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Valuation > Valuation - Mandatory Requirements > Flashcards

Valuation - Mandatory Requirements Flashcards

1
Q

What is the title of the Red Book?

A

The primary publication is the RICS Valuation – Global Standards (issued Nov 2021: effective Jan 2022).

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2
Q

What editions of the Red Book have been in effect during your APC period?

A

RICS Valuation – Global Standards (effective Jan 2022).

The New UK National supplement was issued Oct 2023 and is effective from 1st May 2024.

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3
Q

Who are the International Valuation Standards Council?

A
  • A not-for-profit organisation that sets global standards for valuation
  • RICS are a sponsor of International Valuation Standards Council
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4
Q

What is the Purpose of the Red Book?

A

Consistency
Objectivity
Transparency
Establish Framework for uniformity and best practice

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5
Q

What is the purpose of the UK National Supplement?

A

To give specific guidelines on UK valuations

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6
Q

To what valuations does the Red Book apply?

A

To all valuations except those listed as exceptions

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7
Q

What valuations are Exceptions to the Red Book?

A

If for internal purposes (for client to know market value of their property) 

If for agency work prior to acquisition or disposal instructions (EG advertise at price X and if it does well, we’ll up the price but if it is not getting much interest then we will lower the price) 

If for statutory function (where the Law tells us what to do - what we can and can’t do) 

If acting as expert witness (EG if you can’t agree a rent review or lease renewal, then you would give an expert witness report in court - arbitrator or judge would tell you what to do, not the Red Book) 

If in negotiation or litigation 

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8
Q

Can you name some valuations that are carried out as statutory functions?

A
  • Valuations carried out for a lease renewal - For example, if you are doing a lease renewal where is it protected by the 1954 act and you need to do a valuation for the rent, you follow section 34 of the 1954 act rather than the red book as this is a statutory function.
  • Valuations for Compulsory purchase purposes
  • Planning
  • Compensation
  • Rating
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9
Q

What is the difference between Valuation Technical and Performance Standards (VPS) and Valuation Practice Guidance – applications (VPGA)?

A

VPS is mandatory, VPGAs are advisory

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10
Q

What are the possible consequences if a Valuer does not comply with a VPS?

A

RICS Disciplinary action for departing from the red book (depends on extent of non-compliance / severity of breach).
Could also be used in negligence against the surveyor. (Possible legal action could be taken by the client)

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11
Q

What are the possible consequences if a Valuer doesn’t comply with VPGA?

A

VPGAs are only guidance but embody best practice, so there is contributing factor in professional negligence case

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12
Q

Describe how Departure from the Red Book mandatory requirements may be possible.

A

Some departures of the VPS 1-5 can be made when there is good reason to do so but must be agreed with client and clear in TOE and report e.g not undertaking internal inspections

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13
Q

What information would you require from a telephone enquirer who asked: Can you do me a valuation?

A

Location

Type of property (need to ensure you are competent)

Purpose of valuation (EG if for buying property, need to check whose selling it and ensure that the seller isn’t someone you know - need to avoid conflicts of interest)

First thing ‘WHAT is it and WHERE is it?’

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14
Q

What do Valuation files contain?

A
  1. Conflict of interest
  2. Terms of engagement (competence would be mentioned in terms of engagement)
  3. Inspection notes - property information
  4. Comparable evidence and its analysis
  5. Valuation calculation
  6. Report
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15
Q

What is in a Terms of Engagement?

A
  1. Client
  2. Valuer
  3. Asset being valued
  4. Purpose
  5. Basis
  6. Assumptions/Special assumptions
  7. Limitations
  8. Fee
  9. Valuation date
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16
Q

How would you respond to a request to value a property from a Pavement Assessment only?

A

-If not previously inspected, not familiar with property or client cannot give you sufficient information, you should decline request.

-With limited information, assumptions would have to made, so when confirming instructions, need to outline how these will impact the accuracy of the valuation

17
Q

Please name the Red Book Global Bases of Value.

A

Market Value

Market Rent

Investment Value (or worth)

Fair Value (under international financial reporting standards)

18
Q

Please name the UK-Specific Bases of Value.

A

Existing Use Value

19
Q

What is the difference between a basis of value and a method of value?

A

Method of Valuation = the techniques used to arrive at a figure that we would describe with a Basis of Value

Basis Value = Red Book definition of Value (market value, market rent, investment value and fair value)

20
Q

Describe assumptions that are usually made in producing a valuation.

A

1) Title - freehold vs leasehold (assume good title can be shown)

2) Assume any parts of a property that are covered, are free from defects - i.e. condition is okay

3) Assume property has full planning permission for existing use

4) There are no environmental matters

5) Assume property is free from contamination

21
Q

What is a special assumption?

A

An assumption that assumes facts that differ from those existing at the valuation date.

22
Q

Describe the special assumptions usually made.

A

If property is vacant, we could assume it is let (and vice versa) 

If property is being developed, we could assume development has completed  

If property hasn’t got planning permission, we could assume planning permission has been granted 

23
Q

Define Market Value.

A

The estimated amount an asset/liability should exchange on the valuation date between a willing buyer and a willing seller in an arms-length transaction, after proper marketing where the parties had each acted knowledgeably, prudently and without compulsion.

Must include the words: willing buyer, willing seller, proper marketing and arms-length transaction.

24
Q

What do you consider proper marketing?

A

Exposure to the market in the most reasonable manner (appropriate type and length, advertising to the appropriate target market)

Method of sale.

25
Q

What’s an arms lengths transaction?

A

The parties do not have any relationship

26
Q

What is synergistic Value?

A

Where the combined value of two or more assets together is greater than the sum of the separate values.

e.g. site A is £100k and site B is £100k 

If you merge the sites, the synergistic value is £250k (more than £200k)

27
Q

What is marriage Value?

A

An additional element of value created by the combination of 2 or more assets or interests where the combined value is more than the sum of separate values. (The additional £50k in the example above - the extra value - often common to split this value between seller and purchaser).

28
Q

What is special value?

A

An amount that reflects particular attributes of an asset that are only of value to a special purchaser.

29
Q

What is a special Purchaser?

A

A buyer for whom the asset has special value because of advantages arising from its ownership that would not be available to other buyers in the marker – they may be willing to pay more than market value.

30
Q

When is Market Rent not appropriate as a Basis of value?

A
  • Specialised properties
31
Q

When is Fair Value be appropriate Basis of Value?

A

When valuing for accounting/financial reporting i.e. company accounts (no different to market value, just used when valuing for inclusion in company accounts)

32
Q

What is the regulated purpose valuation?

A

Disclosures where the public has an interest or upon which 3rd parties may rely (valuation of which 3rd parties may rely, i.e. for take overs and merges)

33
Q

What is an asset valuation?

A

A valuation for financial statements (basis of value is Fair Value)

34
Q

When is existing use value the valuation basis?

A

For valuation of operational property - owner occupied properties owed by local and centralised government.

35
Q

When is DRC used in Asset Valuations?

A

The depreciated replacement cost (DRC) method is used to value owner occupied specialised properties (one that wouldn’t sell with vacant possession only). - i.e. a football stadium without a team.

36
Q

What is the fundamental difference between Market Value and Existing Use Value?

A

Existing use value is market value, disregarding any alternative use (i.e. assuming it will only be used for the existing use for the foreseeable future).

Market value is the highest and best use of an asset.

37
Q

Where are TOE found in Red Book?

A

VPS 1

38
Q

Where are exceptions found in Red Book

A

PS 1 section 5

39
Q

What are the contents of the red book

A

Part 1 - Intro
Part 2 - Glossary
Part 3 - Professional Standards (PS 1&2)
Part 4 - Valuation technical and performance standards (VPS1-5)
VPS 1 - TOE
VPS 2 - Inspections & Investigations
VPS 3 - Valuation Report
VPS 4 - Basis of value, assumptions and special assumptions
VPS 5 - Valuation methodology & approach
Part 5 - Valuation Applications (VPGAs 1-10)
VPGA 1 - Valuation for inclusion in financial statements
VPGA 2 - Valuation of interests for secured lending
VPGA 6 - Valuation for intangible assets
Part 6 - International Valuation Standards (IVS)

Valuation (3 decks)

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