The Red Book

Question 1

Which RICS information paper outlines the process of identifying and using comparable evidence?

Answer 1

RICS Information Paper on Comparable Evidence in Property Valuation 2012.

Question 2

RICS Professional Standards

Answer 2

These are mandatory and define the parameters for compliance with the Red Book, including IVS requirements; set out associated RICS regulatory requirements; and clarify the detailed application of the RICS Rules of Conduct for members carrying out valuation work. They consist of PS 1 & PS 2

Question 3

PS1

Answer 3

Compliance with the Red Book where a written valuation is provided

Question 4

PS2

Answer 4

Ethics, competency, objectivity and disclosures

Question 5

RICS global valuation technical and performance standards/ Valuation Practice Standards (VPS)

Answer 5

These provide the mandatory requirements and related implementation guidance relating to providing an IVS-compliant valuation. They consist of VPS 1 - 5

Question 6

VPS 1

Answer 6

Terms of engagement (scope of work)

Question 7

VPS 2

Answer 7

Inspections, investigations and records

Question 8

VPS 3

Answer 8

Valuation reports

- re headings/sections required

Question 9

VPS 4

Answer 9

Bases of value, assumptions and special assumptions

Question 10

VPS 5

Answer 10

Valuation approaches and methods (this was first introduced in the 2017 Red Book)

• Market Approach
• Income Approach
• Cost Approach

Question 11

RICS global valuation applications/ Valuation Practice Guidance - Application (VPGA)

Answer 11

These provide further implementation guidance in specific instances.
They set out ‘best practice’ and should be followed wherever possible to ensure the highest standards of professional competence.
Although they are not mandatory, they do represent what is regarded as best practice.
In any litigation a valuer would be at a disadvantage if it could be shown that they had not followed best practice as indicated in a guidance application. They consist of VPGA 1 - 10

Question 12

VPGA 1

Answer 12

Valuation for inclusion in financial statements

- re Valuation of fair value for annual returns?

Question 13

VPGA 2

Answer 13

Valuation for secured lending

Question 14

VPGA 9

Answer 14

Valuation of portfolios, collections and groups of properties
- re large farming company’s let properties valuation of individual titles + rental values etc.

Question 15

VPGA 10

Answer 15

Matters that may give rise to material valuation uncertainty
- re for all valuations within the company have to fill out form assessing material uncertainty and whether it was reported on for the valuation

Question 16

Market Approach

Answer 16

Value of property may be derived by comparing directly with market transactions for similar properties.

Question 17

Income Approach

Answer 17

=part of investment method - value is derived from the net rental income and a capitalisation factor based on expected annual rate of return
/ involves use of DCF technique
= part of profits method - trading potential of business for which property is designed - assessing fair and maintainable level of trade = VPGA 4 (Valuation of individual trade related properties)

Question 18

Cost Approach

Answer 18

Or Depreciated Replacement Cost approach = used in valuing real estate which does not usually sell on open market. Based on est. depreciated cost of the building + value of the land, which uses comparable evidence.

Question 19

Sources of Comparable evidence (as stated under CE in real estate valuation GN 2019)

Answer 19

Market Evidence:

• Direct transactional evidence
• Publicly available information
• Published databases
• Asking prices
• Historical evidence

Indices

Question 20

Valuation Exceptions from Red Book

Answer 20

No valuation provided by an RICS registered valuer is completely exempt from the mandatory requirements set out under Red Book. PS1 and PS2 = in all cases
However, there are some cases where VPS 1-5 may not be mandatory.
Such as in providing agency or brokerage service (for acquisition/disposal) = PS & GN Real Estate Agency and Brokerage Guidance 3rd Ed. 2016 applies
Others =
- Acting as Expert Witness
- Performing statutory functions
- Purely for internal purposes
- advice for negotiations/litigation where valuer acting as advocate