Valuations 1 Flashcards
What is the full title of the Red Book?
RICS Valuation Global Standards
There is also the UK National Supplement
When did the current edition of the Red Book come into force?
Effective from 31st Jan 2022
Who are the International Valuation Standards Council?
Non-profit organisation that set the global standards for valuation - they are dominated by large accountacy firms like PWC, KPMG etc. RICS are a member and a sponsor of the International Valuations Standards Council - therefore whatever the council decides, tends to go into the Red Book
What editions of the Red Book have been in effect during your APC training period?
2020 Edition and 2022 Edition
What is the Purpose of the Red Book?
To ensure consistency in the valuation process worldwide
It essentially states that to carry out a Red Book valuation - you must be competent, agree terms of engagement, inspect/measure and carry out appropriate investigations, analyse everything and produce your report
Must agree terms of engagement before issuing the report
What is the purpose of the UK National Supplement?
Supplements the Red Book
Countries often have their own national supplements
This one ensures UK valuations are consistent with UK accounting standards
To what valuations does the Red Book apply?
Red Book applies to all valuations unless a valuation is listed as an exception
What valuations are Exceptions to the Red Book?
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 stautory function (where the Law tells us what to 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
Can you name some valuations that are carried out for a Statutory Function
Lease renewal EG reporting on rent at lease renewal - see s34 of LL & T Act 1954 to see rent definition
Rating EG if giving a rating valuation there will be legislation to follow
Also compulsory purchase
What is the difference between Valuation Technical and Performance Standards (VPS) and
Valuation Practice Guidance – applications (VPGA)?
These are two elements that make up the Red Book
Compliance with VPS is mandatory
Compliance with VPGA is advisory
What are the possible consequences if a Valuer does not comply with a VPS?
RICS may take disciplinary action (depends on extent of non-compliance / severity of breach)
EG might have to sign a consent order to say you’ll get this sorted within a month or might get a fine
What are the possible consequences if a Valuer does not comply with a VPGA?
If giving advice, you MAY get sued for negligence
More senior people in Workman would agree terms of engagement with the client - if Workman causes a client to lose money, client can sue Workman for professional negligence. Therefore, in vals terms - if you advise someone to pay too much to buy a property, you could get sued for negligence. Lawyer would ask to see valuation file - will be looking for Red Book compliance.
Even if you comply with Red Book, you could still get sued - could have used crap comparables, could have measured the unit incorrectly etc.
Describe how Departure from the Red Book mandatory requirements may be possible.
Easy to get confused between Red Book exception and Red Book departure
Exception = Red Book doesn’t apply
Departure = Red Book does apply, but valuer does not comply with mandatory requirements
Can depart if there are special circumstances where it is inappropriate to comply with VPS 1 - VPS 5 and client agrees. EG client says ‘just want quick valuation, but not a Red Book valuation’ - can’t do this, valuer should decline
EG client says ‘do valuation without going inside the property’ - again, can’t do this, valuer should decline
IF there is good reason for not going into the property, then could depart
Can only depart if there are circumstances that justify departure
What information would you require from a telephone enquirer who asked: Can you do me a
valuation?
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?’
What do your Valuation Files contain?
Conflict of Interest Check (not required for me becuase I already established this - for internal purposes)
Agreed Terms of Engagement
Inspection notes - photos, floor plans, planning permission etc.
Comparable evidence
Valuation calculations
Copy of valuation report
What are the main contents of the Terms of Engagement for a Valuation?
Entering into a contract
Valuer - name
Client - name
Property - address
Purpose of valuation
Basis of value
Valuation date
Nature and extent of the valuer’s work - including investigations - and any limitations thereof
Assumptions/special assumptions
The Fee
How would you respond to a request to value a property from a Drive-by only?
Same as external inspection only
Lots of people think this is not a Red Book valuation - it actually is
Usually carried out for a re-valuation (where you/your firm has inspected this property before and there have been no changes since then)
If it is a brand new industrial building and you’ve got the floor plans you can do it - it’s never been occupied so it’s fine
HOWEVER if you don’t have a copy of the lease or the floor plans and you don’t know the area, then you can’t proceed
Depends on:
Do you have prior dealings? IE have you previously carried out a full inspection of this property?
If it is new instruction, then might be acceptable if you’ve got sufficient plans and lease(s)
