Vals Tough Qs and Red Book Flashcards
What is the UK National Supplement?
Most recently published in October 2023 and to be enforced from May 2024.
It sets out specific requirements, together with supporting guidance, for members on the application of the RICS Valuation – Global Standards (Red Book Global Standards) to valuations undertaken subject to UK jurisdiction.
Changes include
Mandatory valuer rotation
New VPGAs:
VPGA1 - Valuation for financial reporting
VPGA8 - Valuation of charity assets.
VPGA9 - Relationship with auditors
Why was the Red Book updated in 2025?
Updated due to RICS’ commitment to support high standards in valuation delivery worldwide and to future proof practices in publics best interest.
Changes reflect:
- Alignment with development in other global standards
- Addition of new content in relation to modelling and methods.
- Adaption to practice and process changes from evolving areas in technology and ESG.
What is VPS 5 of the Red Book 2025?
VPS Valuation Models
Outlines IVS definition - IVS Defines a valuation model as a ‘quantative implementation of a method in whole of in part that converts inputs into outputs used in the development of value’.
Valuers must make sure model is suitable for valuation purpose and use appropriate professional judgement
The more advanced the model, the greater the degree of vigilance needed to ensure there is no internal inconsistency or error.
What is the Pereira Gray report? And what measures were put in place?
As a result of Covid-19, the Standards and Regulation Board commissioned a review to future proof the valuation.
Recommendations include:
- Valuers should ensure separation of valuation and advisory activities.
- Rotation process for valuers
- Clearly signposted processes for its regulated members and other stakeholders in relation to ethical conduct and address.
- Valuation audit trails.
The Red Book is mandatory for all valuations except if
- Advice is expressly provided in preparation for negotiations or litigations.
- Value is performing a statutory function except for the provision of a valuation for inclusion in statutory return to a tax authority.
- Valuation is provided for a client purely for internal purposes.
- Valuation is provide as part of agency and brokerage work.
- Valuation is provide in anticipation of giving evidence as an expert witness.
What is the structure of the Red Book
- Introduction
- Glossary
- Professional Standards (PS) - PS1 What valuations aren’t included under Red Book, PS2 - ethics, competency, disclosures
- Valuation technical and performance standards (VPS) - VPS1 ToE, VPS2 Bases of Value, assumptions and special assumptions , VPS3 Valuation Approaches and Methods VPS4 - Inspections, investigations and records, VPS5 Valuation Models (New) VPS6 Valuation reports
- Valuation applications (VPGA)
- IVS
What is the RICS Valuer Registration Scheme?
Put in place in October 2011 to improve quality, to meet RICS requirement to self-regulate effectively, to protect and raise the status of the valuation profession.
Information required:
Type of valuations
Purpose of valuations
Number of valuations
Firm’s total fee income from Red Book Global valuations
What data sources are used
Quality assurance audit procedures in place
History of any negligence claims
What is included in the introduction of the Red Book 2025?
Overall Purpose:
- Focus on consistency, accuracy, objectivity and transparency and sustaining public confidence and trust in valuation.
- Focus on practical implementation
Outlines Coverage
Outlines Structure and status
- Professional Standards (mandatory)
- Valuation Technical and performance standards - mandatory
- Valuation practice guidance applications (VPGAs) - advisory
What is included is included in Part 3 - Professional Standards of the Red Book
Professional Standards are Mandatory!!
PS1 - Compliance with standards where a written valuation is provided
- Outlines what valuations don’t require red book compliance
PS2 - Ethics, competency, objectivity and disclosures
- Professional and ethical standards - eg conforming to Rules of Conduct, acting with integrity,
- Competence - Member qualification
- Independence - Independence, objectivity, confidentiality, identification and management of conflicts of interests
- Disclosures - where the public has an interest or upon which 3rd parties may rely - Reliance, relationships with client and previous relationships, rotation policy
What is included in Part 4 - Valuation Technical and performance standards?
Valuation Technical and Performance (VPS) is Mandatory!!!
VPS1 - Terms of Engagement
VPS2 - Bases of Value, assumptions and special assumptions
VPS3 - Valuation approaches and methods
VPS4 - Inspection, investigations and records
VPS5 - Valuation Models
VPS6 - Valuation Reports
Under VPS1 what must be included in terms of engagements?
-Identification and status of the responsible valuer
-Identification of the client(s)
-Identification of any other intended users
-Identification of the assets or liabilities being valued
-Valuation currency
-Purpose of the valuation
-Basis of value adopted
-Valuation date
-Nature and extent of valuer’s work - including investigations and any limitations
-Nature and source of information upon which the valuer will rely
-All assumptions and special assumptions made
-Format of the report
-Restrictions on use, distribution and publication of the report
-Confirmation that the valuation will be undertaken in accordance with IVS and/or RICS Red Book Global Standards
-Complaints handling procedure
-Statement on compliance with standards is subject to monitoring under RICS conduct and disciplinary regulations.
-Statement setting out any limitations on liability that have been agreed
-Consideration of any significant ESG factors.
What is VPS2 in relation to?
Bases of value
ie
market rent
market value
investment value
fair value
Assumptions
An assumption is made where it is reasonable for the valuer to accept that something is true without the need for specific investigation or verification.
Special assumption
- An assumption that 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.
- Must be agreed in writing in ToE
- Must only be used if they are realistic, relevant and valid for the particular circumstances of the valuation.
What is an assumption?
Assumptions
An assumption is made where it is reasonable for the valuer to accept that something is true without the need for specific investigation or verification.
What is a special assumption?
Special assumption
- An assumption that 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.
- Must be agreed in writing in ToE
- Must only be used if they are realistic, relevant and valid for the particular circumstances of the valuation.
What is included in VP3?
VPS3 - Valuation approaches and models
Valuers responsible for adopting and justifying valuation approaches to fulfill individual assignments.
Must have regard to:
- Nature of the asset
- The purpose, intended use and context of the particular assignment
- Any statutory and other mandatory requirements applicable in the jurisdiction concerned.
Valuers should have regard to recognized best practice, but this should no constrain proper exercise of their judgement.
Unless expressly required by statute or by other mandatory requirements, no one valuation approach takes precedence over another.
In some cases, more than one method may be required to reach a balanced judgement.
What is included within VPS4?
VPS4 - Inspections, investigations and records
Must always be carried to the extent necessary to produce a valuation that is professionally adequate for its purpose.
Any limitations must be identified and recorded in the ToE and in the report.
Any restristrictions and any assumptions or special assumptions made must be recorded in ToE and report
Section 2 - Revaluation without reinspection of property previously valued
-Revaluation without reinspection must not be undertaken unless the valuer is satisfied that there has been no material changes to the physical attributes of the property, nature of its location.
- Any assumptions (ie that property is materially the same) must be noted in ToE and the report.
Section 3 - Valuation Records
-Proper records must be kept in an appropriate business format
-Documentation and a proper audit trail must be kept to respond effectively to future enquiry
What is included within VPS5?
VPS5 - Valuation Models
IVS105 has a standalone section on valuation models.
When valuation models are used, valuers must make sure the model is suitable for valuation purpose.
The more advanced the model, the more caution that must be used.
What is included within VPS6
VPS6 - Valuation Reports
-Must clearly and accurately set out conclusions.
-If necessary, must draw attention to and comment on any issues affecting the degree of uncertainty
-Must deal with all matters agreed with client in ToE
Under VPS6 (Valuation Reports) what must be included?
-Identification and status of the responsible valuers
-Identification of the client and intended users
-Purpose of the valuation
-Identification of the assets valued
-Bases of value adopted
-Valuation Date
-Extent of investigation
-Nature and source of information relied upon, including sources of key data and inputs
-Assumptions and special assumptions
-Restrictions on use, distribution and publication of the report
-Confirmation valuation has been undertaken in accordance with IVS and/or the Red Book
-Valuation approach and reasoning
-Amount of the valuation
-Date of the valuation report
-Commentary on an material valuation uncertainty
-Statement setting out limitations on liability
-Significant ESG factors used and considered
What does VPGA stand for?
Valuation practice guidance applications
What is VPGA 1 in relation to?
VPGA 1 - Valuations for Financial Reporting
Provides guidance on valuations undertaken for financial reporting
What does IFRS stand for?
International Financial Reporting Standards (IFRS)
What is Fair Value IFRS 13?
Most common basis of value for financial reporting
Fair Value defined as:
“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 VPGA 2?
VPGA 2 - Valuations for secured lending purposes
Includes additional guidance that is required for loan securing valuations including:
-Taking instructions, ToE, Disclosures
-Independence, objectivity and conflicts of interest
-Basis of value and special assumptions
-Reporting and disclosures
What does VPGA 2 say about dealing with conflict of interests for secured lending valuations?
-Any previous, current or anticipate involvement must be disclosed to the lender
-Previous involvement normally defined as within the past two years, but under certain circumstances can be longer
-If the valuer or client considers any involvement to be a conflict that cannot be avoided, instruction must be declined
Under VPGA 2 - what examples of involvement at may create a conflict of interest are given?
-Having a longstanding professional relationship with prospective borrower or owner
-When the valuer will gain a fee from introducing the transaction to the lender
-If there is a financial interest in the property holding or prospective borrower
-When the valuer is retained to act in the disposal or letting of the completed development.
Under VPGA 2, can a valuer be involved in a transaction with a potential conflict of interest?
Yes - if the valuer and client can agree that the conflict can be avoided by introducing arrangements to manage the instruction.
Arrangements must be recorded in ToE and valuation report.
Under VPGA 2, what additional information must be given in reports relating to loan security?
-Disclosure of any involvement identified in ToE, or that has subsequently been discovered or any arrangements agreed for avoiding the conflict of interest.
-Valuation methodology adopted, supported where appropriate or requested, with calculation.
-Where a recent transaction or a provisionally agreed price has been disclosed, the extent to which that information has been accepted as market value.
-Where the enquiry does not reveal any information, the valuer will make a statement to that effect in report.
-Comment on environmental consideration.
-Comment on the suitability of the property for mortgage purposes
-Any circumstances of which the valuers is aware that could affect price.
-Any other factor that potentially conflicts with the definition of market value or its underlying assumptions.
-Any other relevant normal valuation enquiries undertaken
-Where a valuation arrived to using a special assumption, then a comment must be made in the report on any material difference between the reported value with and without the special assumption.
-Must acknowledge that sustainability factors are becoming a more significant influence and valuations for secured lending will always have appropriate regard to the relevance to the instruction.
What are some examples of special assumptions?
-Property will be owner occupied.
-Property will be fully equipped and trading
-Property is sold with a reduce marketing period.
What is VPGA 4 and what are some of the key sections it include?
Valuation of trade related properties
Overview
Glossary of terms used
Overview of profits method
Outlining of common special assumptions
Under VPGA 4, what are some of the most common special assumptions?
-On the basis that trade has ceased
-On the basis that trade has ceased and trade inventory removed
-As a fully equipped entity that has not yet traded
-Subject to trade projections
What is the UK National Supplement?
It sets out specific requirements, together with supporting guidance, for members on the application of the RICS Valuation – Global Standards (Red Book Global Standards) to valuations undertaken subject to UK jurisdiction.
The UK National Supplement does not replace the Red Book Global. It is, instead, intended to be applied alongside the Red Book Global, where UK valuation work is being undertaken.
What are the rotation requirements set out in UK National Supplement?
Mandatory Rotation
- Maximum 10 year period before rotation of valuation firm.
-Maximum sinle engagement of 5 years
-Maximum period of 5 years before the rotation of an individual responsible valuers
-Minimum 3 year break after rotating
What is the RICS Valuer Registration Scheme (VRS)?
Introduced in 2011
3 aims:
- Improve the quality of valuations and ensure the highest possible professional standards
- Meet RICS’ requirement to self-regulate effectively
- Protect and raise the status of the valuation profession as the leading expertise in valuation.
Registration not mandatory for valuation work excluded from the Red Book Global.
Valuer registered on the scheme must have done L3 vals.
What is required to become registered under the Valuation Registration Scheme (VRS)?
Information is required in respect of valuation:
-Type of valuation
-Purpose of valuations
-Number of valuations
-Firms total fee income from Red Book valuations last year
-What data sources are use
-Quality assurance procedures in place
-History of any negligence claims and notifications
