In this article, we look at what you need to know about RICS Valuation – Global Standards (Red Book Global), the UK National Supplement and other relevant RICS valuation guidance. This is essential knowledge if you have Valuation as an APC competency; either to Level 3 if you are an experienced valuer or perhaps as a Core Technical competency to Level 2 if you are a planning development and management candidate.
- provide consistency, objectivity and transparency in valuations
- build public confidence and trust in RICS members' valuations
- ensure valuers are working to the latest international standards
- provide an essential quality control check without the need for legislation.
It instead provides a framework for valuation to which each individual valuer will apply their own skills and experience. RICS do also publish some supplementary guidance which may assist in specialist situations, such as, for example, secured lending.
The Red Book is issued by RICS ‘to promote and support high standards in valuation delivery worldwide’. It can also be referred to by valuation users, i.e. clients, and other key stakeholders.
Simply put, if you provide or assist with the provision of written property valuations then you need to know all about the Red Book. This is because any member providing a written valuation must comply with the mandatory standards within it. Therefore, following the Red Book may provide you with a partial defence if a professional negligence claim is brought against you.
"If you provide or assist with the provision of written property valuations then you need to know all about the Red Book"
2020 edition
A new edition was published with effect from 31 January 2020 to coincide with the publication of the latest version of the International Valuation Standards (IVS).
The key changes reflected amendments to the latest version of the IVS, as well as feedback on the application of the Red Book following consultation by RICS. IVS is revised on a rolling basis, so valuers need to ensure that the latest versions of both the Red Book Global and IVS are followed, in addition to any relevant national guidance.
- Red Book Global is referred to, rather than just the Red Book
- Introduction – updated to refer to the latest IVS
- PS1 – minor amendments to 1.3 and 1.4. These clarify a written valuation as being both paper and electronic formats, including Automated Valuation Model (AVM) outputs
- PS2 – introduces the concept of applying professional scepticism when considering evidence. This is defined as ‘an attitude that includes a questioning mind, critically assessing evidence relied on in the valuation process and being alert to conditions which may cause information provided to be misleading’
- VPS 1 – reference to IVS 220 in relation to non-financial liabilities
- VPS 3 – minor amendments to the wording of 2.2 l) valuation approach and reasoning, which discusses the difference between approach and method and emphasises the importance of discussing sustainability and environmental matters when valuing interests in real estate
- VPS 5 – very minor amendments to the wording
- VPGA 1, 2, 7 and 8 – minor changes to cross-reference new IVS 220
- VPGA 1 – addition of 5. Performance standards, discussing professionalism and professional competence, terms of engagement, sources and verification of information, documentation and reports
- VPGA 8 – in relation to the impact of sustainability on value, ‘only where existing market evidence would support this, or where in the valuer’s judgement market participants would expressly reflect such matters in their bids, should sustainability characteristics directly influence value(s) reported’.
Standards and guidance
The professional standards provide mandatory requirements for valuers.
PS 1 ‘Compliance with standards where a written valuation is provided’ states that valuers must comply if they are providing written valuation advice. This does not include providing replacement cost for insurance purposes. PS 1 also states the five excepted purposes, for example, statutory functions and expert witness evidence, where VPS 1-5 do not apply.
PS 2 relates to ethics, competency, objectivity and disclosures, including checking for conflicts of interest, ensuring you are sufficiently competent and applying professional scepticism when considering evidence. It also discusses the difference between internal and external valuers and sets out additional disclosures which must be made when providing regulated purpose valuation, for example, for published financial statements or stock exchange purposes.
The Valuation technical and performance standards (VPSs) also provide mandatory requirements for valuers. They include minimum requirements for terms of engagement (VPS 1) and valuation reports (VPS 3), together with guidance on inspections, investigations and records (VPS 2) and bases of value, valuation assumptions and special assumptions (VPS 4). Finally, VPS 5 discusses the three IVS 105 valuation approaches; cost, income and market.
The valuation practice guidance applications (VPGAs) provide best practice advice on specific types of valuations or specific valuation issues, for example, financial statements (VPGA 1), secured lending (VPGA 2), portfolios (VPGA 9) and material uncertainty (VPGA 10).
UK valuation
UK valuers must also follow the UK National Supplement, which took effect from 14 January 2019 and replaced the former 2014 edition. This sits alongside the Red Book Global, i.e. both need to be read together and the UK edition does not replace the global Red Book, although some elements may supplement or modify global guidance.
- UK Professional and Valuation technical and performance standards (UK PS and VPS) – Mandatory, for example relating to terms of engagement (UK VPS 1) and regulated purpose valuations (UK VPS 3).
- UK VPGAs – Advisory, for example financial reporting (UK VPGA 1) and central government assets (UK VPGA 5).
What other guidance exists for valuers?
RICS also publish additional guidance such as Comparable Evidence in Real Estate Valuation (1st Edition, October 2019) and Valuation of Development Property (1st Edition, October 2019). These support valuers on specific issues and should be read alongside the Global and UK guidance.
Currently, RICS are continually updating a Valuation practice alert relating to the impact of COVID-19 on valuation. This should be reviewed and adhered to by all valuers.
What do I need to know for my APC?
All APC valuation candidates need a robust Level 1 (knowledge) understanding of the Red Book Global and UK National Supplement, together with supporting valuation guidance.
At Levels 2 and 3, candidates need to be able to apply their understanding to their practical experience, e.g. issuing compliant terms of engagement, drafting valuation reports and reporting accurately to the VPS 4 bases of value. This will help to demonstrate the candidate is able to provide accurate, diligent and reasoned valuation advice in line with global and national standards.
Related competencies include: Valuation
"At Levels 2 and 3, candidates need to be able to apply their understanding to their practical experience"