13 decks)

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