Red Book Global Standards in Italian valuation practice

RICS Valuation – Global Standards (Red Book Global Standards) were first adopted in Italian valuation practice in the 1990s, when the Italian property market began to open up to international operators and the amount of foreign investment in commercial property gradually increased, eventually reaching around 60-70% of the total market share – a level that has been maintained to this day.

At the same time, during the 1990s, the major international players in real estate consultancy opened Italian branches and, together with leading national valuation firms, supported the establishment of the Professional Group Valuation Italy – made up of RICS members qualified in the valuation pathway – and its board, which played a fundamental role in the dissemination of standards and specifically Red Book Global Standards.

Furthermore, from the 2012 edition of Red Book Global Standards onwards, an Italian translation has been available, which has made the standard accessible to a wider audience of stakeholders, including the Italian market's main regulatory authorities, i.e. the Bank of Italy, the regulatory and supervisory authority for the Italian stock exchange (CONSOB) and the Italian Banking Association (ABI). 

Only a few banks had independently developed and codified their own valuation procedures, but these were not applied outside their specific scope.

Although this context was potentially favourable to the adoption of Red Book Global Standards, their introduction was held back by a significant obstacle: the established practice of self-referentiality among valuers, rooted in the historical lack of transparency in the Italian market. 

The classic statement, 'based on my experience, the value of the property is X', concluded the vast majority of Italian valuation reports, with no insight into the valuation process, data sources and comparables.

However, a significant contrast still exists. Those working for institutional clients in RICS-regulated valuation firms display greater professionalism and stricter adherence to these standards, while independent practitioners, who mostly serve private clients, often claim to follow international standards but rarely apply them in full or at all.

This contrast has led to some mixed results. For example, the growing awareness of the opportunity to regulate property valuation has led to the introduction of specific national regulations – Ministerial Decree 30/2015 for Property Funds and the ABI guidelines for the valuation of real estate collateral.

Today, RICS-registered valuers may need to refer to Red Book Global Standards, PS1, section 4 (Compliance with jurisdictional or other valuation standards) to strike the right balance between compliance with the specific requirements of Italian regulations and the general aims of objectivity, transparency and consistency that underpin Red Book Global Standards.

An example of these discrepancies concerns the valuation of assets held by Italian real estate property trusts (REITs).

Under the law governing these funds (Ministerial Decree 30/2015), the società di gestione del risparmio (SGR), i.e. the company that acts as the fund asset manager and is responsible for commissioning property valuations, must define the valuation criteria to be adopted for estimating the market value of each property in the REIT's portfolio.

This requirement directly contradicts Red Book Global Standards' principles of a valuer's independence and professional responsibility. However, a pragmatic solution has emerged. 

Given that many asset managers working in Italian SGRs are RICS members, the choice of valuation criteria is often the subject of preliminary professional dialogue between the asset manager and the valuer.

Their shared membership of RICS and familiarity with Red Book Global Standards help to bridge the gap between domestic legal requirements and RICS professional standards.

To avoid the risk of an improper influence on the valuer's independence and objectivity, this preliminary dialogue with the asset manager concerns only the suitable approach(es) to be adopted in the valuation, based on the property type and its characteristics.

These valuations mainly concern individual residential properties, and are regulated according to ABI guidelines – initially published in 2011 and last updated in December 2024.

While these guidelines open with a general reference to international standards, i.e. International Valuation Standards (IVS), Red Book Global Standards and TEGoVA cited collectively, they contain a series of detailed provisions and precise definitions that effectively force valuers to operate in a manner not fully compliant with Red Book Global Standards.

Some discrepancies are of a formal nature, for example, the definition of market value is different but essentially equivalent to that of the IVS and Red Book Global Standards, but the ABI guidelines also establish valuation procedures and criteria for the selection and processing of comparables that interfere to a significant extent with a valuer's professional independence.

In addition, operational processes established by banks are often rigid and based on preset, non-modifiable valuation report templates, which limit the possibility of adding clarifications to the report.

As a result, valuers cannot highlight differences from Red Book Global Standards or explain whether and to what extent they are relevant.

In most cases, the templates used by banks do not allow all the information required by VPS 6-2 to be included in the valuation report.

Usually, the framework agreement between the bank and the valuer complies with Red Book Global Standards, but the valuation report itself does not contain these references, i.e. the basis of value, the valuation approach, the absence of conflicts of interest, and compliance with Red Book Global Standards.

RICS members and RICS-regulated valuation firms, therefore, have no choice but to limit as much as possible their involvement in valuations for financing purposes relating to residential property units.

Instead, they focus on valuations intended to support financing for commercial property and medium-to-large-scale development projects.

Valuations of commercial real estate assets and developments are not managed by banks through the rigid system mentioned above, so, in this context, valuers can operate in full compliance with Red Book Global Standards.

This process has been supported by outreach and professional training initiatives promoted by RICS, often in collaboration with universities and other institutional bodies.

A key step in this direction is the official adoption of Red Book Global Standards as a reference standard by the Agenzia del Demanio, the state body responsible for the management and development of publicly owned property.

This decision was taken several years ago and resulted in the agency's internal valuation professionals qualifying as RICS members.

The official adoption of Red Book Global Standards has not only generated visibility and media coverage, but it has also above all fostered professional interaction and dialogue between this important public body and private operators.

This is especially important in development and urban regeneration projects.

As a result, investor confidence has grown and Italy is now recognised as having a transparent, reliable market for global investment.

According to the JLL Global Real Estate Transparency Index (GRETI), Italy moved from 29th place in 2006 with a score of 3.2 to 19th place in 2024, with a score of 2.12.

Looking ahead, continued adherence to Red Book Global Standards and international standards will be essential to maintain competitiveness, build professionalism and further strengthen Italy's position in the global valuation market.

This article is the first in a series to mark the 50th anniversary of Red Book Global Standards. The series will look at how RICS' valuation framework is applied in a selection of non-UK jurisdictions and reflect on five decades of Red Book Global Standards more broadly.