Compliance with standards where

PS 1 a written valuation is provided

SECTION 1, 2 & 3

Professional & Ethical

Standards and Member
Qualification
- Apurv Shah

1
 PS 1 – Section 1, 2 & 3

► Mandatory Application

 RICS bye-law B5.2.1 (b) & B5.3.1

 AVM (Automated Valuation Model)

 Avoidance of Doubt

► Compliance Within Firms

 Firms Regulated by RICS

 Firms not regulated by RICS

► Compliance with international standards

 International Valuation Standards (IVS)

 International Ethics Standards (IES)

 International Property Measurement Standards (IPMS)

Source: Red book, RICS

 Compliance with standards where
PS 1 a written valuation is provided

SECTION 4 & 5

Professional & Ethical

Standards and Member
Qualification
- Bala Murgan
3
PS 1 - 4. Compliance with jurisdictional or other
valuation standards

4.1

► In Some cases member may be requested to provide a report that complies with standards

other than standards set out in red book.

► This will normally arise in relation to the particular requirements that apply within individual

jurisdictions.

► It is perfectly proper for members to comply with such requirements, which may include a basis

of value not listed in VPS 4 provided it is absolutely clear which standards are being adopted.

4.2

► In such cases statement must be included in the terms of engagement and should be metioned

in the report of compiled standards. Its because of statutory, regulatory or other authoritative
requirements if appropriate with the IVS.

4.3

► For a number of jurisdictions, RICS publishes national supplements to red book global

standards to assist members in the application of the valuation standards in local context .

► These supplements may be produced as joint publications with local valuation professional

organizations (VPOs) requirements where not at variance with RICS requirements.

4
PS 1 - 4. Compliance with jurisdictional or other
valuation standards

4.4

► Where the compliance with other valuation standards is voluntary, i.e. not falling within either

paragraph 4.2 above or this paragraph, this will involve a depature.

► That compliance with such standards cannot override the mandatory requirments of PS 1 and

PS 2 which members must at all times observe.

4.5

► Where the valuation involves assets in two or more countries or states with different valuation

standards, the member must agree with the client which standards will apply to the instruction

5
PS 1 - 5. VPS 1-5 exceptions

5.1

► If supplied in written form all valuation advice given by members is subject to at least some of

the requirements of the red book - there are no exemptions.

► Similarly, where valuation advice is given wholly orally, the principles set out in the red book

global standards should be still observed to the fullest extent possible.

► Thus PS 1 and PS 2 are mandatory in all cases.

5.2

► However, given the sheer diversity of activity undertaken by members and the diversity of

jurisdictional contexts in which valuation and valuation advice are delivered, there is a need for
differentiation between particular types of assignment where the mandatory application of VPS
1-5 may be unsuitable or inappropriate.

► Even though not mandatory in such circumstances , the adoption of the relevant standards is

nevertheless encouraged where not precluded by the specific requirement or context.

► These exceptions regarding VPS 1-5 are set out at greater length below. However, it is not

practical to set out every possible scenario thus in case of doubt, it is safer to regard VPS 1-5
as mandatory
6
PS 1 - 5. VPS 1-5 exceptions

5.3

► Valuers should be aware that excetions are not usually specific to individual cases but cover

particular categories or aspects of valuation activity.

► In such cases members are reminded that they must not state that he valuation was performed

in accordance with IVS.

5.4

► The areas of exception in relation to VPS 1-5 are where a member is:

► Providing an agency or brokerage service in respect of the acquisition or disposal of one or

more assets.

► Acting or preparing to act as an expert witness.

► Performing statutory functions

► Providing valuation to client purely for internal purposes, without liablity, and without

communication to third party.

► Providing valuation advice expressly in prepation for, or during the course of negotiations or

litigations including where the valuer is acting advocate.

7
PS 1 - 5. VPS 1-5 exceptions

► The ligation exception recognizes that:

► There is a formal dispute in existence.

► Advice given to a client may extend to various matters going beyond the provision of advice on

value.

5.5

► For all exceptions the fact that VPS 1-5 are not mandatory does not mean that they are simply

to be ignored as a matter of good practice they should be followed where not precluded by the
specific requirement or context

8
 Compliance with standards where
PS 1 a written valuation is provided

PS 1 – Section 6, 7 & 8

Departures, Regulation and

Applications to member of
other organizations
- Parag Kulkarni
9
 PS 1 – Section 6, 7 & 8

6. Departures

No • Professional Standard 1
Departure

Mandatory • Professional Standard 2

PS1 : Compliance with standards where written valuation is provided

PS2 : Ethics, competency, Objectivity and disclosure

• If separately and independently from either the specific exceptions set out above
falling within the scope of section 4 above, there are special circumstances
where it is considered inappropriate to comply in whole or in part, with VPS 1
to VPS 5 inclusive, then these must be confirmed and agreed with the client as a
departure and a clear statement that included in the terms of engagement, report,
and any published reference to it.

Source: Red book, RICS

PS 1 – Section 6, 7 & 8

6. Departures
► Avoidance of Doubt :

• If the valuation falls to be provided in compliance with prescribed statutory or legal

procedures then provided those requirements are mandatory in the particular
context or jurisdiction, compliance does not by itself constitute a departure –
though the requirement to do so must be made clear.

• For most valuation purposes, one of the bases of value specified in paragraph
2.2 of VPS 4 (VPS 4:Bases of value, assumptions and special assumptions)

• will be appropriate (market value, market rent, investment value, Equitable value,
Synergistic value, Liquidation value ). Where another basis is used, this must be
clearly defined and stated in the report.

• RICS does not encourage the voluntary use of a basis of value not specified in VPS
4, and will always regard such voluntary use as involving a departure from the Red
Book. A member who makes a departure required to justify the reasons for this.
Source: Red book, RICS
 PS 1 – Section 6, 7 & 8
► 7. Monitoring Compliance with Global
Standards
Responsibility to monitor and
seek assurance of compliance by
its members
• RICS has the right under its
bye-laws to seek information from
members or firms
•Regulated firms with these
global standards. It has the right
under its bye-laws to seek
information from members or
firms
8. Application to members of
other valuation
• These global standards may also be
formally adopted by other valuation
professional organizations (VPOs) subject
to the prior approval and agreement of
RICS
• Except where RICS has formally agreed to
the use of the Red Book by appropriately
qualified members of another VPO, no
valuer who is not a member of RICS may
state that his or her valuation is or has
been undertaken in full compliance with the
RICS Red Book
Source: Red book, RICS
 Ethics, Competency, Objectivity
PS 2 & Disclosures

PS 2 – Section 1 & 2

Professional & Ethical

Standards and Member
Qualification
- Madhura Chunekar
13
PS 2 – Section 1 & 2

Professional and Ethical Standards

It is fundamental to the integrity of the valuation process, all members practising as
valuers must have the following:

Appropriate experience

Skill

Judgment for the task

Professional and ethical manner

Free from any undue influence

Bias or conflict of interest.

Source: Red book, RICS 14

PS 2 – Section 1 & 2

Professional and Ethical Standards and Member Qualification

Appropriate
Membership of a professional
academic/professional
body, demonstrating a
qualifications, demonstrating
commitment to ethical standards.
technical competence.

Current local, national and

Compliance with any country or
international knowledge of the
state legal regulations governing
asset type and its particular
the right to practice valuation
market, and the skills and
where applicable, compliance
understanding necessary, to
with the RICS Valuer Registration
undertake the valuation
(VR) requirements.
competently.

Source: Red book, RICS 15

 Ethics, Competency, Objectivity
PS 2 & Disclosures
PS 2 – Section 3
Independence, Objectivity,
Confidentiality and the
Identification & Management
of Conflict of Interest
- Vishwas Nagi
16
 PS 2 – Section 3
Independence, Objectivity, Confidentiality and the Identification & Management
of Conflict of Interest

► Fundamental requirement in “Conflicts of Interest”

 Any member can advise or represent a client in matters involving conflict of interest

with Informed Consent of the affected parties

 Keep records of decisions on individual professional assignments, informed consent or

measures taken to avoid conflict of interest

► Acceptable Level of Independence is defined using terms such as “Independent Expert”,

“Expert Valuer”, “Independent Valuer”, “Standing Independent Valuer”.

 Additional requirements may be regulations, rules of regulatory bodies or clients’

special requirement

 Compliance with these requirements should be confirmed while accepting assignments

and in reports

 E.g. Secured Lending Valuations as given in VPGA 2

17
 PS 2 – Section 3
Independence, Objectivity, Confidentiality and the Identification & Management
of Conflict of Interest

► Confidential Information defined in “Conflicts of Interest”; it can be held or disseminated

electronically, verbally or in hard copy

 It is information gathered during course of valuation work

 Information may be market sensitive

 Not available in public domain and shared as a result of professional relationship

► Confidentiality should not be breached while providing information to client on key inputs

used (as per VPS 3 Paragraph 2.2(h))

 Duty of Confidentiality takes precedence over Duty of Disclosure, subject to legal override

► As per “Confidential Information Conflict”, potential conflict of interest must be identified

 If an adequate disclosure cannot be made without breaching the duty of confidentiality,

then the instruction should be declined

18
 PS 2 – Section 3
Independence, Objectivity, Confidentiality and the Identification & Management
of Conflict of Interest
► Situations of Potential & Actual threats to members’ Independence & Objectivity:

 Acting for buyer and seller of a property or asset in the same transaction

 Acting for two or more parties competing for an opportunity

 Valuing for a lender where advice is also to be provided to borrower or broker

 Valuing a property previously valued for another client of same valuer or firm

 Undertaking valuation for third party consumption where the valuers’ firm has other fee-

earning relationships with the client

 Valuing both parties’ interest in a leasehold transaction

 Interest of any third parties in valuation and members’ reliance on such parties

 Outcome of valuation is discussed before its completion with either the client or another

party with interest in valuation

19
 PS 2 – Section 3
Independence, Objectivity, Confidentiality and the Identification & Management
of Conflict of Interest
► Client must disclose facts/ information relevant to valuation task

► While providing draft reports or preliminary advice ahead of completion of valuation, member

must state that:

 Opinion is provisional & subject to completion of the final report

 Advice is provided for clients’ internal purpose only

 Any draft on no account should be published or disclosed

 Omission of matters of fundamental importance must be declared in the draft

► Members opinion should not be influenced after discussions with the client

► File notes of discussions with client on draft reports should include:

 Information, suggestion in relation to valuation

 How information is used to change material matter or opinion

 Reasons for change or no change

20
 Ethics, Competency, Objectivity
PS 2 & Disclosures
PS 2 – Section 4, 5.1 & 5.2

Maintaining strict separation

between advisers,
Disclosure requirements &
Reliance by third parties
- Shraddha Patil
21
 PS 2 – Section 4, 5.1 & 5.2
4. Maintaining strict separation between advisers

4.1 ► RICS has strict guidelines in accordance with RICS professional statement Conflicts of
Interest

► Known as Chinese Wall in some jurisdiction where no two advisors are allowed to pass

data or any piece of information

4.2 ► A compliance officer should oversee any arrangement set up by affected clients and
should follow:

► Different secretarial and support staff extension must be provided for a conflicting clients

► Such parties must be placed separately in different parts of the building

► Information and data of either of the sides must be kept secure

► Management of conflicts of interests should be appropriately trained and educated within

the firm before put to practice

4.3 ► Considerable planning can lead to effective arrangements which should be a part of an
established part of a firm’s culture 22
 PS 2 – Section 4, 5.1 & 5.2

5. Disclosures where the public has an interest or upon which third parties
may rely

5.1 Disclosure requirements

5.1.1 ► Certain types of valuation may be relied on by parties other than client who have

commissioned the report or to whom it is addressed.

► Also if the valuation is of an asset which has been done previously by the valuer/

firm wherein the disclosures in terms of engagements are made

5.1.2 ► The disclosures required may be modified or extended as per requirement that

applies to a certain country (PS 1 Section 4 applies)

5.1.3 ► VPGA 2 to be referred for modified or extended requirements

23
 PS 2 – Section 4, 5.1 & 5.2

5. Disclosures where the public has an interest or upon which third parties
may rely

5.2 Reliance by third parties

5.2.1 ► Reliance may be placed on a valuation by a third party which is identifiable from the

outset and disclosures must be made before the valuation is undertaken.

5.2.2 ► In cases of third parties like shareholders of a company where disclosure at the

outset to interested third parties is impractical, the earliest practical opportunity for
disclosure will be in the form of a report or published reference to it subject to
condition, the third party’s approval

5.2.3 ► Valuations which will be relied by third parties or in public domain are subject to

statute or regulation where the member must meet certain stipulations to be

deemed suitable.

24
 Ethics, Competency, Objectivity
PS 2 & Disclosures
PS 2 – Section 5.3, 5.4,
5.5

Professional & Ethical

Standards and Member
Qualification
- Tejas Mohata
25
 5. Disclosures where the public has an interest
or upon which third parties may rely

5.3 The relationship with the client and previous involvement

► The member should disclose the working relationship between client & member to the

related party upto certain extent.

► The member should consider and follow the principles set out in the RICS professional

statement Conflicts of interest.

► The following are the Disclosure of details to entities other then Client :

 Subsidiaries of an instructing holding company

 Other companies connected by the same holding company or

 A third party issuing valuation instructions as an agent for different legal entities,

for example, the managers of a property fund.

26
Source : RICS Red book
 5. Disclosures where the public has an interest
or upon which third parties may rely

5.4 Rotation policy

5.4.1 The obligation to disclose firm’s rotation policy is only where the member has provided series of
valuation over a period of time. So if the valuation is for done for first time then it is not necessary to
provide rotation policy.

5.4.2

► RICS standards say that the member responsible for the valuation should hold responsibility for

certain years.

► Member might have familiarity with client or the asset valued, so he can compromise on his

independence or objective of Valuation.

► So their should be a rotation of members who accepts responsibility of valuation for the same

client.

5.4.3

► The method of rotation for responsibility of valuation would be decided by the firm after discussion

with the client if appropriate.

► The individual who signs the valuation report is responsible for a limited number of years.

► RICS recommends to rotate valuers at intervals not exceeding seven years, although its not
27
Source : RICS Red book
 5. Disclosures where the public has an interest
or upon which third parties may rely

5.4 Rotation policy

5.4.4

If the firm is insufficient in size to rotate members or they don’t have valuation panels then they can
make other arrangements to ensure reliable valuation.

For eg.

Valuing firm

► For eg. The valuation to be periodically reviewed at intervals not greater than seven years by
another member who would assist in demonstrating that the member is taking steps to ensure that
objectivity is maintained and thus may retain the confidence of those relying on the valuation.

28
Source : RICS Red book
 5. Disclosures where the public has an interest
or upon which third parties may rely

5.5 Time as signatory

5.5.1

► To provide information to third party regarding the duration, that a member’s firm has been a

valuation signatory for the client.

► Also to provide extent & duration of the relationship with the client.

5.5.2

► The disclosure should depict the responsibility duration of the member for the valuation upto date

of the report. Case :-

 There is a possibility that the member was the signatory to previous reports but due to the

firm’s rotation policy (as set out earlier) there was a period of time when the member did not
have that responsibility. So their is no requirement to include that earlier period in the
disclosure.

5.5.3

► The member is not required to provide a detailed info of all the work ever undertaken by the

member’s firm for the client. Just provide a simple & concise statement that discloses the nature of
work done and the duration of the relationship with the client. Source : RICS Red book 29
 Ethics, Competency, Objectivity
PS 2 & Disclosures
PS 2 – Section 5.6, 5.7,
5.8, 6

Professional & Ethical

Standards and Member
Qualification
- Sharvari Thonge
30
 PS 2 – Section 5.6, 5.7, 5.8, 6

5.6 PREVIOUS INVOLVEMENT

5.6.1  This clause asks for the valuer for the experience and involvement in this field.

The purpose of this clause is to check for potential conflicts of the member or the
firm has done any valuation of same kind of asset in defined past period or within
the time period adopted by that particular country or state.

5.6.2  Some important disclosures has to be made in the published document so that

the third parties can rely on it; disclosures such as;

-Where the valuation of such asset has been previously valued by the member or
the firm for same purpose.

-Extent and duration of the relationship of the firm with the client for any purpose.

5.6.3  National and local valuation standards may be extended by applying additional

criteria.

Source: Red book, RICS 31

 PS 2 – Section 5.6, 5.7, 5.8, 6

5.7 PROPORTION OF FEES

5.7.1  A statement defining the proportions of the total fees payable by the client

during the preceding year relative to the total fee income of the member’s firm
during the preceding year are minimal, significant and substantial.
5.7.2
 A proportion of fees less than 5 % is called minimal, between 5% to 25% is

substantial and 25% and above is substantial.

5.8 OTHER DISCLOSURES

 Disclosures made under VPS 1 and VPS 2 are required for a particular

valuation and purpose. In other cases if required more specific information

more disclosures are added such as;

 Material involvement, status of the member, specific requirement as to

independence, extent of the investigation etc.

Source: Red book, RICS 32

 PS 2 – Section 5.6, 5.7, 5.8, 6

6 REVIEWING ANOTHER VALUER’S VALUATION

6.1  A valuer can quite ask to review all or part of valuation done by another valuer

under certain circumstances if that includes;

• Assisting the consideration of the risk assessment.

• Commenting on valuation produced for use of legal proceedings.

• Providing comment on a published valuation.

6.2  The member has to make clear distinction between a critical review of

valuation and an audit of the valuation or independent valuation of the property,

asset or liability included in another valuer’s report.

6.4  The review of the report must be undertaken in context of the requirements

applicable to the work under review and the member must develop and report
opinions and conclusions together with the reasons for any disagreement.
6.5  A member is not allowed to undertake a critical review by another valuer.

Source: Red book, RICS 33