Red Book

Question 1

What is the red book?

Answer 1

It sets out strict standards and guidance to promote high standards of valuation worldwide

Question 2

What is the structure of the Red Book?

Answer 2

1. Introduction
2. Glossary
3. Professional standards (PS) MANDATORY
4. Valuation technical and performance standards (VPS) MANDATORY
5. Valuation applications (VPGAs)
6. The International Valuation Standards (IVS)

Question 3

What is the latest version?

Answer 3

RICS Valuation - Global Standards 2021 - effective from 31st January 2022

Question 4

What are the main changes from the previous version?

Answer 4

• The need for compliance withthe Red Book Global and appropriate and unambiguous terms of reference
• Valuation for financial reporting - with reference to IFRS16
• Reference to the use of profits method for non-trade related property (PBSA, self-storage, flexi-offices)
• Introduced definitions with reference to ESG and sustainability

Question 5

What is PS1?

Answer 5

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

Question 6

What are the 5 exceptions for the mandatory use?

Answer 6

• Related to agency work in anticipation of an instruction
• Advice is provided as part of litigation
• Advice is for internal purposes only
• Advice provided in anticipation of providing evidence as an expert witness
• When the valuer is undertaking a statutory function

Question 7

What is PS2?

Answer 7

Ethics, competency, objectivity and disclosures

• Valuer must act in accordance with the Rules of Conduct
• Valuer must act objectively, apply professional scepticism an deal with conflicts of interests
• Members must understand the client’s requirements, demonstrate professional competence and comply with minimum TOEs

Question 8

What is VPS 1?

Answer 8

Terms of engagement

Question 9

What are the minimum matters that must be confirmed in writing to the client?

Answer 9

• Status of the valuer
• Identification of the client
• Identification of any other users
• The asset / portfolio to be valued
• Currency
• Purpose of valuation
• Basis of value
• Valuation date
• Extent of investigation
• Nature and source of information
• Assumptions / special assumptions
• Format
• Restrictions
• Confirmation of RBG compliance
• Fee basis
• CHP
• Limitation of liability

Question 10

What is an assumption and a special assumption?

Answer 10

Assumptions are made where it is reasonable for the valuer to accept that something is true without the need for specific investigation

A special assumption is a supposition that is taken the true and accepted as fact, even though it is not true

*Must be agreed with the client within ToEs

Question 11

What is VPS2?

Answer 11

Inspections, Investigations and Records

Question 12

Why should a valuer inspect?

Answer 12

• Valuers must verify the information being relied upon for a valuation to ensure information is professional adequate

Question 13

What should a valuer consider when undertaking a desk top valuation?

Answer 13

1. Nature of restriction must be agreed in ToEs
2. Implications of the restriction on valuation
3. Valuer should consider whether restriction is reasonable
4. Restriction must be referred to in report

Question 14

What is VPS3?

Answer 14

Valuation reports

Question 15

What are the minimum requirements for a report?

Answer 15

• Identification and status of valuer
• Client
• Purpose of valuation
• Identification of asset
• Basis of value
• Valuation date
• Extent of investigation
• Nature of information
• Assumptions / special assumptions
• Valuation approach
• Valuation figure
• Date of valuation report
• Commentary

Question 16

What is preliminary advice?

Answer 16

• Must be marked as draft and for internal purposes only
• Must be subject to completion of a final report

Question 17

What is VPS4?

Answer 17

Bases of value, Assumptions and special assumptions

Question 18

What is market value / rent?

Answer 18

• Estimated amount for which should exchange / lease for
• On the valuation date
• Between willing buyer and seller / lessor and lessee
• In an arm’s length transaction
• With full and proper marketing
• Both parties acting knowledgeably, prudently and without compulsion

Question 19

What is fair value?

Answer 19

The price that would be received to sell an asset or paid to transfer a liability
- in a orderly transaction between market participants
- at the measurement date

Question 20

What is Investment value?

Answer 20

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

Question 21

What is VPS 5?

Answer 21

Valuation approaches and methods

Question 22

What are the VPGAs?

Answer 22

Valuation Practice Guidance Applications

VPGA 1 - Valuation for inclusion in financial accounts
VPGA 2 - Valuations for secured lending
VPGA 8 - Valuation of real property interests
VPGA 10 - Matters that may give rise to material valuation uncertainty

Question 23

What are the International Valuation Standards (Part 6 of RBG?)

Answer 23

• General standards address matters such as ToEs,

Question 24

What is the UK supplement 2018?

Answer 24

• Effective from January 2019
• Augments the Red Book global and is not a substitute
• Provides specific requirements for for members on the application of the VPGAs based on UK jurisdiction.
• Contains 18 UK specific VPGAs to make more user friendly

Question 25

What are the contents of the UK Supplement?

Answer 25

1. Introduction 2. UK PS 3. UK VPS 4. UK VPGAs 5. Summary of changes from Red Book 2014

Question 26

What are the key changes from the RBG to the UK supplement?

Answer 26

- Easy to read and more user friendly - Clear advice on what is mandatory and what is not - Provides mandatory statements and advice for UK valuations - Introduced new UK VPGAs for valuation of central government assets, local authority assets etc - Greater differentiation between UK GAAP and IFRS - New section on valuation for commercial lending

Question 27

Name some UK VPGAs:

Answer 27

1. Valuation for financial reporting 2. Valuation of registered housing provider's assets 8. Valuation of charity assets 10. Valuation for commercial secured lending purposes 11. Valuation of residential mortgage purposes

Question 28

When did the latest UK supplement come into place?

Answer 28

October 2023 effective from May 2024