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.
The Red Book is the valuer's best practice bible. It aims to:
However, the Red Book does not instruct valuers how to value or provide guidance on valuation methodology.
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.
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.
The changes introduced in 2020 were as follows:
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 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.
The UK National Supplement details specific requirements and supporting guidance for the application of the global Red Book to UK valuation work and is structured as follows:
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.
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