Vals Flashcards

Question

What are the minimum requirements to be stated in a report according to VPS 6?

Answer 1

1. Identification and status of the responsible valuer 2. Identification of the client and any other intended users 3. Purpose of the valuation 4. Identification of the asset(s) or liability(ies) valued 5. Basis(es) of value adopted 6. Valuation date 7. Extent of investigation 8. Nature and source(s) of the information relied, upon including sources of key data and inputs used 9. Assumptions and special assumptions 10. Restrictions on use, distribution and publication of the report 11. Confirmation that the valuation has been undertaken in accordance with the IVSIVS and/or RICS Red Book Global Standards 12. Valuation approach and reasoning, including any valuation method(s) and complex or proprietary model(s) used 13. Amount of the valuation or valuations 14. Date of the valuation report 15. Commentary on any material valuation uncertainty (MVU) in relation to the valuation where it is essential to ensure clarity on the part of the valuation user 16. A statement setting out any limitations on liability that have been agreed 17. Significant environmental, social and governance (ESG) factors used and considered.

Answer 2

* Preliminary draft valuation advice can be given but must be marked as a draft for internal purposes only, it cannot be relied upon and on no account can it be published or disclosed. * A draft report provided to a client must state that it is a draft and it is subject to the completion of the final report. * There is new requirements for preliminary advice with effect from 1st May 2024 as set out in the National Supplement 2023.

Answer 3

A Red Book global valuation unless for specific purposes set out in PS 1. Valuer should consider on the basis of restricted information or without a physical inspection: * Nature of the restriction (agreed in writing in the TOE) * Valuation implications (confirmed in writing before the value is reported) * Reasonableness of the restriction * Reporting the restriction ## Footnote This ensures transparency and accountability in restricted valuations.

Answer 4

There are 11 VPGAs. ## Footnote These provide detailed guidance on various aspects of valuation practice.

Answer 5

VPGA 1 is valuation for inclusion in financial accounts, adopting fair value for IFRS accounts. Prescribed "Performance Standards" must be adhered to. ## Footnote This ensures compliance with financial reporting requirements.

Answer 6

VPGA 2 is valuations for secured lending, emphasizing independence, objectivity, and conflict of interest disclosure. ## Footnote This is crucial for maintaining ethical standards in lending valuations.

Answer 7

**Independence, Objectivity and Conflict of Interest** * Any previous, current or anticipated involvement with the prospective borrower or the property to be valued must be disclosed to the lender. * ‘Previous involvement’ is defined as normally being within the past TWO years, but under certain circumstances can be longer. * If the valuer or the client considers that any involvement creates a conflict that cannot be avoided, then the instruction should be declined. **Examples of CoI** * Having a longstanding professional relationship with the prospective borrower or owner. * When the valuer will gain a fee from introducing the transaction to the lender. * If there is a financial interest in the property holding or prospective borrower. * When the valuer will gain a fee from introducing the transaction to the lender. * If there is a financial interest in the property holding or prospective borrower. * When the valuer is retained act in the disposal or letting of the completed development on the subject property. * It is clearly stated that it is the valuer’s responsibility to decide whether or not to accept the instruction having regard to the principles of the RICS rules of conduct 2021. * If the valuer and client agree that any potential conflict can be avoided by introducing arrangement to manage the instruction, these arrangements must be recorded in writing and included in the terms of engagement and valuation report.

Answer 8

**The reporting procedures** * As well as the minimum requirements of a valuation report additional information must be reported to give the lender more information regarding the instruction and be able to advise whether to agree to the loan or in the case the borrower defaults. * Additional information includes the disclosure of any involvement identified in the terms of engagement or that has been subsequently discovered or any arrangements agreed for avoiding the conflict of interest. Alternatively, a statement that the valuer is not involved. * Comment on any specific risks and/or market trends that could arise/impact during the duration of the loan (e.g. trends in rent and sales values; lease duration; tenant mix, etc.) * May be appropriate to include when valuing interests in different categories of real property in addition to ToE requirements mentioned above:  Property that is or will be owner occupied  Property that is or will be held as an investment  Property that is fully equipped as a trading entity and valued with regard to trading potential.  Property that is or is intended to be the subject of a development or refurbishment.

Answer 9

** Special Assumptions** * Special assumptions made in arriving at the value reported are to be agreed in writing with the client in advance and referred to in the report. All at the valuation date. * FULL AND EFFECTIVE VACANT POSSESSION AND THAT THE SUBJECT IS UNLET – **LSH FINCH HIGH ROAD** * EXCHANGE OF CONTRACTS IS TO TAKE PLACE AT THE DATE OF VALUATION, FOLLOWING A PERIOD OF THREE MONTHS TO MARKET THE PROPERTY, ACCEPT AN OFFER AND COMPLETE DUE DILIGENCE – **LSH FINCH HIGH ROAD** * The lease lengths of tenancies at the Property are today as they will be at loan expiry, assuming any lease renewals or new lettings are in line with our assumption of those likely to be obtained in the current market and 2) the age of the Property today is that anticipated at loan expiry, assuming proper maintenance. – **LSH FINCH HIGH ROAD** * Planning consent has been granted when it hasn’t * Physical change to the property * New letting on given terms or the settling of a RR at a specific rent * Lease or leases between connecting parties have been disregarded. * Identified special purchaser is interested in buying the asset. * A constraint that could prevent the property being either bought or adequately exposed to the market is ignored. * Proposed economic or environmental designation was already in effect. * Should be accompanied with a comment on any material difference between the reported value with and without the special assumption.

Answer 10

Valuation of Plant and equipment (including infrastructure) ## Footnote This guidance focuses on the valuation practices specific to equipment and infrastructure.

Answer 11

**Valuation of Real Property Interests:** * Covers inspections and investigations with a particular emphasis on ESG and specific environmental constraints and sustainability issues. * Identifies ESG and Sustainability issues including the need to consider direct valuation factors (e.g. storm or flood risk), indirect valuation factors (e.g. resilience or carbon emissions) Physical Risks (e.g. Heat or wildfire) and transaction risks (e.g. regulatory change or carbon emissions.) ## Footnote Covers inspections and investigations with a particular emphasis on ESG and specific environmental constraints and sustainability issues.

Answer 12

* Matters that may give rise to material valuation uncertainty * Overriding requirement is that a valuation report must not be misleading. * Valuer should clearly draw attention to and comment on any issues resulting in material uncertainty in the valuation on the specified date relating to the risk surround the valuation of the asset. * Standard caveat should not be used. ## Footnote Valuers should highlight any issues causing material uncertainty in the valuation.

Answer 13

* Full copy of the International Valuation Standards in Part 6 of the 2025 red book. * Red book brought in line with IVS Standards based on IVS 2024. * Provides general standards such as ToE, approaches to and bases of methods of valuation and reporting.

Answer 14

* First edition published in November 2018. * Latest edition was published in October 2023 and came into effect on the 1st May 2024. * New edition reflects the outcome of the independent review of real estate investment valuations undertaken by Peter Pereira Gray commissioned by the RICS Standards and Regulation Board, regulatory changes and consultation in the profession. * Sets out clarification that the UK Red Book Global UK National Supplement augments the Red Book Global requirements for valuations in the UK and is not substitute for it. * It provides specific requirements for members on the application of RICS Valuation – Global Standards to valuations undertaken subject to UK jurisdiction, it contains VPGA guidance applications and becomes UK VPGAs. ## Footnote This supplement contains specific requirements for members applying RICS standards in the UK.

Answer 15

* Introduction * Part 1 – UK professional Standards (UK PS) Mandatory * Part 2 – UK Valuation Technical and Performance Standards (UK VPSs) – Mandatory * Part 3 – UK Valuation Practice Guidance Applications (UK VPGAs) ## Footnote This structure ensures clear guidance and standards for valuation practices in the UK.

Answer 16

* UK VPGA 1 – Valuation for financial reporting: General Matters * UK VPGA 8 – Valuation of charity assets * UK VPGA 9 – Relationship with auditors * UK VPGA 10 – Valuation for commercial secured lending purposes * UK VPGA 11 – Valuation for UK Residential property * UK VPGA 14 – Valuation of registered social housing for loan security purposes * UK VPGA 15 – Valuation for Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax and Annual Tax on Enveloped Dwellings and Residential Property Developer Tax ## Footnote These VPGAs address various valuation contexts and requirements in the UK.

Answer 17

* Intended to reduce the risks of conflicts of interest in the commissioning of valuation reports * UK VPS 3 – Regulated purpose valuations: Supplementary governance requirements * UK VPGA 8 – Valuation for charity assets (refers to the Charities Act 2022) * UK VPGA 10 – Valuation of commercial secured lending – Incorporates new ESG principles ## Footnote These changes enhance transparency and accountability in valuation practices.

Answer 18

* Valuations relied on by third parties who have not commissioned the valuation and are subject to valuation monitoring. 1. Financial Reporting (company Accounts) 2. Stock Exchange listings/inclusion in prospectuses and circulars 3. Takeovers and mergers 4. Collective investment schemes 5. Unregulated property unit trusts. * Secured lending valuations are NOT regulated purpose valuation as they are not relied upon by third party or in the public interest. ## Footnote This includes valuations for financial reporting, stock exchange listings, takeovers, collective investment schemes, and unregulated property unit trusts.

Answer 19

* Inspections by RICS professional regulation team * Annual declaration for all members, to declare length of time valuer has acred for the client for regulated valuation purposes and the extent and duration of the firm's relationship with the client. * Disclosure of fee income percentages - whether percentage fee income from the client is less than or more than 5% of the total fee income (if more than 5% the percentage is to be disclosed to the nearest 5%). ## Footnote These measures aim to enhance the integrity of valuation practices.

Answer 20

The property cannot be valued for a regulated purpose valuation for 12 months by the same firm ## Footnote This rule helps prevent conflicts of interest in valuations.

Answer 21

**Mandatory Rotatiom** * Mandatory rotation of valuation firms every ten years * Maximum single engagement period of five years * Maximum period of five years before the rotation of an individual responsible valuer. * A minimum three-year break after rotating off an engagement. **Other guidance** * A mandatory requirement for valuers to ask about the involvement of individual parties in the client’s valuation. * Mandatory recording by the valuer of preliminary advice, draft reporting and client discussions. ## Footnote These requirements aim to ensure independence and reduce bias in valuations.

Answer 22

* RICS Standards and Regulations Board (SRB) commissioned the valuation revie win the public interest to futureproof practices in the valuation of real estate assets for investment purposes. The SRB accepted all recommendations from the review by the chair Pereira Gray. Red Book 2025 and UK National Supplement 2023 incorporates some of these recommendations. - 13 recommendations including: * The commissioning and receiving of valuation reports * Rotation of valuers for regulated purpose valuations * The valuation profession should incorporate the use of the DCG as the principal model applied in preparing property investment valuation . * Valuation audit trails * A new valuation Assurance Committee (now set up). ## Footnote It led to the incorporation of recommendations into the Red Book 2025 and UK National Supplement 2023.

Answer 23

* RICS issued a professional standard: Sustainability and ESG in commercial property valuation and strategic advice, 3rd edition, Dec 2021 (effect from 31 Jan 2022). * Provides a useful glossary of relevant terms and factors which valuers should incorporate into their valuation approaches including: o Terms of Engagement o Valuation Purpose o Inspection o Reporting * The professional standard also provides advice relating to: * Relevant sustainability characteristics, considerations and risks which should be borne in mind when analysing comparable and other market information. * How these should be reflected in the choice of valuation methodology. * ESG is now mandatory in Red Book 2025. ## Footnote This standard mandates that valuers consider sustainability characteristics and risks in their valuation approaches.

Vals Flashcards

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