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A valuers guide to the


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

Anthony Baneld
A valuers guide to
the RICS Red Book
2014

Revised for the January 2014 edition of


RICS Valuation Professional Standards

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Published by the Royal Institution of Chartered Surveyors (RICS)
Parliament Square
London
SW1P 3AD
www.rics.org

No responsibility for loss or damage caused to any person acting or


refraining from action as a result of the material included in this
publication can be accepted by the author or RICS.

First edition published 2006


Second edition 2008
Third edition 2009
Fourth edition 2010
Fifth edition 2011
Sixth 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 part
of this work may be reproduced or used in any form or by any means
including graphic, electronic, or mechanical, including photocopying,
recording, taping or web distribution, without the written permission
of 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

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Contents

Foreword xvii
Preface xix

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

1 Red Book route map 9


A: Preliminary questions 11
B: Terms of engagement 13
C: Valuation preparation 16
D: Reporting 17

2 Compliance with Red Book/IVS where a


written valuation is provided 20
To which valuations does it apply exceptions 21
Departures 23
Questions 25

3 Ethics, competency, objectivity and disclosures 30


Responsibility for the valuation 31
Professional and ethical standards 32

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Qualifications and experience 32


Independence and objectivity, and conflicts of
interest 35
Maintaining strict separation between advisers 40
Duty of care to third parties valuations
subject to disclosure 41
Rotation of valuer 43
Time as signatory 44
Involvement within the preceding 12 months 45
Proportion of fees 45
The identity of the client and firm 45
Reviewing another valuers valuation 46
Questions 47

4 Minimum terms of engagement 58


Essential matters 58
Questions 70

5 Inspections and material considerations 74


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

6 Valuation reports 85
Special assumptions 88
Reporting depreciated replacement cost
valuations 89
Negative values 90
Preliminary valuation advice and discussions
with the client 90
Publication statement 91

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Questions 96

7 Valuation bases and assumptions 104


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

8 Valuations for financial statements 129


International Public Sector Accounting
Standards (IPSAS) 130
International financial reporting standards
(IFRS) 130
UK Generally Accepted Accounting Principles
(GAAP) 134
Questions 135

9 Valuations for secured lending 138


Objectivity and conflicts of interest 139
Instructions and disclosures 141
Basis of value and special assumptions 142

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Reporting and disclosures 143


Valuations of residential property UKVS 3.1 148
Projected market value (PMV) of residential
property 150
RICS HomeBuyer Service (UKVS 3.5) and the
Home Report in Scotland (UKVS 3.6) 151
Questions 152

10 Valuation in markets susceptible to change:


certainty and uncertainty 157

11 Specialist valuations 161


More frequently encountered valuations 161
Valuations for CGT, IHT and SDLT basis of
valuation 161
Interpretation of market value 163
Valuations for charities 165
Valuations for local authority financial
statements 167
Valuations for home finance products (equity
release products) 173
Questions 175

12 Registration and monitoring of valuations 177


Background 177
Valuations to which monitoring applies 177
Questions 178

13 Applying Red Book outside of the UK 181

14 Valuation reports common practical


problems 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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Contents

Frequently asked questions

Compliance with Red Book/IVS where a written


valuation is provided
Why are rules and regulations needed in the
preparation of valuations? 25
Red Book has PSs, VPAs and VPGAs. Are they all
mandatory? 25
Purchase reports are subject to Red Book if they
contain a valuation but does it apply to a purchase
report that merely recommends a purchase at a
certain figure? 26
Is estate agency work that involves advising clients
on asking figures and offers, usually in writing,
subject to Red Book? 26
As a director in a large publicly quoted company I
am frequently asked to advise directors on the
value of the companys properties. Is this subject to
Red Book? 26
What flexibility is there in the Red Book on
departures procedures? 27
What do I tell a client who wants a valuation, to
be incorporated into company accounts, but
doesnt want a long Red Book valuation report? 27
Banks may request an oral desktop valuation when
contemplating a loan. Following an oral report,
they may ask me to confirm my opinion in writing
but do not yet require a Red Book compliant
report as the loan terms are still being negotiated.
How can I provide written confirmation without
agreement of terms of engagement and a full report
in accordance with VPS 3? 28
I work in the UK. Can I ignore the Red Book
global standards and the IVS? 29

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My clients plans show different designs for a


proposed development. Are valuations of each
when completed and let subject to the Red Book? 29
Does a valuation that complies with Red Book
comply with the IVS? 29

Ethics, competency, objectivity and disclosures


Can non-RICS members undertake a valuation in
accordance with the Red Book? 47
May I delegate inspection and due diligence work
for a Red Book valuation to an unqualified
assistant? 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 required
level of expertise without client approval? 49
Nine months ago I acquired a property for my
client. Can I now value it for his annual accounts? 49
A bank has asked me to value a property for
mortgage purposes that I acquired for the banks
customer two months ago. Can I accept this
instruction? 50
What are Chinese walls? 50
A client has asked for details of comparables, some
of which are only known to me by working for
another client. May I pass on this information? 51
I have been asked to value a property for mortgage
purposes that belonged to my wifes family three
years ago. Do I need to disclose this to the bank? 51
A client has asked me to value an investment
property for his annual accounts. My firm acts for
the 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 for


accounts purposes. My firm gave planning advice
to the previous owner three years ago. May I
accept the instruction? 52
I have undertaken valuations outside my area of
work on a class of property with which I am
familiar. I research the market and speak to local
valuers. Is this sufficient to comply with PS 2
paragraph 3? 52
What is a regulated purpose valuation? 52
What is a financial statement? 53
I am a sole principal and have difficulty complying
with the requirement for rotation of personnel.
What should I do? 53
Why cant I undertake the valuation of a property
for 12 months if my firm has received an
introductory fee or negotiated the purchase on
behalf of a client? With my firms knowledge of the
property, I should be in a better position to
undertake a valuation than anyone else. 53
What are the disclosures in a report when
undertaking a regulated purpose valuation? 54
Do I need to refer to disclosures in my terms of
engagement? 54
Are valuations for Self Invested Pension Plans
regulated purpose valuations? 55
My client is an international firm with many
subsidiaries for whom my firm acts globally. How
detailed do my enquiries about fees need to be? 55
How detailed does the extent and duration
relationship disclosure need to be? 56
Do regulated purpose valuation disclosures have to
be included in any published reference to the
valuation? 56

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Valuations of property held in pension fund


schemes are not included in the list of regulated
purpose valuations. Are these valuations excluded? 57
How do PS 2 paragraph 8 and UKVS 4 interact? 57

Minimum terms of engagement


Do I need my clients written agreement to the
terms of engagement? 70
I do frequent valuations for a client. Do I need
written terms of engagement for each instruction? 70
May I extend the terms of engagement beyond
those set out in the Red Book? 71
A client has asked me to provide a valuation as an
independent valuer. This is not defined in Red
Book. What should I do? 71
Is a hypothetical planning consent when valuing
property a special assumption? 71
I value the same property every year. Do I need to
inspect it every time? 72
A client has asked me to consider the veracity of
another valuers valuation. May I do this? 72
I believe the value of a portfolio of properties is
greater than the sum of the individual properties.
Should I report the higher figure? 73
My client wants me to provide a valuation at a
future date assuming that the development will be
complete. Can I do this? 73

Inspections and material considerations


May I assume a property is free from
contamination if I believe it is not? Is this a special
assumption? 80
May I agree with my client to disregard any
possibility of contamination? 81

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I value industrial buildings with corrugated


asbestos roofs; how should I qualify my valuation
report? 82
To what extent do I need to verify information
provided by my client? 83
Can I rely on information supplied by my clients
other advisers? 83
Do I need to read leases? 83
Can I rely on floor areas that my client supplies? 84
My client wants information on the detail behind
figures in my report. May I give him this? 84

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

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My client wants me to increase my valuation, due


he says to commercial pressures. How should I
react? 101
What disclosures are required in a report for a
regulated purpose valuation? 101
What are the purposes of the disclosures? 102
If I am concerned about the accuracy of a
valuation due to a weak market and lack of
comparables, can I report a range of figures? 102
My client wants an electronic copy of my report. Is
it safe to provide one? 103

Valuation bases and assumptions


Why is open market value no longer defined? 121
What is the difference between open market value
and market value? 121
The definition of market value refers to a willing
purchaser. What if the market collapses and there
are no purchasers. Does the assumption of a
willing purchaser allow me to ignore this? 122
A client has asked for a forced sale value, how
should I advise him? 122
The old open market value definition excluded the
additional bid of a special purchaser. Using market
value may I now take special purchasers into
account? 123
What is the difference between special value and
synergistic value? 124
What is the difference between existing use value
and market value? 124
When should I use market value versus existing use
value? 125
Depreciated replacement cost (DRC) is now
reported 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 alternative


use value that is higher or lower than the current
use, do I have to report this? 126
What qualifications do I have to report with a
valuation based on DRC? 127
Who is ultimately responsible for deciding if a
property should be valued by DRC? 128
I value two identical properties in similar locations
using the depreciated replacement cost method of
valuation, one working to 100% capacity, the
other to 60%. Should my valuations reflect this
difference in output? 128
My client wants me to value his freehold shops for
annual accounts on the basis of a sale and
leaseback 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 my
valuation for costs of purchase or sale? 135
Why are some valuations governed by International
Financial Reporting Standards and some by UK
Generally Accepted Accounting Principles? 136
When should I use market value versus existing use
value? 136
Depreciated replacement cost (DRC) is now
reported as market value. Surely this is used only
when there is no market? 136

Valuations for secured lending


Does Red Book apply to valuation of commercial
property mortgage valuations? 152

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What matters should be included in a secured


lending report other than the 14 matters in VPS
3.1? 152
The borrower has asked for a copy of the report I
sent to the lender. May I make this available to
him? 153
The lender has asked his solicitors to send me title
documents to review and to confirm that nothing
therein affects my valuation. Am I allowed to
comment? 153
Banks still request valuations using estimated
realisation price and estimated restricted realisation
price as a basis. What action should I take? 154
What is the appropriate valuation basis when
valuing commercial property for secured lending? 154
What am I to do if clients ask for forced sale
value? 154
Can I value a residential property retrospectively?
If so, on what basis? 155
A bank insists that I use their standard pro-forma
terms of engagement rather than ones directly
complying with Red Book. Is this acceptable? 155

Specialist valuations
What should I give a client who has asked for a
valuation for probate purposes? 175
How should I deal with requests for valuations for
capital gains tax or inheritance tax to provide high
or low valuations to suit clients tax circumstances?175
Are valuations for equity release plans regulated
purpose valuations? 175
Surely every valuation is subject to a range. Can I
provide a bottom of the range figure for
inheritance tax and a top of the range figure for
capital gains tax? 176

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What is the correct basis of valuation to use when


advising a charity on the purchase of a property? 176
How should I advise a charity on the purchase of a
freehold property on which they hold a lease and
the price they are paying is above market value? 176
Are valuations prepared for local authority
accounts regulated purpose valuations? 176

Registration and monitoring of valuations


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

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Foreword

Now more than ever, appropriate valuation standards


and their effective regulation are vital to promote and
sustain public confidence and trust in the valuation
process. Uniform valuation standards help to reduce
investment risk, add confidence to financial reporting
and provide a consistent approach to portfolio and asset
valuation.
Inquests into the global 2008 financial crisis led to
serious debate about the role and reliability of valuations
and their impact on the financial markets. There is now
world recognition of the need to secure the conduct of
real estate valuations in a set of internationally
recognised standards that provide a clear statement of
the requirements and definitions, which are understood
and adopted not only by valuers but also by their clients
and the wider public.
RICS has led the way in recognising the importance of
valuation standards and their effective implementation,
establishing the Assets Valuation Standards Committee in
April 1974 with a remit to publish guidance notes on the
valuation of assets. The initial guidance was published in
1976. Over the years this has grown in stature and
importance on a worldwide basis to form the RICS
Valuation Professional Standards, the Red Book.
The Red Book 2014 is the culmination of a
comprehensive review of the content, framework and
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Foreword

format of the 2012 and earlier editions. In response to


consultation during preparation of the Red Book and
from user feedback, elements of the standards have been
merged and restructured to improve clarity and combine
all related information in one place. It also includes new
material relating to business valuations, intangible assets
and special assumptions in relation to projected values.
This new global edition formally recognises and adopts
the high level valuation principles and definitions that are
embodied in the International Valuation Standards (IVS),
published by the International Valuation Standards
Council (IVSC). It also complements the IVS by
providing detailed guidance and specific requirements
concerning their practical implementation.
Anthony Banfield, the author of this guide, has been
actively involved in updating the latest edition of the
RICS Valuation Professional Standards and was the
author for A valuers guide to the RICS Red Book 2012.
This very readable, practical guide, continues to
complement the Red Book, by providing practical
additional commentary on the interpretation and
implementation of some of the most important
provisions. It clearly directs the valuers attention to the
key points that they need to be aware of and address in
their day-to-day work. It is a worthy companion to the
Red Book 2014!
Professor David Tretton FRICS FIRRV
RICS Valuation Professional Standards Consultant and
Red Book 2014 Technical Editor

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Preface

This is my second edition of A valuers guide to the Red


Book since I took over authorship from Andrew Cherry.
I have extended the coverage but still used his original
work as the basis to this latest book.
As Andrew Cherry observed in a previous edition of A
valuers guide to the Red Book:
A short study of the history of the development of
the Red Book, together with consideration of its
growing importance to the surveying profession, can
help the user to understand the processes involved in
valuations.
In 1973 a joint working party was set up by RICS and
the Institute of Chartered Accountants in England and
Wales to report on the valuation of property assets. The
1972/73 property boom and the subsequent collapse of
the property market gave rise to considerable public
criticism and comment on the variety of valuation bases
used and the format of reports. The accountancy
profession had already started to set accountancy
standards in the 1960s and there was a perceived need to
establish uniform standards for valuations and to
standardise the form of their presentation.
RICS formed the Assets Valuation Standards Committee
in April 1974 with the remit to publish guidance notes
on the valuation of assets. The guidance was not only in
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Preface

respect of the valuation of property for company


accounts and financial statements but also stock
exchange purposes, such as new issues of shares by
companies seeking a listing, and circulars to shareholders
and other public documents.
The first edition of the guidance notes was published in
1976 and was fully supported by the accountancy
profession, the government and other regulatory bodies.
It attracted overseas attention and played a leading role
in the creation of standard setting bodies in the EEC and
internationally.
A second edition was issued in April 1981 but its use
was not compulsory and, as suggested by the title, was
only for guidance chartered surveyors were expected to
follow it although there was no compulsion to do so. In
August 1990 a third edition was issued, renamed
Statements of Asset Valuation Practice and Guidance
Notes. It became mandatory for most valuations with
the important exception of mortgage valuations as the
banks wished to maintain their discretion to instruct
valuers on any basis they wanted.
In October 1995 following the recommendations
contained in the Mallinson Report a fourth edition was
issued, called the RICS Valuation and Appraisal Manual.
This incorporated the Manual of Valuation Guidance
Notes (White Book) and extended the mandatory scope
to a much wider range of services, including mortgage
valuations for the first time.
In 2001 work started on the fifth edition. This published
in March 2003, and was renamed RICS Appraisal and
Valuation Standards. Most of the existing standards
remained unchanged but were updated and expressed in
a different way. In particular the opportunity was taken
to distinguish between global and UK applications and to
implement the RICS policy of adopting and supporting
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Preface

International Valuation Standards. The number of


valuation bases was reduced and a number of
recommendations for improving the quality of service
provided for users of valuations were incorporated. At
this 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 2007
and contained much clearer rules on compliance. It
included guidance on which types of valuations are
covered and reinforced the RICS support for
International Valuation Standards. It was renamed RICS
Valuation Standards.
The seventh edition in May 2011 brought a limited
number of changes from the previous version and was
primarily changed to cover the Valuer Registration
Scheme by which RICS showed its determination to
demonstrate to clients and the public its ability to be a
robust self-regulating professional body. Other changes
reflected the introduction of more International
Accounting, changes in legislation and the previous
Practice Statements were renamed as Valuation
Standards. The change in market conditions as a result of
the credit crunch gave rise to new guidance on valuation
certainty.
The following edition, although still known as The Red
Book was renamed as RICS Valuation Professional
Standards and for the first time included as an annex the
International Valuation Standards 2011 (the IVS) that
came into effect on 1 January 2012. The Red Book
global standards were revised to incorporate the revised
IVS and definitions while some changes were made to the
UK valuation standards.
This latest version of the Red Book, to be known as
RICS Valuation Professional Standards January 2014
recognises the high level valuation principles and
definitions that are embodied in the International
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Valuation Standards (IVS) published by the International


Valuation Standards Council (IVSC) of which RICS was
a founder member. The Red Book also complements the
IVS by providing detailed guidance and specific
requirements and in some cases additions to them
concerning their global interpretation and practical
implementation. It also incorporates the latest version of
the IVS International Valuation Standards 2013.
Material that previously appeared in different parts of
the 2012 edition has been brought together to improve
clarity and avoid repetition, which has made it far more
user-friendly.
The valuation standards VS 16 of the 2012 edition,
including the associated appendices, have been reviewed
and incorporated into global professional standards (PS)
and global valuation practice statements (VPS). The
references have been changed for the standards such that
there are now practice statements (PS) replacing
valuation standards 1, 2 and appendix 1 of the 2012
edition and valuation practice statements (VPS) 14
replacing and reordering VS 3, 5, 6 and appendices 2, 3,
4 and 6. Finally, the valuation practice guidance
applications (VPGA) replace the previous guidance notes
and VS 4.
This guide expands on the Red Book and explains how it
works in practice. It emphasises its value in combining
good business practice and common sense. It will help
surveyors find their way through the standards,
appendices and guidance applications and look at some
of the more complex issues. Detailing some of the day-to
-day questions that arise, the guide is not intended to be
an abridged version and must be read in conjunction
with the latest versions of the Red Book and IVS.
Anthony Banfield
December 2013

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Introduction

Principal purpose
The principal purpose of the standards contained in the
RICS Valuation Professional Standards January 2014
(Red Book 2014) are clearly set out as the Overall
purpose in paragraphs 16 of the Introduction:
1 Consistency, objectivity and transparency are
fundamental to building and sustaining public
confidence and trust in valuation. In turn their
achievement depends crucially on possessing and
deploying the appropriate skills, knowledge,
experience and ethical behaviour, both to form sound
judgments and to report opinions of value clearly and
unambiguously to clients and other valuation users.
2 Globally recognised high level valuation principles
and definitions are now embodied in the
International Valuation Standards (IVS) published by
the International Valuation Standards Council
(IVSC). RICS has long been a supporter of the
development of such universal standards, and not
only fully embraces them itself, but also proactively
supports their adoption by others around the world.
3 But acceptance alone is not enough effective
implementation is the key. If confidence and public
trust in the valuation process is to be achieved,
standards must not only be uniformly interpreted and
consistently applied but also actively monitored and
enforced.
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A valuers guide to the RICS Red Book 2014

4 That is the rationale for this new global edition of


RICS Valuation Professional Standards 2014,
commonly referred to as the Red Book. This formally
recognises and adopts the IVS by requiring members
to follow them. It also complements the IVS by
providing detailed guidance and specific requirements
concerning their practical implementation.
5 This approach is reinforced by the RICS professional
standards regarding ethics, skills and conduct; and is
assured by a well-established system of regulation
and by progressive introduction of a system of
practising valuer registration. The whole ensures the
positioning of RICS members and regulated firms as
the leading global providers of IVS-compliant
valuations.
6 The aim is simply stated it is to engender
confidence in, and to provide assurance to, clients
and recognised users alike, that a valuation provided
by an RICS-qualified valuer anywhere in the world
will be undertaken to the highest professional
standards overall.
The standards set out procedural rules and guidance for
valuers. They not only cover matters relating to ethics
and conduct, but also establish a framework for
uniformity and best practice in the execution and
delivery of valuations. The Red Book is a procedural
manual and not a valuation text book setting out
methodology.
However, while the standards are not designed to deal
with or instruct valuers on how to value in individual
cases, there are a number of stand-alone RICS guidance
notes and information papers that discuss and deal with
the approach to issues that may arise in the subjects to
which they apply. Examples include the valuation of
petrol filling stations, rural property, development land,
etc. These publications are listed in the Red Book and
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Introduction

are available free to RICS members on the RICS website.


RICS professional guidance is also available on the
subscription service isurv.

International Valuation Standards Council


(IVSC)
RICS is not the only body that issues Valuation
Standards. The International Valuation Standards
Council (IVSC) of which RICS is a sponsor publishes,
and periodically reviews, the International Valuation
Standards (IVS). The IVS set out internationally accepted,
high-level valuation principles and definitions. They have
been incorporated, supplemented (where appropriate) by
RICS and reflected in successive Red Book editions as
part of RICS overall framework of standards, backed by
a comprehensive scheme of regulation to ensure effective
implementation and delivery.
The whole of the IVS is published together with the
RICS standards. RICS considers that a valuation that is
undertaken in accordance with the Red Book will also be
compliant 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). These
RICS standards are primarily directed at the valuation of
real estate (land, buildings and interests therein), personal
property, 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 valuations
of intangible assets are reminded that they should follow
IVS 200 or 210, as well as complying with other general
requirements of the RICS standards. RICS expects to
issue further guidance in relation to these specific classes
of asset over time.
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A valuers guide to the RICS Red Book 2014

The RICS standards incorporate the full publication of


IVS 2013. The IVS are effective from 1 January 2014 but
the effective date for the new Red Book 2014 standards
is 6 January 2014 for all valuations on or after that day.
Any further amended or new IVS standards that become
effective after January 2014 will be available on the
IVSC website.
It is strongly recommended that the reader looks at the
IVS appended in the Red Book. They are laid out
differently from the Red Book, as evident in the
following 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 in
the IVS, in general Red Book 2014 provides further
comment on those standards.

Structure of the Red Book


The RICS global material has now been grouped under
three distinct headings. The first two cover matters
relevant to valuation assignments generally, the third
covers matters relating to particular applications. The
intention is to make clear to members what is mandatory
and what is advisory thus collected together under the
first two headings is the mandatory material and under
the third the advisory material.
This signals a new approach to identifying and
classifying valuation practice guidance. This will be
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Introduction

issued either in the form of Guidance Applications,


covering specific asset types or situations that are closely
linked to one or more practice statements, or in the form
of Guidance Notes, in all other cases. Guidance
Applications and Guidance Notes are of equal status
they contain advisory and not mandatory material.
Although the Guidance Applications are reproduced in
full in Red Book 2014, only appropriate cross-references
are 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 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 comprise:
PS 1 Compliance with standards and practice
statements where a written valuation is required
PS 2 Ethics, competency, objectivity and
disclosures

RICS global valuation practice statements (VPS)


These provide the mandatory requirements and related
implementation guidance relating to providing an IVS
compliant 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 special
assumptions
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A valuers guide to the RICS Red Book 2014

RICS global valuation practice guidance applications (VPGA)


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 he or she had not
followed best practice as indicated in a guidance
application. They comprise:
VPGA 1 Valuation for inclusion in financial
statements
VPGA 2 Valuation for secured lending
VPGA 3 Valuation of businesses and business
interests
VPGA 4 Valuation of individual trade related
properties
VPGA 5 Valuation of plant and equipment
VPGA 6 Valuation of intangible assets
VPGA 7 Valuation of personal property, including
arts and antiques
VPGA 8 Valuation of portfolios, collections and
groups of properties
VPGA 9 Valuation in markets susceptible to
change: certainty and uncertainty

National standards
Additionally, the UK edition of the Red Book contains
RICS UK Valuation Standards (UKVS), RICS UK
Appendices and RICS UK Valuation Practice Guidance
Notes. These are provided to cover specific statutory or
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Introduction

regulatory requirements in the UK jurisdiction while


being consistent with the relevant international
standards.
This guide concentrates largely on the global and UK
standards. For further information regarding other
national standards, see Chapter 13 Applying Red Book
outside of the UK page 181.
The appendices contain supporting information referred
to in the commentaries in the valuation standard. They
are advisory. One hard copy version of the Red Book is
available, that is RICS Valuation Professional
Standards, global and UK edition (January 2014) this
publication includes UK valuation standards and UK
guidance notes.
RICS considers it to be the members responsibility to be
aware of changes since the date of publication of this
edition to legislation or to its interpretation through case
law and also to be aware of amendments to the
International Valuation Standards or to any other
valuation standards relevant to the particular valuation
assignment. Valuers should refer to the RICS website for
any updates regarding RICS material.
In addition to the UK and global editions, other national
standards will be available (in English) online to RICS
members through the RICS website. Translations are
available on the RICS website in simplified Chinese,
Dutch, French, German, Italian, Russian, Hungarian,
Greek, Portuguese, Spanish and Polish. See also RICS
professional guidance on isurv.

Glossary
There is a comprehensive glossary defining terms used in
the Red Book that have a special or restricted meaning.
The glossary ranges from assumption to worth. You
are advised to refer to the glossary when considering
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A valuers guide to the RICS Red Book 2014

specific terms such as intangible asset, internal valuer,


synergistic value, special value, trading stock, etc. See
Appendix A: Red Book glossary page 193.

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Red Book route
1 map

The RICS Valuation Professional Standards January


2014 (the Red Book) is a comprehensive set of standards
covering the key aspects of a valuers work.
The following flowcharts are designed to provide
practical assistance by providing an overview of the basic
requirements to enable you to comply with the standards
contained in the Red Book relating to valuation practice
in the UK.
They are set out in the four stages you need to consider
when carrying out a valuation:

They set out, in a flowchart format, the relevant


requirements from a practical viewpoint with references
to the standards that may apply in most valuations. They
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A valuers guide to the RICS Red Book 2014

are not intended as an index to the Red Book, nor do


they deal exhaustively with every situation.
The stages themselves are covered in some detail in the
relevant chapters within this guide. Note however, that
this book is a guide and is not intended to be used in
isolation without reference to the Red Book itself.
Having been directed to a particular reference, it is the
valuers responsibility to decide the extent to which it is
relevant to the valuation being considered.

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Red Book route map

A: Preliminary questions
Before commencing any valuation there are seven basic
questions the valuer should ask. The answer to some of
the questions will be relevant to proper compliance with
some of the standards.

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A valuers guide to the RICS Red Book 2014

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Red Book route map

B:Terms of engagement (ToE)


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

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A valuers guide to the RICS Red Book 2014

Minimum terms of engagement

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Red Book route map

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A valuers guide to the RICS Red Book 2014

C:Valuation preparation
The chart below is a simplified valuation preparation
procedure (found mainly in VPS 2). The aim is to ensure
that all relevant enquiries are made and uncertainties are
resolved before proceeding to a valuation calculation.
Where information is obtained or verified, the file notes
should clearly show the decisions made or actions taken.

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Red Book route map

D: Reporting
The report must include all the matters agreed in the
terms of engagement and not introduce any new terms.
VPS 3 contains further information on the minimum
matters and this flowchart draws the valuers attention to
valuation standards that need consideration. This is not
an index to the valuation standards.

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A valuers guide to the RICS Red Book 2014

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Red Book route map

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