Valuations Flashcards
What is the full title of the red book?
RICS Valuation- Global Standards
Who are the International Valuations Standards Council?
non profit organisation that set the global standards for valuation
RICS are a member and sponsor of IVSC
When did the current edition of the red book come into force?
31st January 2022
What editions of the Red Book have been in effect during your training?
2022
What adaptions are being currently considered?
Various changes to the global standards including the IVS and ESG and technological adaptations are to be effective from 31/01/2025, with each VPS appropriately cross referencing IVS.
When did the UK National Supplement come into effect?
19th October 2023 and effective from the 1st May 2024.
What is the purpose of the Red Book?
-consistency, objectivity and transparency
-ensures valuation anywhere in the world is in accordance with highest professional standards
-provides framework for uniformity and best practice
-ensures compliance with Rules of Conduct
What were the reasons for the 2022 Red Book update?
-reflect changes in IVS made by IVSC
-reflect progress in ethics and measurement
-more detail when applying exceptions to VPS 1 - 5
-improved definitions and commentary on ESG section in glossary
-clarify existing text
Purpose of U.K. National supplement?
-supplement Red Book
-ensured U.K. valuations are consistent with U.K. accounting standards
To what valuations does the Red Book apply?
All valuations unless listed as exception
What valuations are exceptions to the Red Book?
- Internal purposes
-Agency/brokerage work prior to acquisition or disposal instructions
-Statutory function
-Expert witness
-Negotiation or litigation
What valuations are carried out for Statutory Functions?
- lease renewal (see S34 of 1954 Act)
- rating
- compulsory purchase
Difference between valuation technical and performance standards (VPS) and valuation practice guidance applications (VPGA)?
PS mandatory
VPGA advisory
Note: these are two elements that make up the Red Book
What are the consequences if valuer does not comply with VPS?
RICS can take disciplinary action
action depends on severity of breach
What are the consequences if valuer does not comply with VPGA?
may get sued for negligence if giving advice
Note: even if complied with Red Book, can still be sued as could have used bad comparables etc
How is departure from the Red Book mandatory requirements possible?
- if inappropriate to comply with VPS 1 - 5
- if client agrees
EG if good reason not to enter the property
Exception vs Departure from Red Book
Exception = Red Book does not apply
Departure = Red Book does apply but valuer does not comply with mandatory requirements
What do valuation files contain?
-conflict of interest check
-agreed terms of engagement
-inspection notes (photos, plans)
-comparable evidence
-valuation calculations
-valuation report
What information is required to do a valuation?
location
type of property
Note: also need to know purpose of valuation and to check for conflict of interest
Main contents of terms of engagement?
valuer name
client name
property address
purpose of valuation
basis of value
date
currency
fee basis
inspection and limitations
assumption and special assumptions
reference to CHP
statement on PII
PS1 Red Book
Compliance with valuation standards within U.K. jurisdiction
(comply with U.K. law)
PS2 Red Book
Ethics, competency, objectivity and disclosures
(valuer must have appropriate experience, skill and judgement, and avoid conflict of interest)
How do you respond to request to value property for Pavement / Drive By / External assessment?
- if new building and you have floor plans, fine to go ahead
- if previously inspected, fine to go ahead
- if new instruction but no plans/leases to review then cannot go ahead
Note: this is still Red Book valuation, often carried out as re-valuation
Red Book Global Bases of Value
- market value
- market rent
- investment value
- fair value
U.K. Specific Bases of Value
- existing use value
- existing use value for social housing (resi)
- projected market value (resi)
Note: second two are residential ones
Basis of Value vs Method of Valuation
Basis of Value = Red Book definition of value
Method of Valuation = technique used to arrived at a figure that we would describe with a Basis of Value
What assumptions are made in producing a valuation?
-planning permission for existing use
-free from contamination and hazardous substances
-if any parts are covered, assume those areas are free from defects
PS1
Compliance with standards where a written valuation is provided.
PS2
Ethics, Competency, Objectivity and Disclosures
VPS
Valuation technical and performance standards
VPS1
Terms of engagement
VPS2
inspections
VPS3
Valuation Reports
VPS4
Bases of value, assumptions and special assumptions
VPS5
Valuation approaches and methods
VPGA
Valuation Professional Guidance Applications
How many VPGA’S are there
10 VPGA’s
IVS
International Valuation standards
What does the Red Book comprise of?
Introduction
Glossary
PS1 &2
VPS 1-5
VPGA 1-10
IVS
Special Assumption
an assumption that assumes facts which differ from those existing at the date of valuation
Examples of Special Assumptions
if property vacant, assume let on defined terms (and vice versa)
if property being refurbished, assume refurb has completed
if no planning, assume planning permission has been granted
Market Value definition
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 where all parties have acted knowledgeably, prudently and without compulsion.
Market Rent definition
The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lesser on appropriate lease terms in an arms length transaction after proper marketing and where all parties have acted knowledgeably, prudently and without compulsion
Special Value definition
An amount that reflects particular attributes of an asset that are only of value to a special purchaser
Special Purchaser definition
A particular buyer for whom a particular asset has special value because of advantages arising from its ownership that would not be available to other buyers in a market
EG can pay more than market value or can participate in synergistic value (might own property A and want to buy neighbouring property B so can merge assets to get synergistic value)
Synergistic Value definition
The result of a combination of two or more assets where the combined value is more than the sum of the separate values
Marriage Value definition
