101 Red Book

Question 1

What are the 3 valuation approaches?

Answer 1

1) Market Approach
2) Income Approach
3) Cost Approach

Question 2

What are the 5 valuation methods?

Answer 2

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

Question 3

RICS Red Book Professional Standards

Answer 3

PS1 = Compliance with standards where a written valuation is provided.
PS2 = Ethics, competency, objectivity and disclosures

Question 4

RICS Red Book Valuation Technical and Performance Standards

Answer 4

VPS1 = Terms of engagement
VPS2 = Bases of Value, assumption and special assumptions
VPS3 = Valuation approaches and methods
VPS4 = Inspections, investigations and records
VPS5 = Valuation models
VPS6 - Valuation reports

Question 5

RICS Valuation Practive Guidance Applications

Answer 5

VPGA 1 - Financial Reporting
VGPA 2 - Secured Lending
VPGA 3 - Businesses

Question 6

What is included within the International Valuation Standards?

Answer 6

Question 7

What is the Red Book?

Answer 7

Globally recognised framework for valuation standards.

Question 8

What three things should you consider as first steps before undertaking a valuation?

Answer 8

Your professional competence to undertake the valuation, your independence (No COI) and Terms of Engagement.

Question 9

What should be considered in statutory due diligence prior to undertaking a valuation?

Answer 9

This includes:
* Asbestos, Tax
* Contamination
* Equality Act Compliance
* Environmental Matters (electricity sub stations)
* EPC Rating
* Flooding, Fire Safety
* Health and Safety Compliance
* Highways
* Legal Title and Tenure
* Public Rights of Way
* Planning History

Question 10

Describe the timeline of a typical valuation instruction.

Answer 10

**Start: **
Receive opportunity to quote, Check competence, Check COI, Draft terms of engagement (scope of works, fee, PII, CHP), Receive countersigned terms.

**Due Diligence:
Valuation & Reporting:
Completion: **
Undertake statutory DD (rates, flood risk, planning, EPC), Gather information – leases, title, planning docs, OS plans, Inspect and measure, Research market / analyse comps.

**Due Diligence:
Valuation & Reporting:
Completion: **
Undertake valuation, Peer review, Draft report, Finalise and sign report, Report to your client.

**Due Diligence:
Valuation & Reporting:
Completion: **
Issue invoice, Ensure filing in good order for audit.

Question 11

What are the Three Valuation Approaches and Methods According to the IVS 105?

Answer 11

• Market approach (comparable evidence)
• Income approach (converting current and future cash flows into capital value)
• Cost approach (DRC)

Question 12

What does the Red Book say about DRC?

Answer 12

The method should not be used for loan security valuations, it is not a very reliable method.

Question 13

What must a valuer include when reporting a DRC valuation?

Answer 13

State the value for any readily identifiable alternative use if it is higher than the current use if appropriate. If appropriate, a statement that the market value would be lower on cessation of the business use.

Question 14

What is the Red Book called?

Answer 14

RICS Valuation – Global Standards (2025) (Red Book Global).

Question 15

What is the structure of the Red Book (Parts 1-6)?

Answer 15

Picture

Question 16

What are the 2 Red Book ‘Professional Standards’?

Question 17

What is the Application of PS1?

Question 18

What are the five situations when a valuation does not have to be fully compliant?

Answer 18

1. Statutory function
2. Use in litigation
3. Expert witness
4. Agency or brokerage
5. Internal purposes.

Question 19

What are the five reasons for non-compliance with the red book?

Question 20

What things does the PS2 make mandatory?

Question 21

Where in the Red Book does it talk about rotation policy?

Question 22

What are the valuation and technical performance standards VPS?

Question 23

According to VPS1 What are the minimum requirements to be confirmed in writing prior to a Red Book Valuation Commencing?

Question 24

What is VPS 2 of the Red Book?

Question 25

According to VPS 2 of the Red Book, what is the main purpose of Inspection and Investigation?

Question 26

Are desktop valuations (i.e. without inspection) Red Book Compliant?

Answer 26

Yes, red book compliant unless for reasons in PS1, however VPS 2 of the Red Book sets out the following steps which should be taken by a valuer in this situation of restricted information.

Question 27

Can you undertake a re-valuation of a property without re-inspection?

Answer 27

In accordance with VPS2 of the red book, you can revalue a property without reinspection providing you as the valuer are satisfied there has been no material change that will impact the property’s value. * This should be stated in the Terms of Engagement and in the report.

Question 28

What does VPS 2 say about Record Keeping?

Answer 28

Comprehensive records of investigations and inspections must be kept in a business format.

Question 29

What does VPS3 of the Red Book say?

Question 30

What does VPS3 say that a Valuation Report should contain?

Question 31

What does VPS3 say that a Valuation Report should contain?

Answer 31

1. Identification and status of valuer 2. Identification of client 3. Identification of the asset 4. Purpose of valuation 5. Bases of value adopted 6. Valuation date 7. Extent of investigation 8. Nature and sources of information relied upon 9. Assumptions and special assumptions 10. Restrictions on use 11. Confirmation that the valuation has been undertaken in accordance with IVS 12. Valuation approach and reasoning 13. Amount of valuation or valuations 14. Date of valuation report 15. Commentary on any material uncertainty in relation to the valuation where it is essential to ensure clarity on part of the valuation user 16. Statement setting out any limitations on liability that have been agreed.

Question 32

Does a valuer have to sign a valuation report?

Answer 32

Yes according to VPS 3. Make it clear that they objectively able to value the property. Signed off by an individual, not a firm.

Question 33

What must you do and consider when providing preliminary (or draft) valuation advice?

Answer 33

According to VPS 3 of the Red Book, when providing draft advice: • Mark the report draft • Not to be shared and is for internal purposes only – no reliance • Can be discussed with the client but the valuer must not be influenced by the client. • Any changes to the final report or additional information considered must be included as a note in the final report.

Question 34

What does VPS4 cover?

Answer 34

It covers bases of value, assumptions and special assumptions.

Question 35

What are the 6 bases of value for VPS4?

Answer 35

• Market Value • Market Rent • Investment Value • Fair Value (IFRS13) • Equitable Value (IVS 104) • Liquidation value

Question 36

What must a valuer ensure when choosing a ‘basis’ of valuation?

Answer 36

In accordance with VPS 4, a valuer must ensure that this basis adopted is appropriate for the purpose of the valuation.

Question 37

What is the Red Book definition of Market Value?

Answer 37

The estimated amount that an asset or liability should exchange on the valuation date, between a willing buyer and willing seller in an arms-length transaction, after proper marketing, where parties have acted * knowledgeably, * prudently and * without compulsion.

Question 38

What is the Red Book definition of Market Rent?

Answer 38

The estimated amount that an interest in property should be exchanged for on the valuation date, between a willing lessor and willing lessee, on appropriate lease terms, in an arms length transaction, after proper marketing, where parties have acted * knowledgeably, * prudently and * without compulsion.

Question 39

What is the definition of Investment Value?

Answer 39

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

Question 40

What is the definition of Fair Value (as an IFRS 13)?

Answer 40

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 41

What does VPS 4 of the Red Book say about Special Assumptions?

Answer 41

A special assumption 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 42

When must special assumptions and marketing constraints be agreed?

Answer 42

Special assumptions and marketing constraints must be agreed with the client prior to undertaking the valuation and Global Red Book states

Question 43

What does VPS 5 of the RICS Valuation Global Standards refer to?

Answer 43

Valuation approaches and methods. Following IVS 105 Valuation Approaches and Methods: • Market Approach (Compare) • Income Approach (Capitalise) • Cost Approach (Sum cost)

Question 44

What does VPGA stand for? And how many VPGAs are there in the Red Book?

Answer 44

Valuation Practice Guidance – Application.

Question 45

What is VPGA1 referent to and what does the Red Book say about it?

Answer 45

VPGA1 gives guidance on valuation for inclusion in financial accounts. Noting the IFRS will adopt Fair Value for financial accounts.

Question 46

What does VPGA2 referent to and what does the Red Book say about it?

Answer 46

VPGA2 gives guidance surrounding valuation for secured lending.

Question 47

According to VPGA 2 of the Red book, when valuing for Secured Lending Purposes, for what period of time is “previous involvement” defined as being within?

Answer 47

According to VPGA 2 of the Red Book, Previous Involvement is defined as involvement within the last 2 years.

Question 48

What are some examples listed in VPGA 2 of the Red Book of Situations where an instruction should be declined on the basis of Previous Involvement?

Answer 48

• Having a longstanding professional relationship. • When the valuer will gain a fee from introducing the transaction to the lender. • If there is financial interest in the property holding or prospective borrower. • When the valuer is retained to act in the disposal or letting of the completed development on the subject property.

Question 49

If the valuer and Client make arrangements to manage a potential conflict of interest, where should these arrangements be recorded?

Answer 49

Recorded in the terms of engagement and in the valuation report.

Question 50

Can you give some examples of Special Assumptions that may arise in loan security valuations, as highlighted in VPGA 2 of the Red Book?

Answer 50

1. Vacant Possession 2. New letting on given terms 3. Special Purchasers (could be the borrower)

Question 51

In addition to those points listed in VPS3, what has to be included in a valuation report for secured lending purposes according to VPGA 2 of the Red Book?

Answer 51

*** Disclosure of involvement ** *** Valuation method adopted ** * If there is a recent transaction of the property, how much reliance there is on that value *** Comment on suitability for Secured Lending purposes ** * Comment on any factor affecting value * Demand for alternative uses * Disrepair (Deleterious materials) * Environmental issues (flood risk) * Market Commentary * Current marketing period required * Details of comparable transactions relied upon

Question 52

What does VPGA 10 cover?

Answer 52

It concerns matters that may give rise to valuation material uncertainty. Covid. GFC.

Question 53

What is the Purpose of the New UK National Supplement?

Answer 53

It is not a substitute, it augments the Red Book.

Question 54

What does UK VPS 3 of the UK National Supplement Cover?

Answer 54

Valuation relied on by third parties who have not commissioned the valuation and they are subject to valuation monitoring. 1. Financial reporting 2. Stock Exchange Listings 3. Takeovers and Mergers 4. Collective investment schemes 5. Unregulated property unit trusts

Question 55

What are the 5 exceptions from Red Book Global valuations?

Answer 55

1. Expert Witness work 2. Agency and Brokerage work 3. Statutory work 4. Internal Purposes 5. Negotiations or Litigation.

Question 56

What does VPS3 say that a Valuation Report should contain?

Answer 56

1. Identification and status of valuer 2. Identification of client 3. Identification of the asset 4. Purpose of valuation 5. Bases of value adopted 6. Valuation date 7. Extent of investigation 8. Nature and sources of information relied upon 9. Assumptions and special assumptions 10. Restrictions on use 11. Confirmation that the valuation has been undertaken in accordance with IVS 12. Valuation approach and reasoning 13. Amount of valuation or valuations 14. Date of valuation report 15. Commentary on any material uncertainty in relation to the valuation where it is essential to ensure clarity on part of the valuation user 16. Statement setting out any limitations on liability that have been agreed.

Question 57

Does a valuer have to sign a valuation report?

Answer 57

Yes according to VPS 3. Make it clear that they objectively able to value the property. Signed off by an individual, not a firm.

Question 58

What is the Purpose of the New UK National Supplement?

Answer 58

It is not a substitute, it augments the Red Book.

Question 59

Are valuations for secured lending purposes regulated purpose valuations?

Answer 59

Secured lending valuations are NOT regulated purpose valuations as they are not relied upon by a third party or in the public interest.

Question 60

What does it mean to be subject to ‘Valuation Monitoring’?

Answer 60

Inspections by the RICS professional regulation team take place. • Annual declaration from the member valuing detailing the length of time that they have been valuing for that client. • Whether that client accounts for more of less than 5% their income.

Question 61

If your firm introduces the property or receives an acquisition fee for the purchase of the property, according to UK VPS3, how many months have to pass before you can value it for regulated purposes?

Answer 61

12 months.

Question 62

What do you have to consider when valuing a charity in the UK?

Answer 62

Follow the requirements of the 2022 Charities Act. Guidance from the RICS is provided in UK VPGA 8. • A surveyor would comment as to whether it would be in the best interest of the charity to buy/sell.