What is the full title of the Red Book?
The RICS Valuation Global Standards and the UK National Supplement
When did the current edition of the Red Book come into force?
Who are the International Valuation Standards Council?
What is the purpose of the UK National Supplement?
What valuations are Exceptions to the Red Book?
- Agency or brokerage work in anticipation of disposal or acquisition instructions
- Acting or preparing to act as an expert witness
- Performing statutory functions
- Purely for internal purposes
- Preparation for or during negotiations or litigation
What is the difference between Valuation Technical and Performance Standards (VPS) and Valuation Practice Guidance – applications (VPGA)?
- VPS (Valuation Technical and Performance Standards) are mandatory
- VPGA (Valuation Practice Guidance/Valuation Application) are best practice, guidance only
Describe how Departure from the Red Book mandatory requirements may be possible.
You can’t although if asked to do so then you must put it in writing, agreed by the client and other relevant parties and stated within the minimum terms of engagement.
What information would you require from a telephone enquirer who asked: Can you do me a valuation?
What is it, where is it, type of valuation required, who is it for (eliminate conflict of interest), extent of investigations etc
What do Valuation Files contain?
- Conflict of interest checks
- Terms of Engagement
- Inspection note etc
- Planning, rating and environmental searches
- Comparables and analysis
- Valuation calculation with rationale
- Report (stating opinion of value)
What are the main contents of the Terms of Engagement for a Valuation?
- Identification and status of the valuer
- Identification of the client(s)
- Identification of any other intended users
- Identification of the asset(s) or liability(ies) being valued
- Valuation (financial) currency
- Purpose of the valuation
- Basis(es) of value adopted
- Valuation date
- Nature and extent of the valuer’s work - including investigations - and any limitations thereof
- Nature and source(s) of information upon which the valuer will rely
- All assumptions and special assumptions to be made
- Format of the report
- Restrictions on use, distribution and publication of the report
- Confirmation that the valuation will be undertaken in accordance with the IVS
- The basis on which the fee will be calculated
- 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
- A statement that compliance with these standards may be subject to monitoring under RICS’ conduct and disciplinary regulations.
- A statement setting out any limitations on liability that have been agreed.
Please name the Red Book Global Bases of Value
- Market Rent,
- Market Value,
- Fair Value and
- Investment/Worth
What is the difference between a Basis of Value and a Method of Valuation?
A bases of valuation is a statement of the fundamental measurement assumptions of a valuation.
A method of valuation is the technique employed
Describe three Assumptions that are usually made in producing a valuation- (VPGA 8: Valuation of Property Interests)
- Title
- Condition of buildings
- Services
- Planning (Zoning)
- Contamination and hazardous substances
- Environmental matters distinguishing between:
o Natural environmental constraints
o Non-natural constraints (contamination and hazardous substances).
o Sustainability – assessing the implications for value
What is a Special Assumption?
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.
Give three situations when it would be appropriate to make a Special Assumption.
- If the property has been reinstated
- Valuing as a cleared site with development permission for the existing use
- Refurbishment or redevelopment for a different use
Define Market Value in your own words.
IVS 104: The price and asset or liability would exchange on the valuation date between willing buyer and willing seller in an arm’s length transaction after proper marketing with the parties acting knowledgeably and without compulsion.
Market value ignores distortions caused by special value or synergistic value.
What do you consider Proper Marketing to be in the Market Value definition?
Depends on the state of the market and the number of interested parties. Property should be exposed to the market for a reasonable timeframe.
Think methods of sale – auction, private treaty, tender
Advertising correctly – local, nationally or internationally
What is an Arm’s Length Transaction?
Two unrelated parties to the transaction with no previous connections or obligations
What is Synergistic Value?
Where the amalgamation of one or more assets results in a higher value than the individual assets.
What is a Special Purchaser?
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 the market.
Someone who has vested interest in the asset or liability that means more to them than someone else i.e. the neighbour next door – usually results in a higher market value.
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?
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.
When is Fair Value the appropriate valuation basis?
There are 2 definitions of fair value
* International Valuation Standards Council (IVSC) – special purchaser – the transfer price agreed between identified parties
* International Accounting Standards Board (IASB) – asset valuations (company accounts)
What is a Regulated Purpose Valuation?
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.
What is an Asset Valuation?
Asset valuation is the process of determining the fair market or present value of assets, using book values, absolute valuation models like discounted cash flow analysis, option pricing models or comparables.
