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A valuer’s guide to the

RICS Red Book 2014Revised for the January 2014 edition ofRICS Valuation – Professional Standards

Anthony Banfield

rics_red_book_guide_2014_front_cover_Layout 1 12/12/2013 13:47

A valuer’s guide tothe RICS Red Book

2014

Revised for the January 2014 edition of

RICS Valuation – Professional Standards

Columns Design XML Ltd / Job: A5_Guides_Soft-proofing / Division: VGfinalproofMW /Pg. Position: 1 / Date: 5/12

Published by the Royal Institution of Chartered Surveyors (RICS)Parliament SquareLondonSW1P 3ADwww.rics.org

No responsibility for loss or damage caused to any person acting orrefraining from action as a result of the material included in thispublication can be accepted by the author or RICS.

First edition published 2006Second edition 2008Third edition 2009Fourth edition 2010Fifth edition 2011Sixth edition 2012

ISBN 978 1 78321 034 3

© Royal Institution of Chartered Surveyors (RICS) January 2014.Copyright in all or part of this publication rests with RICS. No partof this work may be reproduced or used in any form or by any meansincluding graphic, electronic, or mechanical, including photocopying,recording, taping or web distribution, without the written permissionof RICS or in line with the rules of an existing licence.

Typeset by Columns Design XML Ltd, Reading, Berks, UK

Printed by Page Bros, Norwich, UK


Contents

Foreword xviiPreface xix

Introduction 1Principal purpose 1International Valuation Standards Council(IVSC) 3Structure of the Red Book 4

1 Red Book route map 9A: Preliminary questions 11B: Terms of engagement 13C: Valuation preparation 16D: Reporting 17

2 Compliance with Red Book/IVS where awritten valuation is provided 20To which valuations does it apply – exceptions 21Departures 23Questions 25

3 Ethics, competency, objectivity and disclosures 30Responsibility for the valuation 31Professional and ethical standards 32

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Qualifications and experience 32Independence and objectivity, and conflicts ofinterest 35Maintaining strict separation between advisers 40Duty of care to third parties – valuationssubject to disclosure 41Rotation of valuer 43Time as signatory 44Involvement within the preceding 12 months 45Proportion of fees 45The identity of the client and firm 45Reviewing another valuer’s valuation 46Questions 47

4 Minimum terms of engagement 58Essential matters 58Questions 70

5 Inspections and material considerations 74Key points 74Contamination and environmental matters 78Hazardous materials 79Maintaining records and other matters 80Questions 80

6 Valuation reports 85Special assumptions 88Reporting depreciated replacement costvaluations 89Negative values 90Preliminary valuation advice and discussionswith the client 90Publication statement 91

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Questions 96

7 Valuation bases and assumptions 104Overview 104Market value 105Market rent 107Investment value (or worth) 108Fair value 109Assumptions 110Special assumptions 113Actual or anticipated market constraints, andforced sales 114Projected values 116Other valuation bases 116Existing use value 116Difference between market value and existinguse value 119Depreciated replacement cost 119Questions 121

8 Valuations for financial statements 129International Public Sector AccountingStandards (IPSAS) 130International financial reporting standards(IFRS) 130UK Generally Accepted Accounting Principles(GAAP) 134Questions 135

9 Valuations for secured lending 138Objectivity and conflicts of interest 139Instructions and disclosures 141Basis of value and special assumptions 142

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Reporting and disclosures 143Valuations of residential property UKVS 3.1 148Projected market value (PMV) of residentialproperty 150RICS HomeBuyer Service (UKVS 3.5) and theHome Report in Scotland (UKVS 3.6) 151Questions 152

10 Valuation in markets susceptible to change:certainty and uncertainty 157

11 Specialist valuations 161More frequently encountered valuations 161Valuations for CGT, IHT and SDLT basis ofvaluation 161Interpretation of market value 163Valuations for charities 165Valuations for local authority financialstatements 167Valuations for home finance products (equityrelease products) 173Questions 175

12 Registration and monitoring of valuations 177Background 177Valuations to which monitoring applies 177Questions 178

13 Applying Red Book outside of the UK 181

14 Valuation reports – common practicalproblems 187

Appendices

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A: Red Book glossary 193

B: Comparison of the IVS and the Red Book 203

C: Red Book contents 204

D: Other RICS publications 207

Index 212

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Frequently asked questions

Compliance with Red Book/IVS where a writtenvaluation is provided

Why are rules and regulations needed in thepreparation of valuations? 25

Red Book has PSs, VPAs and VPGAs. Are they allmandatory? 25

Purchase reports are subject to Red Book if theycontain a valuation but does it apply to a purchasereport that merely recommends a purchase at acertain figure? 26

Is estate agency work that involves advising clientson asking figures and offers, usually in writing,subject to Red Book? 26

As a director in a large publicly quoted company Iam frequently asked to advise directors on thevalue of the company’s properties. Is this subject toRed Book? 26

What flexibility is there in the Red Book ondepartures procedures? 27

What do I tell a client who wants a valuation, tobe incorporated into company accounts, butdoesn’t want a long Red Book valuation report? 27

Banks may request an oral desktop valuation whencontemplating a loan. Following an oral report,they may ask me to confirm my opinion in writingbut do not yet require a Red Book compliantreport as the loan terms are still being negotiated.How can I provide written confirmation withoutagreement of terms of engagement and a full reportin accordance with VPS 3? 28

I work in the UK. Can I ignore the Red Bookglobal standards and the IVS? 29

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My client’s plans show different designs for aproposed development. Are valuations of eachwhen completed and let subject to the Red Book? 29

Does a valuation that complies with Red Bookcomply with the IVS? 29

Ethics, competency, objectivity and disclosures

Can non-RICS members undertake a valuation inaccordance with the Red Book? 47

May I delegate inspection and due diligence workfor a Red Book valuation to an unqualifiedassistant? 48

My practice specialises in retail property in Wales.Can I value an office property in Edinburgh? 48

May I instruct another valuer with the requiredlevel of expertise without client approval? 49

Nine months ago I acquired a property for myclient. Can I now value it for his annual accounts? 49

A bank has asked me to value a property formortgage purposes that I acquired for the bank’scustomer two months ago. Can I accept thisinstruction? 50

What are ‘Chinese walls’? 50

A client has asked for details of comparables, someof which are only known to me by working foranother client. May I pass on this information? 51

I have been asked to value a property for mortgagepurposes that belonged to my wife’s family threeyears ago. Do I need to disclose this to the bank? 51

A client has asked me to value an investmentproperty for his annual accounts. My firm acts forthe major tenant in a rent review negotiation.What action must I take? 51

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A client has asked me to value a property foraccounts purposes. My firm gave planning adviceto the previous owner three years ago. May Iaccept the instruction? 52

I have undertaken valuations outside my area ofwork on a class of property with which I amfamiliar. I research the market and speak to localvaluers. Is this sufficient to comply with PS 2paragraph 3? 52

What is a regulated purpose valuation? 52

What is a financial statement? 53

I am a sole principal and have difficulty complyingwith the requirement for rotation of personnel.What should I do? 53

Why can’t I undertake the valuation of a propertyfor 12 months if my firm has received anintroductory fee or negotiated the purchase onbehalf of a client? With my firm’s knowledge of theproperty, I should be in a better position toundertake a valuation than anyone else. 53

What are the disclosures in a report whenundertaking a regulated purpose valuation? 54

Do I need to refer to disclosures in my terms ofengagement? 54

Are valuations for Self Invested Pension Plansregulated purpose valuations? 55

My client is an international firm with manysubsidiaries for whom my firm acts globally. Howdetailed do my enquiries about fees need to be? 55

How detailed does the extent and durationrelationship disclosure need to be? 56

Do regulated purpose valuation disclosures have tobe included in any published reference to thevaluation? 56

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Valuations of property held in pension fundschemes are not included in the list of regulatedpurpose valuations. Are these valuations excluded? 57How do PS 2 paragraph 8 and UKVS 4 interact? 57

Minimum terms of engagementDo I need my client’s written agreement to theterms of engagement? 70I do frequent valuations for a client. Do I needwritten terms of engagement for each instruction? 70May I extend the terms of engagement beyondthose set out in the Red Book? 71A client has asked me to provide a valuation as anindependent valuer. This is not defined in RedBook. What should I do? 71Is a hypothetical planning consent when valuingproperty a special assumption? 71I value the same property every year. Do I need toinspect it every time? 72A client has asked me to consider the veracity ofanother valuer’s valuation. May I do this? 72I believe the value of a portfolio of properties isgreater than the sum of the individual properties.Should I report the higher figure? 73My client wants me to provide a valuation at afuture date assuming that the development will becomplete. Can I do this? 73

Inspections and material considerationsMay I assume a property is free fromcontamination if I believe it is not? Is this a specialassumption? 80May I agree with my client to disregard anypossibility of contamination? 81

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I value industrial buildings with corrugatedasbestos roofs; how should I qualify my valuationreport? 82To what extent do I need to verify informationprovided by my client? 83Can I rely on information supplied by my client’sother advisers? 83Do I need to read leases? 83Can I rely on floor areas that my client supplies? 84My client wants information on the detail behindfigures in my report. May I give him this? 84

Valuation reportsMy client does not want a long valuation report.May I write a simple letter and call it an ‘informalvaluation’? 96How should I deal with a ‘special assumption’ inmy report? 97How do I report a ‘negative value’? 97How do I incorporate the valuation of a subvaluer? 97May I submit a preliminary report to my client? 97What do I do when my client wants to refer to myvaluation report in his published accounts? 98How do I report an assessment of worth? 98Who may sign a valuation report? 99Should my report be dated the same date as thevaluation date? 99I valued a property for a client’s accounts 12months ago and gave him a full report. For anupdate for his year-end accounts can I do a simpleletter referring to the previous valuation andconfirm my latest opinion of value? 100My client wishes to discuss the valuation before Isign it off. May I do this? 100

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My client wants me to increase my valuation, duehe says to commercial pressures. How should Ireact? 101What disclosures are required in a report for aregulated purpose valuation? 101What are the purposes of the disclosures? 102If I am concerned about the accuracy of avaluation due to a weak market and lack ofcomparables, can I report a range of figures? 102My client wants an electronic copy of my report. Isit safe to provide one? 103

Valuation bases and assumptionsWhy is open market value no longer defined? 121What is the difference between open market valueand market value? 121The definition of market value refers to a ‘willingpurchaser’. What if the market collapses and thereare no purchasers. Does the assumption of awilling purchaser allow me to ignore this? 122A client has asked for a ‘forced sale value’, howshould I advise him? 122The old open market value definition excluded theadditional bid of a special purchaser. Using marketvalue may I now take special purchasers intoaccount? 123What is the difference between special value andsynergistic value? 124What is the difference between existing use valueand market value? 124When should I use market value versus existing usevalue? 125Depreciated replacement cost (DRC) is nowreported as a method for arriving at market value.Surely this is used only when there is no market? 125

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If a property valued using DRC has an alternativeuse value that is higher or lower than the currentuse, do I have to report this? 126

What qualifications do I have to report with avaluation based on DRC? 127

Who is ultimately responsible for deciding if aproperty should be valued by DRC? 128

I value two identical properties in similar locationsusing the depreciated replacement cost method ofvaluation, one working to 100% capacity, theother to 60%. Should my valuations reflect thisdifference in output? 128

My client wants me to value his freehold shops forannual accounts on the basis of a sale andleaseback as this would produce a higher figure.Can I value on that basis? 128

Valuations for financial statements

For a valuation for accounts under FRS 15(Tangible Fixed Assets), should I adjust myvaluation for costs of purchase or sale? 135

Why are some valuations governed by InternationalFinancial Reporting Standards and some by UKGenerally Accepted Accounting Principles? 136

When should I use market value versus existing usevalue? 136

Depreciated replacement cost (DRC) is nowreported as market value. Surely this is used onlywhen there is no market? 136

Valuations for secured lending

Does Red Book apply to valuation of commercialproperty mortgage valuations? 152

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What matters should be included in a securedlending report other than the 14 matters in VPS3.1? 152The borrower has asked for a copy of the report Isent to the lender. May I make this available tohim? 153The lender has asked his solicitors to send me titledocuments to review and to confirm that nothingtherein affects my valuation. Am I allowed tocomment? 153Banks still request valuations using estimatedrealisation price and estimated restricted realisationprice as a basis. What action should I take? 154What is the appropriate valuation basis whenvaluing commercial property for secured lending? 154What am I to do if clients ask for ‘forced salevalue’? 154Can I value a residential property retrospectively?If so, on what basis? 155A bank insists that I use their standard pro-formaterms of engagement rather than ones directlycomplying with Red Book. Is this acceptable? 155

Specialist valuationsWhat should I give a client who has asked for avaluation for probate purposes? 175How should I deal with requests for valuations forcapital gains tax or inheritance tax to provide highor low valuations to suit clients’ tax circumstances?175Are valuations for equity release plans regulatedpurpose valuations? 175Surely every valuation is subject to a range. Can Iprovide a bottom of the range figure forinheritance tax and a top of the range figure forcapital gains tax? 176

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What is the correct basis of valuation to use whenadvising a charity on the purchase of a property? 176How should I advise a charity on the purchase of afreehold property on which they hold a lease andthe price they are paying is above market value? 176Are valuations prepared for local authorityaccounts regulated purpose valuations? 176

Registration and monitoring of valuationsTo whom does the registration and monitoringscheme apply? 178To which valuations does it apply? 178How is the monitoring being administered? 179How is the work of valuers working fornon-regulated firms monitored? 179Is the actual amount of the valuation subject tomonitoring? 180How is the scheme financed? 180Does registration involve any more tests or exams? 180Are there any exceptions to registration? 180

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Foreword

Now more than ever, appropriate valuation standardsand their effective regulation are vital to promote andsustain public confidence and trust in the valuationprocess. Uniform valuation standards help to reduceinvestment risk, add confidence to financial reportingand provide a consistent approach to portfolio and assetvaluation.

Inquests into the global 2008 financial crisis led toserious debate about the role and reliability of valuationsand their impact on the financial markets. There is nowworld recognition of the need to secure the conduct ofreal estate valuations in a set of internationallyrecognised standards that provide a clear statement ofthe requirements and definitions, which are understoodand adopted not only by valuers but also by their clientsand the wider public.

RICS has led the way in recognising the importance ofvaluation standards and their effective implementation,establishing the Assets Valuation Standards Committee inApril 1974 with a remit to publish guidance notes on thevaluation of assets. The initial guidance was published in1976. Over the years this has grown in stature andimportance on a worldwide basis to form the RICSValuation – Professional Standards, ‘the Red Book’.

The Red Book 2014 is the culmination of acomprehensive review of the content, framework and

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format of the 2012 and earlier editions. In response toconsultation during preparation of the Red Book andfrom user feedback, elements of the standards have beenmerged and restructured to improve clarity and combineall related information in one place. It also includes newmaterial relating to business valuations, intangible assetsand special assumptions in relation to projected values.

This new global edition formally recognises and adoptsthe high level valuation principles and definitions that areembodied in the International Valuation Standards (IVS),published by the International Valuation StandardsCouncil (IVSC). It also complements the IVS byproviding detailed guidance and specific requirementsconcerning their practical implementation.

Anthony Banfield, the author of this guide, has beenactively involved in updating the latest edition of theRICS Valuation – Professional Standards and was theauthor for A valuer’s guide to the RICS Red Book 2012.This very readable, practical guide, continues tocomplement the Red Book, by providing practicaladditional commentary on the interpretation andimplementation of some of the most importantprovisions. It clearly directs the valuer’s attention to thekey points that they need to be aware of and address intheir day-to-day work. It is a worthy companion to theRed Book 2014!

Professor David Tretton FRICS FIRRV

RICS Valuation – Professional Standards Consultant andRed Book 2014 Technical Editor

Foreword

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Preface

This is my second edition of A valuer’s guide to the RedBook since I took over authorship from Andrew Cherry.I have extended the coverage but still used his originalwork as the basis to this latest book.

As Andrew Cherry observed in a previous edition of Avaluer’s guide to the Red Book:

‘A short study of the history of the development ofthe Red Book, together with consideration of itsgrowing importance to the surveying profession, canhelp the user to understand the processes involved invaluations.’

In 1973 a joint working party was set up by RICS andthe Institute of Chartered Accountants in England andWales to report on the valuation of property assets. The1972/73 property boom and the subsequent collapse ofthe property market gave rise to considerable publiccriticism and comment on the variety of valuation basesused and the format of reports. The accountancyprofession had already started to set accountancystandards in the 1960s and there was a perceived need toestablish uniform standards for valuations and tostandardise the form of their presentation.

RICS formed the Assets Valuation Standards Committeein April 1974 with the remit to publish guidance noteson the valuation of assets. The guidance was not only in

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respect of the valuation of property for companyaccounts and financial statements but also stockexchange purposes, such as new issues of shares bycompanies seeking a listing, and circulars to shareholdersand other public documents.

The first edition of the guidance notes was published in1976 and was fully supported by the accountancyprofession, the government and other regulatory bodies.

It attracted overseas attention and played a leading rolein the creation of standard setting bodies in the EEC andinternationally.

A second edition was issued in April 1981 but its usewas not compulsory and, as suggested by the title, wasonly for guidance – chartered surveyors were expected tofollow it although there was no compulsion to do so. InAugust 1990 a third edition was issued, renamedStatements of Asset Valuation Practice and GuidanceNotes. It became mandatory for most valuations – withthe important exception of mortgage valuations as thebanks wished to maintain their discretion to instructvaluers on any basis they wanted.

In October 1995 following the recommendationscontained in the Mallinson Report a fourth edition wasissued, called the RICS Valuation and Appraisal Manual.This incorporated the Manual of Valuation GuidanceNotes (White Book) and extended the mandatory scopeto a much wider range of services, including mortgagevaluations for the first time.

In 2001 work started on the fifth edition. This publishedin March 2003, and was renamed RICS Appraisal andValuation Standards. Most of the existing standardsremained unchanged but were updated and expressed ina different way. In particular the opportunity was takento distinguish between global and UK applications and toimplement the RICS policy of adopting and supporting

Preface

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International Valuation Standards. The number ofvaluation bases was reduced and a number ofrecommendations for improving the quality of serviceprovided for users of valuations were incorporated. Atthis time the Red Book was also put online.

The sixth edition, which took effect from January 2008,reflected the RICS Rules of Conduct introduced in 2007and contained much clearer rules on compliance. Itincluded guidance on which types of valuations arecovered and reinforced the RICS support forInternational Valuation Standards. It was renamed RICSValuation Standards.

The seventh edition in May 2011 brought a limitednumber of changes from the previous version and wasprimarily changed to cover the Valuer RegistrationScheme by which RICS showed its determination todemonstrate to clients and the public its ability to be arobust self-regulating professional body. Other changesreflected the introduction of more InternationalAccounting, changes in legislation and the previousPractice Statements were renamed as ValuationStandards. The change in market conditions as a result ofthe credit crunch gave rise to new guidance on valuationcertainty.

The following edition, although still known as ‘The RedBook’ was renamed as ‘RICS Valuation – ProfessionalStandards’ and for the first time included as an annex theInternational Valuation Standards 2011 (the IVS) thatcame into effect on 1 January 2012. The Red Bookglobal standards were revised to incorporate the revisedIVS and definitions while some changes were made to theUK valuation standards.

This latest version of the Red Book, to be known asRICS Valuation – Professional Standards January 2014recognises the high level valuation principles anddefinitions that are embodied in the International

Preface

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Valuation Standards (IVS) published by the InternationalValuation Standards Council (IVSC) of which RICS wasa founder member. The Red Book also complements theIVS by providing detailed guidance and specificrequirements – and in some cases additions to them –concerning their global interpretation and practicalimplementation. It also incorporates the latest version ofthe IVS – International Valuation Standards 2013.

Material that previously appeared in different parts ofthe 2012 edition has been brought together to improveclarity and avoid repetition, which has made it far more‘user-friendly’.

The valuation standards VS 1–6 of the 2012 edition,including the associated appendices, have been reviewedand incorporated into global professional standards (PS)and global valuation practice statements (VPS). Thereferences have been changed for the standards such thatthere are now practice statements (PS) replacingvaluation standards 1, 2 and appendix 1 of the 2012edition and valuation practice statements (VPS) 1–4replacing and reordering VS 3, 5, 6 and appendices 2, 3,4 and 6. Finally, the valuation practice guidanceapplications (VPGA) replace the previous guidance notesand VS 4.

This guide expands on the Red Book and explains how itworks in practice. It emphasises its value in combininggood business practice and common sense. It will helpsurveyors find their way through the standards,appendices and guidance applications and look at someof the more complex issues. Detailing some of the day-to-day questions that arise, the guide is not intended to bean abridged version and must be read in conjunctionwith the latest versions of the Red Book and IVS.

Anthony Banfield

December 2013

Preface

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Introduction

Principal purposeThe principal purpose of the standards contained in theRICS Valuation – Professional Standards January 2014(Red Book 2014) are clearly set out as the ‘Overallpurpose’ in paragraphs 1–6 of the Introduction:

‘1 Consistency, objectivity and transparency arefundamental to building and sustaining publicconfidence and trust in valuation. In turn theirachievement depends crucially on possessing anddeploying the appropriate skills, knowledge,experience and ethical behaviour, both to form soundjudgments and to report opinions of value clearly andunambiguously to clients and other valuation users.

2 Globally recognised high level valuation principlesand definitions are now embodied in theInternational Valuation Standards (IVS) published bythe International Valuation Standards Council(IVSC). RICS has long been a supporter of thedevelopment of such universal standards, and notonly fully embraces them itself, but also proactivelysupports their adoption by others around the world.

3 But acceptance alone is not enough – effectiveimplementation is the key. If confidence and publictrust in the valuation process is to be achieved,standards must not only be uniformly interpreted andconsistently applied but also actively monitored andenforced.

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4 That is the rationale for this new global edition ofRICS Valuation – Professional Standards 2014,commonly referred to as the Red Book. This formallyrecognises and adopts the IVS by requiring membersto follow them. It also complements the IVS byproviding detailed guidance and specific requirementsconcerning their practical implementation.

5 This approach is reinforced by the RICS professionalstandards regarding ethics, skills and conduct; and isassured by a well-established system of regulationand by progressive introduction of a system ofpractising valuer registration. The whole ensures thepositioning of RICS members and regulated firms asthe leading global providers of IVS-compliantvaluations.

6 The aim is simply stated – it is to engenderconfidence in, and to provide assurance to, clientsand recognised users alike, that a valuation providedby an RICS-qualified valuer anywhere in the worldwill be undertaken to the highest professionalstandards overall.’

The standards set out procedural rules and guidance forvaluers. They not only cover matters relating to ethicsand conduct, but also establish a framework foruniformity and best practice in the execution anddelivery of valuations. The Red Book is a proceduralmanual and not a valuation text book setting outmethodology.

However, while the standards are not designed to dealwith or instruct valuers on how to value in individualcases, there are a number of stand-alone RICS guidancenotes and information papers that discuss and deal withthe approach to issues that may arise in the subjects towhich they apply. Examples include the valuation ofpetrol filling stations, rural property, development land,etc. These publications are listed in the Red Book and

A valuer’s guide to the RICS Red Book 2014

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are available free to RICS members on the RICS website.RICS professional guidance is also available on thesubscription service isurv.

International Valuation Standards Council(IVSC)RICS is not the only body that issues ValuationStandards. The International Valuation StandardsCouncil (IVSC) – of which RICS is a sponsor – publishes,and periodically reviews, the International ValuationStandards (IVS). The IVS set out internationally accepted,high-level valuation principles and definitions. They havebeen incorporated, supplemented (where appropriate) byRICS and reflected in successive Red Book editions aspart of RICS’ overall framework of standards, backed bya comprehensive scheme of regulation to ensure effectiveimplementation and delivery.

The whole of the IVS is published together with theRICS standards. RICS considers that a valuation that isundertaken in accordance with the Red Book will also becompliant with the IVS.

The IVS apply to all types of asset, with the word ‘asset’also being deemed to include ‘liability’ where appropriate(see IVS 2013, Introduction, for further details). TheseRICS standards are primarily directed at the valuation ofreal estate (land, buildings and interests therein), personalproperty, and plant and equipment, and so the word‘property’ has been retained in preference to ‘asset’where it is necessary for clarity.

Members undertaking business valuations or valuationsof intangible assets are reminded that they should followIVS 200 or 210, as well as complying with other generalrequirements of the RICS standards. RICS expects toissue further guidance in relation to these specific classesof asset over time.

Introduction

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The RICS standards incorporate the full publication ofIVS 2013. The IVS are effective from 1 January 2014 butthe effective date for the new Red Book 2014 standardsis 6 January 2014 for all valuations on or after that day.Any further amended or new IVS standards that becomeeffective after January 2014 will be available on theIVSC website.

It is strongly recommended that the reader looks at theIVS appended in the Red Book. They are laid outdifferently from the Red Book, as evident in thefollowing structure:

IVS Definitions

IVS Framework

General Standards – IVS 101 to 103

Asset Standards – IVS 200 to 250

Valuation Applications – IVS 300 and 310

Although they are set out differently from the Red Book,there is a correlation between the contents of the two.Rather than setting out the standards already found inthe IVS, in general Red Book 2014 provides furthercomment on those standards.

Structure of the Red BookThe RICS global material has now been grouped underthree distinct headings. The first two cover mattersrelevant to valuation assignments generally, the thirdcovers matters relating to particular applications. Theintention is to make clear to members what is mandatoryand what is advisory – thus collected together under thefirst two headings is the mandatory material and underthe third the advisory material.

This signals a new approach to identifying andclassifying valuation practice guidance. This will be


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issued either in the form of Guidance Applications,covering specific asset types or situations that are closelylinked to one or more practice statements, or in the formof Guidance Notes, in all other cases. GuidanceApplications and Guidance Notes are of equal status –they contain advisory and not mandatory material.Although the Guidance Applications are reproduced infull in Red Book 2014, only appropriate cross-referencesare included in relation to Guidance Notes.

The three distinct sections in the global edition are:

RICS professional standards (PS)

These are mandatory and define the parameters forcompliance with the Red Book, including IVSrequirements, set out associated RICS regulatoryrequirements and clarify the detailed application of theRICS Rules of Conduct for members carrying outvaluation work. They comprise:

PS 1 – Compliance with standards and practicestatements where a written valuation is required

PS 2 – Ethics, competency, objectivity anddisclosures

RICS global valuation practice statements (VPS)

These provide the mandatory requirements and relatedimplementation guidance relating to providing an IVScompliant valuation. They comprise:

VPS 1 Minimum terms of engagement

VPS 2 Inspections and investigations

VPS 3 Valuation reports

VPS 4 Bases of value, assumptions and specialassumptions

Introduction

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RICS global valuation practice guidance applications (VPGA)

These provide further implementation guidance inspecific instances. They set out ‘best practice’ and shouldbe followed wherever possible to ensure the higheststandards of professional competence. Although they arenot mandatory they do represent what is regarded as bestpractice. In any litigation a valuer would be at adisadvantage if it could be shown that he or she had notfollowed best practice as indicated in a guidanceapplication. They comprise:

VPGA 1 – Valuation for inclusion in financialstatements

VPGA 2 – Valuation for secured lending

VPGA 3 – Valuation of businesses and businessinterests

VPGA 4 – Valuation of individual trade relatedproperties

VPGA 5 – Valuation of plant and equipment

VPGA 6 – Valuation of intangible assets

VPGA 7 – Valuation of personal property, includingarts and antiques

VPGA 8 – Valuation of portfolios, collections andgroups of properties

VPGA 9 – Valuation in markets susceptible tochange: certainty and uncertainty

National standards

Additionally, the UK edition of the Red Book containsRICS UK Valuation Standards (UKVS), RICS UKAppendices and RICS UK Valuation Practice GuidanceNotes. These are provided to cover specific statutory or


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regulatory requirements in the UK jurisdiction whilebeing consistent with the relevant internationalstandards.

This guide concentrates largely on the global and UKstandards. For further information regarding othernational standards, see Chapter 13 Applying Red Bookoutside of the UK page 181.

The appendices contain supporting information referredto in the commentaries in the valuation standard. Theyare advisory. One hard copy version of the Red Book isavailable, that is RICS Valuation – ProfessionalStandards, global and UK edition (January 2014) – thispublication includes UK valuation standards and UKguidance notes.

RICS considers it to be the member’s responsibility to beaware of changes since the date of publication of thisedition to legislation or to its interpretation through caselaw – and also to be aware of amendments to theInternational Valuation Standards or to any othervaluation standards relevant to the particular valuationassignment. Valuers should refer to the RICS website forany updates regarding RICS material.

In addition to the UK and global editions, other nationalstandards will be available (in English) online to RICSmembers through the RICS website. Translations areavailable on the RICS website in simplified Chinese,Dutch, French, German, Italian, Russian, Hungarian,Greek, Portuguese, Spanish and Polish. See also RICSprofessional guidance on isurv.

Glossary

There is a comprehensive glossary defining terms used inthe Red Book that have a special or restricted meaning.The glossary ranges from ‘assumption’ to ‘worth’. Youare advised to refer to the glossary when considering

Introduction

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specific terms such as intangible asset, internal valuer,synergistic value, special value, trading stock, etc. SeeAppendix A: Red Book glossary page 193.


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Red Book routemap

The RICS Valuation – Professional Standards January2014 (the Red Book) is a comprehensive set of standardscovering the key aspects of a valuer’s work.

The following flowcharts are designed to providepractical assistance by providing an overview of the basicrequirements to enable you to comply with the standardscontained in the Red Book relating to valuation practicein the UK.

They are set out in the four stages you need to considerwhen carrying out a valuation:

They set out, in a flowchart format, the relevantrequirements from a practical viewpoint with referencesto the standards that may apply in most valuations. They

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are not intended as an index to the Red Book, nor dothey deal exhaustively with every situation.

The stages themselves are covered in some detail in therelevant chapters within this guide. Note however, thatthis book is a guide and is not intended to be used inisolation without reference to the Red Book itself.Having been directed to a particular reference, it is thevaluer’s responsibility to decide the extent to which it isrelevant to the valuation being considered.


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A: Preliminary questions

Before commencing any valuation there are seven basicquestions the valuer should ask. The answer to some ofthe questions will be relevant to proper compliance withsome of the standards.

Red Book route map

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B:Terms of engagement (ToE)

VPS 1 sets out and contains guidance on the minimumterms and states that terms of engagement must besettled before the report is issued.

Red Book route map

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Minimum terms of engagement


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Red Book route map

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C:Valuation preparation

The chart below is a simplified valuation preparationprocedure (found mainly in VPS 2). The aim is to ensurethat all relevant enquiries are made and uncertainties areresolved before proceeding to a valuation calculation.Where information is obtained or verified, the file notesshould clearly show the decisions made or actions taken.


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D: ReportingThe report must include all the matters agreed in theterms of engagement and not introduce any new terms.VPS 3 contains further information on the minimummatters and this flowchart draws the valuer’s attention tovaluation standards that need consideration. This is notan index to the valuation standards.

Red Book route map

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Red Book route map

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Look inside (PDF - opens in a new window)

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