RICS “Red Book” Valuations – What are they and what do they do?

One of the most well known and widely used surveying standards are technically named “Red Book” Valuations or RICS valuations.

You may be asked to arrange for a Chartered Surveyor to undertake a Red book valuation by your solicitor for a range of purposes – Taxation, Probate, Matrimonial, Shared Ownership, Court Proceedings or even something like valuing a loft space. This is due to its strict and consistent standards of global compliance as stated in the RICS Valuation – global standard 2017 “To provide an effective framework within the rules of conduct so that the users of valuation services can have confidence that the valuation of a RICS Member is consistent with internationally recognised standards”

In the UK, we use two versions of the Red Book:

• The Global edition known as RICS Valuation – Global Standards 2017
• The UK specific complementary edition called RICS Valuation – Professional Standards UK January 2014 (revised April 2015) that adapts the global standards to the UK specific market, laws and regulations.

To carry out such a valuation a surveyor must be be suitably qualified in terms of its purpose – this means having undergone the relevant training for each specific type of valuation. Surveyors should never undertake a valuation that is outside their area of expertise. In many cases, it will be mandatory that the surveyor be a Member of the RICS (MRICS) and/or an RICS Registered Valuer although Associate Members of the RICS (AssocRICS) can undertake certain types of work.

The Red Book is broken down into the following sections:

Professional standards:

PS 1 Compliance with standards where a written valuation is provided

PS 2 Ethics, competency, objectivity and disclosures

This section is focused on ethics and how to comply with the standards in this regard. All the terms in the above are mandatory when carrying out a Red Book compliant valuation.

Valuation technical and performance standards:

VPS 1 Terms of engagement (scope of work)

VPS 2 Inspections, investigations and records

VPS 3 Valuation reports

VPS 4 Bases of value, assumptions and special assumptions

VPS 5 Valuation approaches and methods

This second part of the Red Book sets out the mandatory steps to take when valuing properties, land and assets. The above are also mandatory and will help both the client and surveyor establish clearly the extent and boundaries of the instruction. The terms of engagement are first on the list and the natural starting point. There are a minimum of 10 items that must be considered and outlined include:

• Who is the client and what exactly are they to value?
• What are the surveyor’s qualifications and can he declare that they will act impartially?
• What is the extent of their inspection? Desktop? If they inspect what will they inspect and not inspect?
• What will they assume about the property as it is near impossible to look into and research every aspect of the property?
• What format can the client expect the report to be in?
• What procedure is in place if the client wishes to make a complaint?

Valuation applications:

VPGA 1 Valuation for inclusion in financial statements

VPGA 2 Valuation of interests 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 real property interests

VPGA 9 Identification of portfolios, collections and groups of properties

VPGA 10 Matters that may give rise to material valuation uncertainty

This further section deals with guidance notes on the different types of valuation. As opposed to the previous sections, it isn’t mandatory. However, a valuer should only deviate from these standard in exceptional circumstances.

International Valuation Standards 2017 (IVS)

In the latest version of the Red Book, the International Valuation standards (IVS) was introduced and is additional guidance that has been agreed in countries around the world by various professional bodies. The idea was to reinforce the global consistency when carrying out valuations (including in measurement) and enable valuers to work across borders while keeping a high level of professionalism.