Valuation

Question 1

What is the purpose of the Red Book?

Answer 1

To ensure consistency, transparency, professionalism and an ethical approach in valuations worldwide. It provides a framework for all valuers to follow.

Question 2

What makes up the Red Book?

Answer 2

RICS Valuation – Global Standards (2025)
RICS Valuation - Global Standards - UK National Supplement (2024)

Question 3

What is the structure of the Red Book?

Answer 3

1. Introduction
2. Glossary
3. Professional Standards (PS1 and PS2)
4. Valuation technical and performance standard (VPS 1 - VPS 6)
5. Valuation practice guidance applications (VPGA 1-11)
6. International Valuation Standards (IVS)

Question 4

What are the sections of the Red Book?

Answer 4

Professional Standards

PS 1 - Compliance with standards for written valuations
PS 2 - Ethics, Competency, Objectivity & Disclosures

Valuation Technical & Performance Standards

VPS 1 - Terms of Engagement (Scope of Works)
VPS 2 - Bases of Value, Assumptions & Special Assumptions
VPS 3 - Valuation Approaches & Methods
VPS 4 - Inspections, Investigations & Records
VPS 5 - Valuation Models
VPS 6 - Valuation Reports

Valuation Practice Guidance Applications

VPGA 1 - Valuations for Financial Reporting
VPGA 2 - Valuations for Secured Lending
VPGA 4 - Valuation of Trade Related Properties
VPGA 8 - Valuation of Real Property Interests
VPGA 9 - Valuing Portfolios & Groups of Assets
VPGA 10 - Material Valuation Uncertainty (MVU)
VPGA 11 - Relationships with Auditors

Question 5

Which aspects of the Red Book are mandatory?

Answer 5

PS 1 & PS 2 - Mandatory Professional Standards

VPS 1 - VPS 6 - Mandatory Valuation & Technical Performance Standards

VPGA 1 - VPGA 11 - Valuation Practice Guidance Applications (best practice with mandatory aspects)

Question 6

Are all parts of the Red Book mandatory?

Answer 6

No. Professional standards and VPS is but VPGA are advisory. However, there are 5 exceptions to VPS 1-6.

Question 7

What are the five exemptions to VPS 1-6?

Answer 7

1. Agency or brokerage service
2. Negotiations or litigation
3. Expert witness
4. Statutory functions
5. Internal purposes

Question 8

What are examples of acceptable Red Book exceptions?

Answer 8

VPS 1 - VPS 6 exceptions:

• agency or brokerage in respect of the acquisition or disposal of assets
• acting as an Expert Witness
• valuation advice expressly in preparation for, or during, negotiations or litigation, including where the valuer is acting on the behalf of others, representing their interests.
• Providing valuations to a client purely for internal purposes, on express contractual terms that exclude the valuer’s liability, and without communication to a third party

Question 9

What were the recent changes to the Red Book?

Answer 9

Updates related to mandatory ESG integration and enhanced AI guidelines.

VPS have been remapped in alignment with the new IVS (2025):

VPS 2 and VPS 4 have switched

VPS 2 - new section on treatment of transaction costs
VPS 5 - new section relating to Valuation models

VPGA 1 - rewritten to include key International Financial Reporting Standards
VPGA 11 - new section to cover relationships with auditors

UK National Supplement

VPS 3.3 - New mandatory governance standards for Valuer rotation:

• Maximum 5-year rotation for responsible Valuer
• Maximum 10-year rotation for firm
• Minimum 3-year break after rotation

Question 10

What are the three Valuation Approaches?

Answer 10

1. Market Approach
2. Income Approach
3. Cost Approach

Question 11

What are the five methods of valuation?

Answer 11

1. Comparable
2. Investment
3. Residual
4. Profits
5. Depreciated Replacement Cost

Question 12

When would you use the profits method and how is it applied?

Answer 12

This is used for trade related properties where the value of the property is linked to the profitability of the business. Examples: Pubs, caravan parks, golf courses.

The company accounts will need to be obtained (usually 3 years worth) to calculate the Fair Maintainable Trade. From this the valuer will calculate the Fair Maintainable Operating Profit (FMOP) which is capitalised at a market capitalisation rate.

Question 13

When would you use the DRC method and how is it applied?

Answer 13

It is used for specialised properties where there is no market for them.
Examples - power stations and statutory buildings.

Cost of new modern building (£10m)
- depreciation for current building (70% £7m)
+ the site value (£500k)
= £3.5m

It is the method of last resort and cannot be used for secured lending purposes as it assumes a relationship between cost and value.

Question 14

What do your Terms of Engagement include? NAME FIVE

Answer 14

• Identifies the responsible valuer
• Identification of the client(s)
• Identification of any other intended users
• Address of property being valued
• Valuation currency
• Purpose of the valuation
• Basis of value adopted
• Valuation date
• Extent of the valuer’s work (limitations to inspection)
• Source of information upon which the valuer will rely
• All assumptions and special assumptions
• Format of the report
• Restrictions on use and distribution of the report
• Confirmation it will be undertaken in accordance with Red Book Standards
• The basis on which the fee will be calculated
• Reference to the firm’s complaints handling procedure
• 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
• Consideration of any significant environmental, social and governance (ESG) factors

Question 15

What is a desktop valuation?

Answer 15

Desktop Valuation -

Valuer must, in most cases, still follow the requirements of VPS 1–6.

A desktop valuation is, however, defined as an exception to the requirement for a physical inspection under VPS 4, as long as the valuer has sufficient information to provide a credible valuation.

Question 16

Is a desktop valuation a Red Book valuation?

Answer 16

Yes, all written valuation advice must comply with the Red Book however it is exempt the inspection requirements of VPS 4.

A desktop valuation is Red Book compliant only if the valuer has full and credible facts available, such as previous reports, photos, or detailed market data.

Question 17

What is the definition of Market Value?

Answer 17

‘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 18

What is an arm’s length transaction?

Answer 18

Where the two parties are unaffiliated

Question 19

What is the definition of Market Rent?

Answer 19

‘the estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s-length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.’

Question 20

What is the definition of Investment Value?

Answer 20

‘the value of an asset to a particular owner or prospective owner for individual investment or operational objectives.’

Question 21

What is the definition of Fair Value?

Answer 21

‘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.’

Question 22

What is a Registered Valuer and how do you become one?

Answer 22

A valuer who is registered on the RICS Valuer Registration Scheme.

To be eligible for the scheme, a valuer needs to have taken Valuation to Level 3 in their final assessment. If they haven’t, there is a bespoke assessment for the purposes of Valuer Registration.

Question 23

What steps should be undertaken prior to commencing valuation work?

Answer 23

1. Confirm competence
2. COI checks - confirm independence
3. Obtain signed ToE

Question 24

For your North Oxford example, why did you use the comparable method?

Answer 24

This was the most appropriate method considering the nature of the property and purpose of the valuation, also taking into account the availability of comparable evidence.

Question 25

Are the valuation methods in the Red Book?

Answer 25

The Red Book sets out the approaches and the methods under each approach are set out in the International Valuation Standards.

Question 26

For Wolvercote, where did you get your comparable evidence from?

Answer 26

Rightmove Plus and Land Registry

Question 27

What is a peer review and why did you have one?

Question 28

For West Oxford, what is a secondary office?

Answer 28

An office that is of lower quality than a prime office. This particular office was not purpose built and was in a residential area of Oxford and not near other businesses.

Question 29

What does rack rented mean?

Answer 29

The property is rented at the current market rent

Question 30

What is a yield? And how do you calculate it?

Answer 30

A measurement of return on investment, as a percentage. Annual rent divided by the capital value x 100

Question 31

When did the updates to the Red Book become effective?

Answer 31

31 January 2025

Question 32

What is an assumption and special assumption?

Answer 32

Assumption - where it is reasonable for the Valuer to accept that something is true without the need for specific investigation or verification. Must be reasonable and relevant Special Assumption - assuming facts that differ from reality as at the Valuation Date, or would not be made by a typical market participant in a transaction on the Valuation Date. Must be reasonably regarded as realistic, relevant and valid for the particular circumstances of the valuation. E.g. on my case study the special assumption was that the development had been built out. All Assumptions and Special Assumptions must be agreed with the client in writing in ToE & Report.

Question 33

What must a Valuation report include? NAME FIVE

Answer 33

1. Identification of responsible valuer 2. Client and any other intended users 3. Purpose of the valuation 4. Address of the property being valued 5. Basis of value 6. Valuation date 7. Extent of investigation 8. Nature & sources of information relied upon 9. Assumptions and special assumptions 10. Restrictions on use, distribution and publication 11. Instruction undertaken in accordance with RICS Global Standards 12. Valuation approach and reasoning 13. Valuation figure 14. Date of valuation report 15. Comment on any market valuation uncertainty 16. Any limitations on liability 17. Significant ESG factors used and considered

Question 34

Can you send a client a draft report?

Answer 34

Yes, but it must be marked as draft and cannot be relied upon and must state it is subject to the completion of the final report

Question 35

How would you value a ransom strip?

Answer 35

Valued as a % of the uplift in value of releasing the access to the ransomed party. Stokes v Cambridge provides case law precedent regarding a ransom strip. It established the principle of a % of the uplift in value (in this case 33%), but did not prescribe a specific percentage which would vary by specific circumstances.

Question 36

What is marriage value?

Answer 36

It is the uplift in value attributable to the merging of two assets.

Question 37

What margin of error is allowed for a valuation?

Answer 37

No fixed percentage. It will be specific to the property and the circumstances.

Question 38

Why do we have the UK National Supplement to the Red Book?

Answer 38

To deal with Standards that are bespoke to UK jurisdiction and it provides additional guidance for RICS members and firms on how to implement RICS Valuation - Global Standards within the UK. Example - Charities Act 2011 is a UK law requiring Charities Act reports

Question 39

What is the difference between Market Value and Fair Value?

Answer 39

2 main differences: 1. Purpose of valuation (fair value is used for accounts) 2. Date of valuation (MV as at date of valuation and fair value as at measurement date, which is instructed by the client (for their accounts)).

Question 40

Why is a DCF advantageous over a Term & Revision?

Answer 40

It is growth explicit and therefore more accurate Easier to unpack if it is challenged

Question 41

Why are DCFs not commonly used in some markets?

Answer 41

Lack of evidence and market transparency for component inputs of DCF

Question 42

When would a DCF be used?

Answer 42

Build to Rent Student Accommodation

Question 43

Which method does the RICS say should be used for valuing development sites?

Answer 43

Should not rely on on method. Typically a Residual Appraisal cross-checked against similar development land transactions.

Question 44

What process is taken to understand if the property is rented below market rent?

Answer 44

Analysis of rental values for comparable properties.

Question 45

Is there a risk to valuing on a £ per sq ft basis?

Answer 45

The rate will vary on size. Smaller property = higher rate psqft Larger property = lower rate psqft Can be an issue if comparing bungalows and houses

Question 46

What is the difference between GDV and net realisation value?

Answer 46

The GDV is the total market value of a completed property development. The Net Realisation value is the estimated sale price of an asset minus the costs of selling it.