Valuation Flashcards
What is the Red Book?
Set of global standards which sets out standards and guidance for valuations
What is the full title of the latest Red Book?
RICS Valuation - Global Standards 2025 31 January
Previous - RICS Valuation - Global Standards 2022 31 January
What is the purpose of the Red Book?
Greater consistency, objectivity and transparency
What does IVS stand for?
International Valuation Standards
Why has the Red Book been updated?
IVS are updated every 2 years so Red Book gets updated to align with that
Who creates the IVS?
International Valuation Standards Council (IVSC) - includes members such as RICS
Professional standard 1 in the red book is about?
Compliance with standards where a written valuation is provided
Professional standard 2 in the red book is about?
– Ethics, competency, objectivity and disclosures
What does ESG stand for?
Environmental, social and governance
What are terms of engagement?
Agreement with the client detailing the work assignment, can be used as an important defence against negligence claims.
What are the headings you would expect on a TOE?
Identification and status of valuer
Identification of client
Identification of any other intended uses
Identification of asset or liability being valued
Valuation currency
Purpose of the valuation
Basis of value adopted
Valuation date
Nature and extent of the valuer’s work
Nature and source of information relied upon
All assumptions to be made
Format of the report
Restrictions on use, distribution and publication of report
Confirmation that the valuation will be undertaken in accordance with the IVS.
Basis on which the fee will be calculated.
Reference to complaints handling procedure
A statement that compliance with these standards may be subject to monitoring
Statement setting out any limitations on liability
What are the headings you would expect on a red book valuation report?
Identification and status of the valuer
Identification of the client/
Purpose of valuation
Identification of the asset
Basis of value
Valuation date
Extent of investigation
Nature and source of information relied upon
All assumptions to be made
Restrictions on use, distribution and publication of the report
Confirmation the valuation complies with IVS
Valuation approach and reasoning
Amount of the valuation
Date of the valuation report
Commentary on any material uncertainty
Statement on any limitations
What is market value?
Estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and 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 market rent?
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 investment value?
The value of an asset to a particular owner for individual investment or operational objectives.
What is 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 synergistic value?
The result of a combination of 2 or more assets where the combined value is more than the sum of the separate values.
What does VPS stand for?
Valuation technical performance standards
What are the proposed changes to VPS?
VPS 1 remains as VPS 1 (Terms of engagement), with some additional items and entries
- VPS 2 becomes VPS 4 (Inspections, investigations and records)
- VPS 3 becomes VPS 6 (Valuation reports), including some additional items and entries
- VPS 4 becomes VPS 2 (Bases of value, assumptions and special assumptions)
- VPS 5 splits into VPS 3 (Valuation approaches and methods) and VPS 5 (Valuation models)
What do the VPS refer to in the 2022 Red Book?
VPS1 - Terms of engagement
VPS2 - Inspections, investigations and records
VPS3 - Valuation reporting and methods
VPS4 - Bases of value, assumptions and special assumptions
VPS5 - Valuation approaches and methods
What do the VPS refer to in the 2025 Red Book?
VPS1 - Terms of engagement
VPS2 - Bases of value, assumptions and special assumptions
VPS3 - Valuation approaches and methods
VPS4 - Inspections, investigations and records
VPS5 - Valuation models
VPS6 - Valuation reports
What are the three valuation approaches?
Market
Income
Cost
What are the five methods of valuation?
Comparable
Investment
Residual
Depreciated replacement cost
Profits
What guidance is there for comparable valuations?
RICS comparable evidence in real estate valuation 2019
What should comparable evidence be?
Comprehensive
Very similar or identical
Recent
Arm’s length transaction
Verifiable
Consistent with local market practice
Result of underlying demand
Sources of comparable evidence?
Direct transactions
Publicly available information
Published databases
Asking prices
Historic evidence
What is the hierarchy of evidence?
Category A - direct comparables (sales and asking prices)
Category B - General market data (indices, historic evidence, demand and supply data)
Category C - Other sources (transactions on other types, stock market movements)
What steps would you take when carrying out a comparable method valuation?
- Look at the subject property
- Select comparables
- Analyse comparables
- Display in matrix/table
- Value the subject property
- Stand back and look
What is a yield?
Yield refers to the earnings generated and realised on an investment over a particular period of time and is expressed as a percentage based on the invested amount.
Income/price x 100 = yield
What is included within the global red book?
Professional standards, Valuation technical and performance standards, Valuation practice guidance - advisory
