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What is today's blog about?
This week, we are going to take a look at our top 10 revision tips relating to the Red Book. Essential reading for AssocRICS and RICS APC candidates.
You can also listen to our CPD podcast on Anchor for more free AssocRICS and RICS APC training and support.
1. Mandatory or advisory?
Make sure you know which sections of the Red Book are of mandatory or advisory application:
Professional Statements - PS 1-2 - these are mandatory for all members providing written valuations
Valuation Technical and Performance Standards - VPS 1-5 - these are mandatory unless otherwise stated (see 2. below). VPS 1, 4 and 5 focus on technical standards, whilst VPS 2-3 focus on performance and delivery
Valuation Practice Guidance Applications - VPGA 1-10 - these are advisory and provide guidance on best practice. They typically relate to valuations for specific purposes or of specific asset types, e.g. financial statements, secured lending, trade related property and portfolios
2. When does the Red Book apply?
The Red Book applies to written valuations, including the provision of an Automated Valuation Model (AVM) output. It does not apply to estimated replacement cost figures for insurance purposes. For oral valuation advice, the principles of the Red Book should still be observed as liability cannot be avoided in this way.
3. When do VPS1-5 not apply?
There are no exemptions from compliance with PS 1-2 when providing valuation advice.
However, there are 5 specific circumstances where VPS 1-5 may be unsuitable or inappropriate to comply with:
Providing agency or brokerage advice for an acquisition or disposal
Acting as an expert witness
Performing statutory functions
Providing a valuation purely for internal purposes, without liability and without communication to a third party
Providing valuation advice in the course of negotiations or litigation where the valuer is acting as an advocate
4. What pre-instruction checks should I carry out?
Before accepting an instruction, you need to ensure you comply with PS 2 - Ethics, competency, objectivity and disclosures:
Check you are sufficiently competent, knowledgable and experienced to provide the required valuation advice
Ensure no conflicts of interest exist or that they are managed appropriately
Undertake the required money laundering checks on your client
Issue Red Book compliant Terms of Engagement (see VPS 1) and hold a signed copy on file
5. Do any additional disclosures apply?
Certain types of valuation require additional disclosures to be made (under PS 2):
Published financial statements
Stock exchange
Publication, prospectus or circular
Investment schemes
Takeovers or mergers
The additional disclosures may include the following:
Relationship with the client and previous involvement
Rotation policy
Time as signatory
Proportion of fees
For secured lending valuations, modified or extended requirements may apply under VPGA 2.
6. What should I include in my Terms of Engagement?
VPS 1 (Terms of Engagement - scope of work) sets out what you need to include in your Terms of Engagement:
Identification and status of the valuer
Identification of the client(s)
Identification of other intended users
Identification of the asset(s)/liability(ies) being valued
Currency
Purpose
Basis of value (see VPS 4)
Valuation date
Nature and extent of investigations and limitations
Nature and source of information relied upon
Assumptions and special assumptions
Format of the report
Restrictions on use, distribution and publication
Confirmation of compliance with IVS
Fee basis
Reference to Complaints Handling Procedure
Statement relating to monitoring by RICS
Any limitations on liability agreed
7. Do I need to verify information I rely upon in my valuation?
Effectively, yes. VPS 2 (Inspections, investigations and records) confirms that you must take 'reasonable steps to verify the information relied on in the preparation of the valuation and, if not already agreed, clarify with the client any necessary assumptions that will be made.
While a client may request, or consent to, an assumption being relied on, nevertheless if – following inspection – the valuer considers that such an assumption is at variance with the observed facts, then its continued adoption could, providing that it is realistic, relevant and valid for the particular circumstances of the valuation become a special assumption'.
8. Can I revalue without reinspecting?
Revaluation without reinspection cannot be undertaken unless you are satisfied that there have been no material changes to the physical or locational nature of the property since the last valuation. See Section 2 of VPS 2 for further specific detail.
9. What do I have to include in my valuation report?
VPS 3 (Valuation reports) sets out what you need to include in your valuation report:
Identification and status of the valuer
Identification of the client(s) and other intended users
PurposeIdentification of the asset(s)/liability(ies) being valued
Basis of value (see VPS 4)
Valuation date
Extent of investigations
Nature and source of information relied upon
Assumptions and special assumptions
Restrictions on use, distribution and publication
Confirmation of compliance with IVS
Valuation approach and reasoning
Amount of the valuation (s)
Date of the valuation report
Commentary on material uncertainty
Any limitations on liability agreed
10. Where do I find definitions of key Red Book terminology?
Make sure you know the definition of key terminology within the Red Book, e.g. assumption, special assumption, Market Value, Market Rent, Fair Value and special purchaser. These are all contained within Part 2 (Glossary) of the Introduction to the Red Book. We will look at these further in future articles.
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Stay tuned for our next blog post to help build a better you
N.b. Nothing in this article constitutes legal or financial advice.