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Red Book Scope and Red Book Exceptions Feb 2016 PDF
Red Book Scope and Red Book Exceptions Feb 2016 PDF
Introduction
A recent internal review of Valuer Registration has highlighted that there are genuine doubts among
some members about the extent to which all or part of their work falls within the scope of the Red
Book, more particularly whether it is, or is not, within one of the exceptions specified in PS 1 section
6 paragraph 6.2.
Although not formally part of the Red Book, the material below is intended to assist members by
addressing some of the practical issues that arise in their day-to-day work, providing more detailed
explanation and comment, which it is hoped will cover most situations. The material is in three parts:
• Part 1 addresses issues about the overall scope or ‘reach’ of the Red Book
• Part 2 covers the principles underlying the Red Book ‘exceptions’ in more detail
• Part 3 considers some practical examples drawn from ‘real world’ situations.
Parts 1 and 2 are of global application. Part 3 initially contains mainly UK examples, but will be
progressively developed to include examples from all World Regions.
Following issue of this clarification material, it is anticipated that members and firms will wish to
undertake any internal checks or reviews they judge necessary to ensure they are fully compliant
with the Red Book and also with the requirements of Valuer Registration where it applies in the
jurisdiction within which they practise.
RICS Valuation Professional Standards 2014 (the Red Book) –
general scope
Q. Is the 2014 edition of the Red Book materially different in scope from its
predecessors?
A. No. The current (2014) global edition did not alter the overall scope of the Red Book, which has
remained substantially the same throughout the past several editions. The reason the previous
(2012) edition was rewritten was to make improvements to the overall structure and text, removing
some duplication, achieving better integration of the International Valuation Standards (IVS), and
making it easier for the global edition and the individual jurisdiction-specific volumes to be published
separately.
However, the 2014 edition did introduce new guidance relating to business valuation and intangible
assets, recognising the growing number of members who practise in these areas.
Thus PS 1 (compliance) and PS 2 (ethics, competency, objectivity and disclosures) are mandatory
in all cases (Introduction para 12 and PS 1 paragraph 7.1). In other words, they apply to all
members whatever type of valuation activity they are engaged in. This should be no surprise as the
requirements simply embody what being a professional valuer, and more specifically being a
member of RICS or of IRRV, is about – in other words, they set out the associated RICS Rules of
Conduct for members engaged in valuation work. However, given the sheer diversity of valuation
activity undertaken by members, and the diversity of jurisdictional contexts in which valuations and
valuation advice are delivered, the Red Book does introduce some differentiation between particular
types of assignment. These aspects are considered in more detail below.
Q. How do I determine how much of the Red Book applies to the work I undertake?
A. Paragraphs 13 and 14 of the Red Book Introduction provide the starting point – thus:
• VPS 1–4 are mandatory in all cases unless otherwise stated (Introduction para 13).
• VPGA 1–9 are not mandatory but offer further implementation guidance in specific instances
and also embody best practice – procedures that in the opinion of RICS meet a high
standard of professional competence in relation to the issues covered (Introduction para 14).
There is an expectation, albeit not a requirement, that members will follow them. And indeed
it is in members’ best interest to do so, as they could be disadvantaged in the face of
challenge, including litigation, if they have not had regard to the VPGAs.
VPS 1–4 are about the process of valuation, ensuring amongst other things the delivery of an
IVS-compliant valuation, whereas VPGA 1–9 are about specific assignments or circumstances.
It will normally be very straightforward to decide whether any and, if so, which VPGA applies to
the specific task in question, but it may be rather less straightforward to identify those cases in
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which application of VPS 1–4, although advisory, is not mandatory. These instances fall either
into the category of exceptions (PS 1 section 6) or of departures (PS 1 section 7). In brief:
• When and where a departure properly falls to be made is usually specific to an individual
case and is always to be determined on the particular facts and circumstances (PS 1
paragraphs 7.2–7.5).
• In contrast, exceptions are not specific to individual cases but cover particular categories or
aspects of valuation activity (see PS 1 paragraph 6.2) – in view of the importance of
understanding when and where such exceptions arise, and how they should be dealt with,
further detail is given in the separate Q and A section below.
Q. Doesn’t compliance with the Red Book in relation to small tasks simply increase
costs and render the valuer or firm concerned uncompetitive?
A. The objective of the Red Book, and indeed of valuation standards generally, is to promote
consistency, accuracy, transparency and confidence but it does not follow that the process of
valuation itself cannot reflect the needs and circumstances of the individual assignment. In
particular the need for proportionality in reporting is recognised (Red Book Introduction paragraph
8b).
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Q. Are terms of engagement needed in every case?
A. Even though the content of VPS 1 may not be mandatory in ‘exception’ cases, it cannot be too
strongly emphasised that terms of engagement should be clear and unambiguous and appropriately
documented (PS 2 section 7 paragraph 7.4). This is as much in the interests of the valuer as that of
the client, ensuring that there is no ambiguity about what is being requested and what is being
supplied.
Q. Can informal rather than formal advice be given and, if so, does it lie outside of
the Red Book?
A. The Red Book does not recognise a distinction between ‘informal’ and ‘formal’ valuation advice.
Neither are defined in the RICS glossary, and indeed the Red Book actively discourages the use of
these terms (see PS 2 paragraph 1.4) as they may give rise to misunderstandings, particularly – but
not exclusively – regarding assumptions that a member may or may not have made.
More generally, whether and to what extent the Red Book applies in individual cases must always
be determined on the basis of the facts and circumstances. Generally it is safer to assume that it
does apply.
Q. What about oral valuation advice – is that subject to the Red Book?
A. While the Red Book does not formally extend to the provision of oral valuation advice, valuers
are advised to exercise great care, not least to ensure clients fully understand the nature of the
advice being given and the terms under which it is provided. The mere fact that advice is provided
orally does not mean that it is therefore provided without liability – the valuer’s responsibilities and
obligations will always depend on the facts and circumstances of the individual case.
In some countries, the provision of oral valuation advice is in any event subject to specific
jurisdictional standards or requirements. Furthermore, in all jurisdictions valuers acting as expert
witnesses should be alert to the fact that both oral and written advice will be subject to the same
criteria – see the RICS practice statement Surveyors acting as expert witnesses (4th edition, 2014),
which must always be followed.
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Red Book exceptions – an overview of the principles
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Since the context in which the surveyor may be providing a valuation opinion as an expert will vary
widely, and since the rules and procedures of the judicial body and also any legislative requirements
concerning the basis of value and related assumptions, etc. must always be strictly observed and
followed, it is not appropriate for the content of VPS 1–4 to be made mandatory in such cases.
However, VPS 1–4 may still provide a useful guidance in terms checklist of matters that need to be
covered.
Members should always refer to the RICS practice statement Surveyors acting as expert witnesses
(4th edition, 2014). Note that oral advice as an expert witness is subject to the same requirements
and standards as written advice.
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about non-disclosure to third parties, and about the exclusion of liability, becomes even more
crucial.
Accordingly, VPS 1–4 are advisory rather than mandatory in such circumstances
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Red Book ‘exceptions’ to VPS 1–4 in practice – some
illustrations
These illustrations are initially largely drawn from a UK jurisdictional context – examples from other
jurisdictional contexts will be added over time. However, the general principles underlying the
application of the exceptions will not change – therefore non-UK members may find that they can
draw some parallels, even if their local circumstances differ in terms of the finer detail.
Advising a client on the purchase of a property
• The precise circumstances in which a surveyor (not necessarily solely a valuer) may be
asked to advise a client on the purchase of a property will vary widely. It may be a ‘passive’
assignment, in which the surveyor simply proffers professional advice, or an ‘active’
assignment, in which the surveyor both proffers initial advice and also acts for the client in
the purchase itself. If a purchase report containing a valuation (e.g. an opinion of the current
market value) is provided to the client, then VPS 1–4 apply – the fact that a valuer may be
asked (or there is a high degree of probability that he or she will be asked), at the time or
subsequently, to negotiate the acquisition of the property does not take it into the exception
under PS 1 paragraph 6.2 bullet point 2. The key point here is that a firm view on the
property's market value (or other defined base of value) is being provided in writing. It is
different in character from advice on tactics or possible outcome, e.g. ‘This is what I think
you will be able to buy the property for’.
Making an internal presentation to a client advising on property value for future tax
liabilities on a ‘what if’ scenario
• The key point here is to be explicit about the terms of engagement, and to ensure they are
properly set out and agreed, before any advice is given. If the advice is to be provided
confidentially, without liability, and without disclosure to any third party then it may properly
fall within the exception at PS 1 paragraph 6.2 bullet point 3. This can be so even if it is
provided in writing and even if it is provided by an ‘external’ valuer.
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Providing a valuation for ‘probate’ purposes
• A valuation provided for ‘probate’ (or more correctly, inheritance tax) purposes is a written
opinion of value as at the date of death in accordance with the relevant statutory definition, to
which VPS 1–4 will apply. In the UK specific reference should also be made to the guidance
in UKGN 3.
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Providing valuations for local taxation work
• Valuations undertaken by a valuer acting in a statutory capacity (e.g. as valuation officer or
listing officer) fall within the ‘exception’ at PS 1 paragraph 6.2 bullet point 1. However, both
statute and case law impose specific and extensive duties and obligations on those
performing statutory functions, and they must also act in compliance with PS 1 and PS 2.
Valuations for local taxation work provided by any valuer not acting in a statutory capacity
(i.e. acting for a ratepayer or other client) are subject to VPS 1–4 but note that PS 1
paragraph 7.4 applies, so that the fact that they have to comply with prescribed statutory and
legal procedures (e.g. the basis of value is that defined in the relevant legislation) is
expressly recognised and such compliance does not involve a departure. In addition, valuers
must comply with the RICS/IRRV UK Rating consultancy code of practice (3rd edition, 2010).
When a rating assessment is being challenged, an agent acting on behalf of a ratepayer may
sometimes make a proposal for a reduction in the assessment specifying £1 as the amount
to be entered in the relevant rating list. This is a widely recognised, although not actively
encouraged, convention, and is not a ‘valuation’ but a signal that:
a) the value already entered in the list is considered to be incorrect and
b) an entry in the list is nevertheless properly to be made (as opposed to removal of the entry
from the list).
Where (whether before or after lodging the proposal) a valuation in accordance with the
rating legislation is made, it is subject to RICS and IRRV standards and guidance referred to
above.
Providing valuations for national taxation purposes
• VPS 1–4 apply to valuations for the purposes of national taxation and do not fall within the
statutory function exception. Valuers practising in the UK will wish to have regard to UKGN 3
Valuations for capital gains tax, inheritance tax and stamp duty land tax, where applicable.
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