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APC Spring 2024 > Valuation - Red Book 2 > Flashcards

Valuation - Red Book 2 Flashcards

1
Q

What is the Red Book?

A

It is a set of global standards and best practice guidance for valuations

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2
Q

What are the three tranches of material when you think of the Red Book?

A
  1. Red Book
  2. UK Supplement to the Red Book
  3. International Valuation Standards
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3
Q

What is the International Valuation Standards Council?

A

A collaboration between professional valuation organisations that produce the International Valuation Standards

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4
Q

What is the current edition of the Red Book?

A

2022, coming in to effect 31 January 2022

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5
Q

What are the main components of the Red Book?

A
  1. Professional Standards
  2. Valuation Practice Statements
  3. Valuation Practice Global Applications
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6
Q

How many Professional Standards are there and what are they?

A

There are two and they are:

  1. Compliance
  2. Ethics and conflicts
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7
Q

How many Valuation Practice Statements are there and what do they relate to?

A

There are five and they are:

  1. Terms of Engagement
  2. Inspections
  3. Reporting
  4. Bases of Valuation
  5. Valuation approach
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8
Q

What is the RICS Valuer Registration Scheme?

A

It is a scheme for RICS Chartered Surveyors who carry out valuation work in the U.K.

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9
Q

Is it mandatory and is there an annual fee?

A

It is mandatory for valuers in the UK doing red book valuations and yes there is an annual fee

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10
Q

What is an RICS Registered Valuer?

A

These are members of the Valuer Registration Scheme. Members only and not firms

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11
Q

What is the U.K. National Supplement to the Red Book?

A

This is a supplement to the Red Book designed to cover specific statutory or regulatory requirements in a certain jurisdiction such as the UK, whilst being consistent with relevant international standards.

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12
Q

What is the current version of the UK National Supplement?

A

The 2019 version which came in to effect with the previous Red Book

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13
Q

Is there an upcoming version of the U.K. National Supplement?

A

Yes there is a new version which has been published and is due to come in to effect from May 2024

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14
Q

Can you tell me about the structure of the upcoming UK National Supplement?

A

There are 2 mandatory U.K. Professional Standards

There are 17 advisory or best practice U.K. Valuation Practice Guidance Applications

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15
Q

Can you tell me about the RICS independent review of real estate valuations for investment purposes?

A

This was a review carried out by Peter Pereira Gray and reported in January 2022 with 13 recommendations which were all accepted by the RICS.

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16
Q

Can you tell me about some of the recommendations proposed within this review?

A
  1. Rotation of firms
  2. Use of the discounted cash flow method
  3. Post qualification requirements and revalidation
17
Q

What does the Red Book do and not do?

A

It does provide quality assurance compliance and best practice, but it does not prescribe how to value in certain circumstances

18
Q

What does Professional Standard 1 state about compliance?

A

Valuations are either red book compliant or they are not.

19
Q

What are the three different valuation approaches detailed within VPS 5?

A
  1. Market approach
  2. Cost approach
  3. Income approach
20
Q

What methods of valuation does each method relate to?

A
  1. Market approach relates to comparable method
  2. Income approach relates to investment and profits method
  3. Cost approach relates to DRC and residual method
21
Q

Which methods of valuation apply to the three types of valuation approaches as detailed within VPS 5?

A
  1. Market approach relates to the comparable method
  2. Cost approach relates to DRC and residual method
  3. Income approach relates to investment and residual method
22
Q

What does the 2022 Red Book state about sustainability?

A

The 2022 Red Book pushes towards ESG

23
Q

What is ESG?

A

Environmental Social and Governance

24
Q

What is a basis of value?

A

This is the nature of an assumed transaction, including the relationship and motivation of the parties and the market conditions

25
Q

Where are bases of value contained within the Red Book?

A

VPS 4

26
Q

What are some examples of bases of value as detailed within VPS 4 of the Red Book?

A
  1. Market Rent
  2. Market Value
  3. Existing Use Value
27
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 arms length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

28
Q

What is an assumption?

A

These are matters that by agreement are reasonable to accept as fact.

29
Q

What is an example of an assumption?

A
  1. The property is in a reasonable state of repair
  2. The property is connected by all mains services
30
Q

What is a special assumption?

A

This is where an assumption is made that differ from actual facts at the valuation date

31
Q

What are some examples of a special assumption?

A
  1. Planning consent will be granted for development
32
Q

What are some of the Minimum Terms of Engagement as detailed within VPS 1?

A

a) Identification and status of the valuer

b) Identification of the client

c) Identification of the property or interest to be valued

d) Basis of value

e) Purpose of the valuation

f) Valuation date

33
Q

What does VPS 2 and VPGA 8 state about inspections?

A
  1. Capture the locality
  2. Capture external areas
  3. Capture internal details
  4. Do not visit unannounced
  5. Lone working policy
34
Q

How many Valuation Practice Global Applications are there in the Red Book?

A

10

35
Q

Are the Professional Standards, Valuation Practice Statements and Valuation Practice Global Applications mandatory or advisory?

A

PS and VPS are mandatory, VPGA is advisory

APC Spring 2024 (18 decks)

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