Red Book Flashcards
(30 cards)
1) What is the purpose of the Red Book?
- Global consistency
- Red Book valuations refer to any valuations which are undertaken under the mandatory standards and regulations set out in the RICS Valuation Global Standards 2017
- Covers areas such as ethical standards, duty of care, qualifications of a valuer and contents of valuation report
- Ensures clients that they are receiving a properly researched valuation by a qualified and independent valuer working to a set of established and consistent standards
2) What are the reasons for a new 2017 edition?
- Reflect significant changes to International Valuation Standards (IVS) introduced in 2017
- Provide consistent language and make clear that Professional Standards (PS), Valuation Technical Performance Standards (VPS) are both mandatory and applications (VPGA) are advisory
- Procedural manual not valuation textbook
3) What are the major changes to the 2017 Red Book compared with the previous version?
- Exemptions now known as exceptions
- Includes new requirements for members dealing with COI and the adoption of IPMS.
- Clear advice given on valuation uncertainty (VPGA 10)
- When use of Red Book not mandatory, as set out in PS 1, emphasis made on appropriate TOE to suit specific case in acceptable business format
- VPS 1 includes 3 additional requirements for TOE (clearly identify asset to be valued and if portfolio consider lotting, val currency must also be stated, limit of liability recorded)
- VPS 2 confirms proper records of inspection & investigations must be kept in appropriate business format
- VPS 4 only refers to one definition of fair value which is based on IASB definition
4) What is the format / structure of the Red Book?
Part 1: Introduction
Part 2: Glossary
Part 3: Professional standards
- Compliance
- Ethics, competency, objectivity and disclosures
Part 4: Valuation technical and performance standards (VPS)
- VPS 1 – Terms of engagement
- VPS 2 – inspection, investigation and records
- VPS 3 – Valuation reports
- VPS 4 – Bases of value, assumptions and special assumption
- VPS 5 – Valuation approaches
Part 5: Valuation Applications (VPGA)
- VPGA 1 – financial reporting
- VPGA 2 – secured lending
- VPGA 3 – Business and business interests
- VPGA 4 – Individual trade related properties
- VPGA 8 – valuation for real property interests
- VPGA 10 – matters relating to uncertainty
Part 6: International Valuation Standards
5) Where would you find exceptions to the Red Book Valuations in the red book?
In PS 1 – compliance with standards and practice statements where written valuation is provided
6) Where would you find the Professional Standards section in the Red Book?
In Part 3
7) Talk me through PS 1 of the Red Book
- PS 1 of the Red Book refers to compliance with the standards and practice statements where a written valuation is provided.
- Makes clear when a valuation needs to be Red Book compliant. Mandatory for all valuations except for following 5 exceptions (formerly exemptions):
o ALIES
Agency work – for example, a Brokers Opinion of Pricing as demonstrated in one of my examples
Litigation – if provided in preparation for litigation
Internal – is purely for internal purposes and without liability
Expert witness – if prepared for giving evidence as expert witness
Statutory – the valuer is performing a statutory function such as statutory return to tax authority
8) Talk me through PS 2 of the Red Book
- PS 2 of the Red Book refers to Ethical Standards, Competency, Objectivity and Disclosures.
- Ethical standards – members undertaking red book valuations must act in accordance with RICS 5 global ethical standards – service, integrity, trust, respect and responsibility.
- They are also bound by the rules of conduct for members and firms, which are:
o Members
Ethical behaviour, Competency, Service, CPD, Solvency, Information to RICS, Co-operation
o Firms:
Professional behaviour, Competency, Service, CPD, Complaints handling, Client’s money, Indemnity
Part 3
ASDDIC
Advertising; Solvency; Death – arrangements to cover sudden incapacity or death of sole practitioner; Designations – use of RICS designations on company material; Information to RICS; Co-operation
- Independence; objectivity and identification and management of COI
o Valuer must act independently and objectively and not be influenced by any situation which could threaten ability to do so
- Competence and disclosures
o Must understand client’s requirement and comply with min. TOE.
o Must be able to demonstrate professional competence.
9) What is included in Part 4 of the Red Book?
Valuation Technical and Performance Standards (VPS). Mandatory worldwide.
10) What is included in VPS 1 of the Red Book?
Deals with Terms of Engagement. In International Valuation Standards this is under IVS 101 Scope of Work.
11) What is the minimum requirement for Red Book Terms of Engagement?
Following minimum matters must be confirmed in writing to the client as a minimum prior to commencing Red Book valuation. There are 18 TOE matters:
a) Identification and status of valuer
b) Identification of client
c) Identification of any other intended users
d) Identification of asset to be valued (if portfolio consider lotting)
e) Currency of valuation
f) Purpose of valuation
g) Basis of value
h) Valuation date
i) Extent of investigation
j) Nature and source of info to be relied upon
k) Assumptions and special assumptions
l) Format of report
m) Restrictions for use, distribution and publication
n) Confirmation of Red Book / IVS compliance
o) Fee basis
p) Complaints Handling Procedure
q) Statement that valuation may be subject to compliance by RICS
r) Limitation of liability agree
12) What do we mean by assumptions and special assumptions?
- Assumption – these are made when it is reasonable for valuer to accept something is true without need for specific investigation
- Special assumption – this is a supposition that is taken to be true and accepted as fact, even though it is not true (for example, assuming vacant possession or planning permission has been granted)
- These must be carefully agreed with client in writing at commencement of instruction
13) Where would we find reference to inspections and investigations in the Red Book?
In Part 4 Valuation Technical and Performance Standards, in sub-section VPS 2
14) What does VPS 2 say about inspections?
- Valuers must take steps to verify info which is being relied upon for a valuation to ensure info is professionally adequate for its purpose
15) What does the Red Book say about restricted info (desk top) valuations?
- This is still a Red Book valuation unless for one of the purposes outlined in PS1 of the Red Book
- Firstly, the extent / limit of inspections and investigations must be confirmed in writing in the Terms of Engagement as a minimum prior to commencing the valuation.
- If the client has agreed in writing to a restricted info (desk top) valuation, meaning no physical inspection of property to be undertaken, then the valuer should consider the following:
o Nature of restriction must be agreed in writing in TOE
o Possible valuation implications of restriction confirmed in writing before value reported
o Valuer should consider whether restriction reasonable with regard to purpose of valuation
o Restriction MUST be referred to in report
16) What does the Red Book say about revaluation without re-inspection?
- This is covered in VPS 2 – Inspections, investigations and records
- Must not be undertaken unless valuer satisfied there have been no material changes to property or nature of its location since last inspection
- Must be confirmed in TOE and in valuation report
17) What does the Red Book say about records?
- This is covered in VPS 2 – Inspections, investigations and records
- Records must be hold of inspections and investigations and of other key inputs in appropriate business format
18) What does the Red Book say about valuation reports?
- This is covered in VPS 3 – Valuation Reports (IVS 103 reporting)
- There are 16 minimum requirements to be stated in a valuation report
19) Can you name some of these minimum requirements for Red Book Valuation report?
a) Identification and status of valuer
b) Identification of client and any other intended users
c) Purpose of Valuation
d) Identification of asset / portfolio being valued
e) Basis of value
f) Valuation date
g) Extent of investigation
h) Nature and source of info relied upon
i) Assumptions and special assumptions
j) Restrictions of use and publication
k) Instruction undertaken in accordance with IVS standards
l) Valuation approach and reasoning
m) Valuation figure
n) Date of valuation report
o) Comment on market uncertainty
p) Statement setting out any limitations on liability that have been agreed
20) What does the Red Book say about preliminary valuation advice?
- Prelim valuation advice can be given, but must be marked as:
o Draft
o For internal purposes only
o Cannot be relied upon
o On no account can it be published or disclosed - Draft report provided to client must clearly be marked as draft and that it is subject to completion of final report
- Draft valuation can be discussed with client but valuer not to be influenced by client in any way in respect of final valuation figure
- Any changes made to preliminary valuation must be noted on file and reasons provided
- Any additional information supplied by the client as result of discussions regarding draft report must be stated in report
21) Where are basis of value referred to in the Red Book?
In part 4, Valuation Technical and Performance Standards, under sub-section VPS 4 – Bases of Value, Assumptions and Special Assumptions
22) Where are assumptions and special assumptions referred to in the Red Book?
In part 4, Valuation Technical and Performance Standards, under sub-section VPS 4 – Bases of Value, Assumptions and Special Assumptions
23) What does the Red Book say about bases of value?
Valuer must determine basis of value that is appropriate for every valuation to be reported
24) What are the different bases of value?
Market Value; Market Rent; Fair Value; Investment Value; Equitable Value; Liquidation Value
