The principles and application of the latest relevant valuation standards Flashcards Preview

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Flashcards in The principles and application of the latest relevant valuation standards Deck (79)
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1

What are the THREE types of valuer, as set out in the RICS Valuation Professional Standards (Red Book)?

Internal valuer;
Employed by company to value assets of company / enterprise
Valuation for internal use only
No third party reliance

External valuer;
Has no material links with the asset to be valued or the client

Independent valuer;
No longer a term as set out in the Red Book

2

What are the THREE important steps to check before commencing a valuation instruction and to comply with the Red Book (HINT: CIT)?

1. Competence:
- Are you competent to undertake this work?
- Do you have correct level of skills, understanding and knowledge (SUK)?

2. Independence:
- Check for any COI

3. Agreed Terms of Engagement

3

Why is statutory due diligence carried out for a valuation?

Undertaken to ensure no material matters could impact upon the valuation

4

What statutory due diligence is there for valuations?

Includes checking the following;
1. Asbestos register
2. Business rates / Council Tax
3. Contamination
4. DDA and Equality Act compliance
5. Environmental matters (high voltage power lines, electricity sub-stations, telecom masts etc)
6. Flooding
7. Fire safety compliance
8. Health and safety compliance
9. Highways (check roads adopted)
10. Legal title and tenure (check boundaries, deeds / covenants, easements, rights of way etc)
11. Planning history and compliance (any onerous planning conditions? Outstanding CIL/S106?)

5

What are next steps after due diligence?

Measure and inspect

Research market, assemble, verify and analyse comparables

6

What is the process for a valuation instruction?

Receive instructions from client

Check competence (SUK)

Check independence so no COI / personal interests

Issue terms of engagement to the client (CIT)

Obtain signed terms of engagement from client

Gather info – leases, title documents, planning info, OS documents etc. (DUE DILIGENCE)

7

What do your valuation files contain?

Contact details of client.

Information of property to be surveyed/valued

Address of subject property to be valued/surveyed

COI check

Signed TOE including limitations to report/inspection

Inspection notes/photos (might be digital copies)

Copy of the report

8

What are the FIVE main valuation approaches?

1. Comparable
2. Investment
3. Profits
4. Residual
5. Contractors (DRC)

9

What is the market approach to valuation?

Uses comparable evidence available

10

What is the background and purpose of the Red Book?

To provide effective framework for RICS ROC, which governs all surveyors

Ensures consistency with IVSC Standards

Consistency, objectivity and transparency = fundamental to sustaining public confidence and trust in valuation

Valuation best practice

Reduces negligence claims

Ensures quality assurance

11

What are the THREE forms of RICS standards?

1. Professional standards – centred on ethics and conduct, underpinned by knowledge and competence

2. Technical standards – centred on common definitions and conventions, underpinned by consistent application through recognised approaches

3. Performance or delivery standards – centred on rigour in analysis and objectivity of judgement, backed by appropriate documentation and clarity when reporting

12

What standards impact the real estate sector and Red Book?

Clarity, confidence and consistency

IFRS - Financial reporting

IVS - Property valuation

IPMS - International property measurement standards

Also IES - International Ethical Standards

13

How / where does the Red Book fit within international standards?

International Valuation Standards Council (IVSC) sets out standards

Feeds through to international Valuation Standards (IVS)

Then feeds through to National Valuation Standards (NVS)

Then feeds through to Red Book

Then feeds through to Supplement Standards (how they are interpreted in each of custom countries and relevant to their current law)

14

What are the SIX parts of the Red Book Global?

1. Introduction
2. Glossary of terms
3. Professional Standards (PSs)
4. Valuation technical and performance standards (VPSs)
5. Valuation applications (VPGAs)
6. IVSC International Valuation Standards (IVS)

15

What are 3. Professional Standards (PSs)?

PSs set ground rules and are mandatory

16

What are 4. Valuation technical and performance standards (VPSs)?

VPS - steps and what you must cover during valuations (VPS1-5) = mandatory

17

What are VPGAs and how many are there?

Valuation Professional Guidance Applications (VPGA 1-10)

18

What are the differences between Mandatory and Advisory in the RB?

Mandatory = what you have to observe (VPS)

Advisory = meets high standard of professional competence and do not have to meet. But if
guidance is ignored during valuation, you could get into trouble in court (VPGA)

Advisory = Need to be aware that they exist so that during valuation, you are aware there is guidance and you have read / understood

19

Why do financial statement valuations (VPGA1) require particular care?

Must comply strictly with the financial reporting statements adopted by the entity

They must be relied upon by third parties

Fair value should be used in this type of valuation

20

What criteria applies to the VALUER when carrying out a secured lending valuation (VPGA2)?

That the valuer has no previous/current/anticipated involvement with:

- The borrower
- The asset to be valued
- Any other party connected with lending transaction (24 months/ longer = requested)

21

To what CAPITAL valuations does the Red Book apply?

- Purchase and Sale
- Secured lending
- Financial Statements (e.g. accounts)
- Internal Purposes

22

What valuations are exceptions to the Red Book? (KEY Q!!!)

1. Advice provided for NEGOTIATION or LITIGATION

2. Valuer performing a STATUTORY FUNCTION except valuation for inclusion within statutory tax return

3. Valuation provided for INTERNAL PURPOSES without liability and not communicated to any third party

4. Valuation provided as part of AGENCY and BROKERAGE WORK in anticipation of receiving instructions to dispose of/acquire an asset

5. Valuation provided in anticipation of giving evidence as an EXPERT WITNESS

23

What is the rationale for changes to the Red Book?

Remain in line with international valuation changes following debate

Improving, clarifying and updating

Housekeeping and tidying up

To align RB with mandatory performance framework (MPF)

24

What are the current challenges facing valuations?

GCF 2008-09 - largely brought about by misvaluation of properties in US

Values = currently effected by COVID-19 crisis and so VPS3 requires commentary on material uncertainty = certainty which falls outside parameters normally expected

Reporting uncertainty; VPGA 10 - e.g. unusual property / limited information / market disruption

Overriding point is that valuation should not provide misleading information / false impression.

25

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

The valuer is open for a claim of negligence

The valuer can be disciplined by RICS

26

When might departure from the Red Book mandatory requirements be possible?

Could be from not inspecting a property due to a violent person who may reside within the property

27

What must you do when there is a departure from the RB?

Departure needs to be agreed with client with a clear statement in the TOE, referenced within Report

The reasons must be justified

You must confirm client's agreement to departure in the

You may be required to justify reason for not doing a RB valuation to the RICS

28

What are the 15 minimum terms of engagement to be confirmed to the client before commencing a Red Book
valuation (VPS1)?

1. Name and status of valuer, disclosure of any previous involvement.
2. Name of client (and any other intended users).
3. Purpose of valuation.
4. Identification of asset.
5. Basis of value.
6. Valuation date.
7. Extent of investigations.
8. Nature and source of information to be relied upon.
9. Assumptions and special assumptions.
10. Restrictions for use/distribution/publication.
11. Confirmation of Red Book/IVS compliance.
12. Description of report.
13. Fee basis
14. CHP
15. Statement that valuation may be investigated by the RICS for monitoring regulations to comply with
their conduct and disciplinary regulations

29

What does VPS2 state about inspections?

Must always be carried out to the extent necessary to produce a valuation that is professionally adequate for its purpose

30

As set out within VPS2, what steps must a valuer take if instructed on a valuation which has restricted information /without a physical inspection?

1. Nature of restriction must be agreed in TOE

2. Possible valuation implications to be confirmed in writing before value reported

3. Valuer should consider whether restriction reasonable with regard to purpose of valuation

4. Restriction must be referred to in report