RICS Valuation - Red Book Global

• Part 1 – Introduction
• Part 2 – Glossary
• Part 3 – Professional Standards
• Part 4 - Valuation Technical and Performance Standards
• Part 5 – Valuation Applications
• Part 6 – The International Valuations Standards

• No date
• Red Book Global
• Reflects updates within Internations Valuations Standards
• PS1 – ‘Written means any valuation conveyed by paper or any electronic/digital means’
• PS2 – Values must apply independence and objectivity to their work and ‘professional scepticism’ when reviewing data i.e. misleading comps
• VPS 1 – Additional reference to IVE 220 about ‘non-financial liabilities’ which needs to be referred to as aspects of an asset or liability to be valued in TOE.
• VPS 3 – State what the valuation approach was and relevant reasoning that lead to their findings
• VPS 5 – As per IVS 105, to ensure the selection of valuation model is appropriate for the basis of value, that it is recorded and the mdoels assuptions are misunderstood.
• VPGA 1 – ‘Performance standards required when valuing for financial statements’
• VPGA 8 – Importance of considering current and historic land uses in the context of sustainability when valuing the property
• IVS 410 – Valuer of development property to ‘apply a minimum of two appropriate and recognises methods’

Compliance with the standards and practice statements where a written valuation is provided.

• Advice provided in preparation for negotiations or litigation
• Valuer is performing statutory function except for return to tax authority
• Valuation is for internal purposes
• Valuation provided in anticipation of giving evidence as an expert witness

Ethics, competence, objectivity and disclosures

The valuer and firm must act independently and not to be influenced. Must apply professional scepticism.

Terms of Engagement

• ID and status of valuer
• ID of the client
• ID of any other intended users
• Asset to be valued
• Currency
• Purpose of valuation
• Valuation date
• Basis of value
• Extent of investigation
• Nature and sources of info to be relied on
• Assumptions/special assumptions to be made
• Format of report
• Restrictions of use, distribution and publication
• Confirmation of Global Red Boook / IVS Compliance
• Fee basis
• Complaints Handling Procedure
• Statement that valuation may be subject to compliance by RICS
• Limitation on liability agreed

• Assumption – made where it is reasonable fir the valuer to accept that something is true without the need for specific investigation
• Special assumption – is a supposition that is taken to be true and accepted as a fact even though it is not true.

It must be agreed in writing at the commencement of the instruction

Inspections, Investigations and Records

• Nature of the restriction must be agreed in writing in the TOE’s
• The possible valuation implications of the restriction confirmed in writing before the value is reported
• The valuer should consider whether the restriction is reasonable with regard to the purpose of the valuation
• The restriction must be referred to in the report

No, unless the valuer is satisfied that there have been no material changes to the property or nature of the location since the last valuation

Valuation reports

• ID of the status and valuer
• Client and any other intended users
• Purpose of valuation
• ID of the asset to be valued
• Basis of value
• Valuation date
• Extent of investigation
• Nature and source of information relied upon
• Assumptions and special assumptions
• Restrictions on use, distribution and publication
• Instruction undertaken in accordance with IVS standards
• Valuation approach and reasoning
• Valuation figure
• Date of valuation
• Comment on market uncertainty
• Statement setting out any limitations on liability that have been agreed

Bases of Value, Assumptions and Special Assumptions

• The 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 property marketing
• After the parties have acted knowledgably, prudently and without compulsion

• The estimated amount for which an interest in real property should be leased
• On the valuation date
• Between a willing lessor and willing lessee
• On appropriate lease terms
• In an arm’s length transaction
• After property marketing
• After the parties have acted knowledgably, prudently and without compulsion

‘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’

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• This basis of valuation is now required if the International Financial Reporting Standards have been adopted by the client
• Adopted by International Accounting Standards Board
• RICS views that the definition is generally consistent with Market Value

The value of an asset to a particular owner or prospective owner for an individual investment or operational objectives

•  
• May differ from Market Value
• Sometimes used as a measure of worth to reflect the value against the clients own investment criteria

• Valuation approaches and methods
• Valuers responsible for choosing and justifying their valuation approach and use of model
• In some case, more than one approach may be adopted

Valuations for secured lending valuations

• Dealing with conflicts of interest for secured lending
• Any previous dealings with borrower must be disclosed
• Previous dealing means within the last 2 years
• If valuer or client believes instruction causes a conflict that can’t be avoided, instruction must be declined

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• Reporting Procedures

 

• Additional info to be provided to the lender to help them form a decision on lending:
• Valuation methodology adopted supported where appropriate with the calculation
• Where a property has recently transacted or been u/o, the extent to which that info has been accepted as market value
• Where the enquiry does not reveal any info, the valuer will make a statement to that affect in the report
• Comment on any environment consideration
• Comment on sustainability of the property for mortgage purposes
• Any circumstances that the valuer is aware my effect the price

'General Standards' - addresses matters such as TOE's, approaches, bases and methods of valuation as well as reporting

'Asset Standards' - address requirements relating to types of assets including information on the characteristics of each asset type that influence value

• Greater transparency globally
• Create unified valuation standards
• Identify and develop globally accepted definition

Matter that may give rise to material valuation uncertainty

• A valuation report must not be misleading
• The valuer should clearly draw attention to, and comment on, any issues resulting in material uncertainty in the valuation on the specified date relating to the risk surrounding the valuation of the asset
• A standard caveat should not be used

• It augments the Red Book Global requirements in the UK and is not a substitute.
• Easy to read and more user friendly with clear advice on what is and isn't mandatory
• New UK VPGA's have been included for the valuation of central government assets, local authority assets and registered social housing assets

Regulated purpose valuations

• Valuations relied on by third parties who have not commissioned the valuation and they are subject to valuation monitoring
• 1) Financial Reporting (company accounts)
• 2) Stock Exchange Listings
• 3) Takeovers and mergers 
• 4) Collective investments schemes
• 5) Unregulated property unit trusts

7 years - then the valuer needs to rotate

• To improve the quality of valuation and ensure the highest possible professional standards
• To meet the RICS' requirement to self regulate effectively
• To protect and raise the status of the valuation profession as the leading expert in valuation

It cannot value a property within 12 months of purchasing or receiving an introduction fee from the same company

• Openness and transparency
• RICS protection and International Valuation Standards
• Expertise and clear reporting
• World Class Regulations

• Type of valuations
• Purposes of valuations
• Number of valuations
• Firms total fee income from Red Book Global Valuations in the last year
• What sources of data used
• Quality assurance audit procedures in place
• History of any negligent claims and notifications

The Head of Regulation has the power to remove the valuer from the scheme.

• 1) Financial reporting
• 2) Stock exchange listings
• 3) Takeovers and mergers
• 4) Collective investment schemes
• 5) Unregulated property unit trusts