Valuation 1

Question 1

What is the full title of the Red Book?

Answer 1

RICS Valuation Global Standards 2022

Question 2

When did the current edition of the Red Book come into force

Answer 2

31 January 2022

Question 3

Who are the International Valuation Standards Council?

Answer 3

A non-profit organisation that acts as the global standard setter for the valuation profession, serving the public interest.

Question 4

What editions of the Red Book have been in effect during your APC training period?

Answer 4

RICS Valuation Global Standards (2020)
RICS Valuation Global Standards (2022)

Question 5

What is the purpose of the Red Book?

Answer 5

1. Consistency, objectivity and transparency
2. To assure users that valuation provided anywhere in the world is in accordance with the highest professional standards
3. To provide a framework for uniformity and best practice

Question 6

What is the purpose of the UK National Supplement?

Answer 6

Supplements the Red Book. Sets out specific requirements and guidance for valuations in the UK

Question 7

To what valuations does the Red Book apply?

Answer 7

To all valuations except those listed as an exception.

Question 8

What valuations are exceptions to the Red Book?

Answer 8

1. Agency or brokerage work in anticipation of disposal and acquisition instructions
2. Acting or preparing to act as an expert witness
3. Performing statutory functions
4. Purely for internal purposes
5. Preparation for or during negotiations or litigation

Question 9

Can you name some valuations that are carried out for a statutory function?

Answer 9

Compulsory purchase orders, rating, leasehold & enfranchisement

Question 10

What is the difference between Valuation Technical and Performance Standards (VPS) and Valuation Practice Guidance – applications (VPGA)?

Answer 10

VPS (Valuation Technical and Performance Standards) = Mandatory
VPGA (Valuation Practice Guidance - Applications) = Advisory

Question 11

What are the possible consequences if a Valuer does not comply with a VPS?

Answer 11

RICS can get involved and issue disciplinary action

Question 12

What are the possible consequences if a Valuer does not comply with a VPGA?

Answer 12

It could be a contributory factor in a negligence case. E.g. can result in a party losing money. Buyer - valued at £2m when £1.5m. Seller - valued at £1.5m when £2m.

Question 13

Describe how Departure from the Red Book mandatory requirements may be possible.

Answer 13

When it may be unsuitable in some purposes.
This must be agreed with the client and stated in:
1. The terms of engagement
2. Report
3. and publications.
Departures must be justified.

Question 14

What information would you require from a telephone enquirer who asked: Can you do me a valuation?

Answer 14

What is it, where is it, type of valuation required, who is it for (eliminate conflict of interest), extent of investigations etc

Question 15

What do your Valuation Files contain?

Answer 15

1. Conflict of interest checks
2. Terms of Engagement
3. Inspection note etc
4. Planning, rating and environmental searches
5. Comparables and analysis
6. Valuation calculation with rationale
7. Report (stating opinion of value)

Question 16

What are the main contents of the Terms of Engagement for a Valuation?

Answer 16

1. Identification and status of the valuer*
2. Identification of the client(s)*
3. Identification of any other intended users
4. Identification of the asset(s) or liability(ies) being valued*
5. Valuation (financial) currency
6. Purpose of the valuation*
7. Basis(es) of value adopted*
8. Valuation date*
9. Nature and extent of the valuer’s work - including investigations - and any limitations thereon*
10. Nature and source(s) of information upon which the valuer will rely
11. All assumptions and special assumptions to be made*
12. Format of the report
13. Restrictions on use, distribution and publication of the report
14. Confirmation that the valuation will be undertaken in accordance with the IVS
15. The basis on which the fee will be calculated*
16. Where the firm is registered for regulation by RICS, reference to the firm’s complaints handling procedure, with confirmation that a copy will be made available on request
17. A statement that compliance with these standards may be subject to monitoring under RICS’ conduct and disciplinary regulations.
18. A statement setting out any limitations on liability that have been agreed.

Question 17

How would you respond to a request to value a property from a Pavement Assessment only?

Answer 17

Why only a pavement assessment?

Question 18

Please name the Red Book Global Bases of Value.

Answer 18

1. Market Value
2. Market Rent
3. Investment Value
4. Fair Value

Question 19

Please name the UK-Specific Bases of Value.

Answer 19

1. Existing Use Value,
2. Existing Use Value for Social Housing
3. Value of plant and equipment
4. Projected market value of residential

Question 20

What is the difference between a Basis of Value and a Method of Valuation?

Answer 20

Basis of Value = statement of fundamental measurement assumptions of a valuation

Method of Value = a technique used to arrive at the value of the appropriate basis of value

Question 21

Describe the Assumptions that are usually made in producing a valuation.

Answer 21

1. Title
2. Condition of buildings
3. Services
4. Planning
5. Contamination and hazardous substances
6. Environmental matters distinguishing between:
   (a) Natural environmental constraints
   (b) Non-natural constraints (contamination and hazardous
   substances).
   (c) Sustainability – assessing the implications for value

Question 22

What is a Special Assumption?

Answer 22

A special assumption is made by the valuer where an assumption either assumes facts that differ from those existing at the valuation date or that would not be made by a typical market participant in a transaction on that valuation date.

Question 23

Give three situations when it would be appropriate to make a Special Assumption.

Answer 23

1. Planning consent has or will be granted
2. Proposed development has been completed in accordance with a defined plan and specification
3. The property has been changed in a defined way
4. The property is vacant (when occupied at the valuation date)
5. The property is let on defined terms (when vacant at the valuation date)
6. That synergistic value is created where one or more parties has a special interest

Question 24

Define Market Value in your own words.

Answer 24

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 arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.

Question 25

What do consider Proper Marketing to be in the Market Value definition?

Answer 25

Where the asset has been exposed to the market in the most appropriate manner

Question 26

What is an Arm’s Length Transaction?

Answer 26

Neither party has a relationship

Question 27

What is Synergistic Value?

Answer 27

Synergistic Value is the result of a combination of two or more assets or interests where the combined value is more than the sum of the separate values.

Question 28

What is Marriage Value?

Answer 28

An additional element of value created by the combination of two or more assets or interests where the combined value is more than the sum of the separate values.

Question 29

What is a Special Purchaser?

Answer 29

A particular buyer for whom a particular asset has a special value because of advantages arising from its ownership that would not be available to other buyers in a market.

Question 30

When is Market Rent not appropriate as a Basis of Value in providing a report on the rental value of a property and why not?

Answer 30

When undertaking a rent review. Why? – Because the rent review clause determines how the rent should be reviewed and the actual assumptions and disregards are taken into consideration.

Question 31

When is Fair Value the appropriate valuation basis?

Answer 31

When undertaking valuations for financial reporting (Asset Valuations)

Question 32

What is a Regulated Purpose Valuation?

Answer 32

Regulated purpose valuations are valuations relied on by 3rd parties or there is a public interest who have not commissioned the valuation; for 5 purposes; 1. Financial statements 2. Stock Exchange listing 3. Takeovers & mergers 4. Collective investment schemes 5. Unregulated property unit trust.

Question 33

What is an Asset Valuation?

Answer 33

A valuation undertaken for financial reporting

Question 34

When is Existing Use Value the valuation basis?

Answer 34

When valuing owner occupied assets - owned by local or central government.

Question 35

What is the fundamental difference between Market Value and Existing Use Value?

Answer 35

Existing Use Value does not take into account any additional value that could be created through additional use

Question 36

When is DRC used in Asset Valuations?

Answer 36

Used to value specialized assets that rarely sell on the market except through the sale of the business itself. = Football stadium

Question 37

According to VPGA 10, what matters may give rise to material valuation uncertainty

Answer 37

The asset or liability may have characteristics that make it difficult to value (it may be unusual or even unique and/or potential planning permission) Limited or restricted information Disrupted markets (unforeseen financial, macro-economic, legal, political or natural events)

Question 38

Structure of Red Book

Answer 38

Part 1: Introduction Part 2: Glossary Part 3: Professional Standards (PS) - mandatory Part 4: Valuation Technical and Performance Standards (VPS) - mandatory Part 5: Valuation Applications (VPGA) - advisory Part 6: International Valuation Standards (IVS)

Question 39

Name the Professional Standards

Answer 39

PS 1 Compliance standards where a written valuation is provided PS 2 Ethics, competency, objectivity and disclosures

Question 40

Name the Valuation Technical and Performance Standards

Answer 40

VPS 1 Terms of engagement (scope of work) VPS 2 Inspections, investigations and records VPS 3 Valuation reports VPS 4 Bases of value, assumptions and special assumptions VPS 5 Valuation approaches and methods