Valuation standards critical to navigate global markets

In an increasingly interconnected world, many valuers have found that they must think beyond the local context and adhere to internationally recognised standards such as RICS Valuation – Global Standards (Red Book Global Standards) to ensure consistency, reliability and transparency. 

While RICS members may only undertake valuations where they can demonstrate knowledge and understanding of the relevant market, as stipulated in Red Book Global Standards PS 2, paragraph 1.4, in a globalised profession they are no longer confined to their local markets.

Transactions in assets as varied as real estate, arts and antiques, businesses, financial interests, intellectual property, digital assets and aircraft and marine vessels often span several countries. This requires valuers to navigate diverse legal, economic and cultural contexts.

Such complexity underscores the importance of adhering to the Red Book Global Standards. Understanding and applying the standards ensures consistency, reliability and transparency in valuations, enabling smoother cross-border transactions and fostering trust among international clients.

These standards encompass a wide range of asset types and purposes, ensuring that valuations are conducted consistently and that methods, assumptions and reporting are uniform regardless of location. This consistency is crucial in allowing stakeholders to confidently compare valuations across different markets and jurisdictions.

For instance, an investor evaluating properties in London, New York and Tokyo can be certain that valuations based on the Red Book Global Standards will be comparable, even if conducted by different valuers.

Such trust is particularly important in cross-border transactions, where differing local practices might otherwise raise concerns about the reliability of valuations.

By demonstrating a commitment to the Red Book Global Standards, valuers can assure clients that their work meets high professional standards.

For instance, in some regions, comprehensive and reliable market data on property transactions might be readily available through public records, while other areas might lack such transparency, relying instead on anecdotal evidence or informal networks for comparable sales data.

This disparity can lead to significant variations in the accuracy of valuations. For example, a valuer in a data-rich environment can provide a more precise and defensible valuation compared to one operating in a region with limited market information, where the valuation might be more speculative and less reliable.

Also, some areas might have stringent zoning laws, environmental regulations or property taxes that affect property values considerably. In other regions, such regulations might be more lenient or applied inconsistently.

A valuer who is not fully aware of or does not properly account for these local legal or regulatory differences might produce valuations that fail to reflect true market conditions, leading to potential inaccuracies and reliability issues.

Following the Red Book Global Standards helps to mitigate these risks by ensuring a consistent, rigorous approach to valuations, regardless of local practices.

Moreover, the Red Book Global Standards provide a common language and framework, ensuring that all parties have a clear and accurate understanding of the asset's, business's or liability's value.

This uniformity simplifies the due diligence process, expedites transactions and minimises the risk of disputes.

• Understanding diverse markets: valuers must understand and account for the economic, legal and cultural nuances of the markets they operate in. This requires extensive research, and often collaboration with local experts to ensure that valuations are accurate and relevant. For example, dynamics in emerging economies may differ significantly from those in developed markets, affecting property values and valuation approaches. Moreover, many of the world's markets are opaque, with limited access to transactional information and market evidence.
• Keeping up to date with revisions: the Red Book Global Standards are revised periodically to reflect changes in the global market and advances in valuation methodologies, and valuers must stay informed about these updates and incorporate them into their practice. This requires ongoing education and a commitment to professional development. New IVS were published in January, featuring a revised structure with a new emphasis on environmental, social and governance factors, data use and valuation modelling. RICS is updating the Red Book Global Standards in response to this, with publication due later this year before the new requirements take effect on 31 January 2025.
• Integrating standards with local regulations: in some cases, local regulations may conflict with or diverge from the Red Book Global Standards; for instance, in respect of the basis of value to be adopted, the valuation methodology applied for certain valuation purposes, or specific reporting requirements. Valuers must navigate these discrepancies, ensuring that their valuations comply with both the Red Book Global Standards and those that apply locally. This can be challenging in jurisdictions with stringent regulatory requirements, or where local practices are deeply engrained.

• Continuous professional development: ongoing education and training are essential for valuers to stay familiar with the Red Book Global Standards and other relevant requirements. Professional development programmes, workshops and seminars can help valuers deepen their understanding of the standards and learn how to apply them in various contexts.
• Collaboration and networking: collaborating with other valuers, both locally and internationally, can provide valuable insights and support. Professional networks and associations such as RICS Matrics offer opportunities for knowledge sharing and collaboration, helping valuers navigate complex valuation scenarios.
• Prioritise legal compliance: legal requirements take precedence over professional standards, so valuers must adhere to local laws even if they conflict with RICS standards – see Part 1, section 9 of the Red Book Global Standards. However, valuers should still seek ways to align their work with RICS standards as closely as possible.
• Document the conflict: where local requirements and the Red Book Global Standards conflict, clearly document in the terms of engagement and the valuation report the nature of the conflict, including specific aspects of the local standards and RICS standards that are in disagreement. Provide detailed explanations of why certain standards were followed and how decisions were made to resolve the conflict.
• Using technology: advances in technology can help valuers apply the Red Book Global Standards more effectively. Valuation software, data analytics and other digital tools can streamline the valuation process, enhance accuracy and ensure compliance.
• Engaging with RICS and local regulatory bodies: valuers should engage with RICS and local regulatory bodies to stay informed about updates to standards and regulations and to seek help and guidance where needed. Participating in consultations and providing feedback can also inform the development of future standards, ensuring they remain relevant and practical. RICS ran a consultation on proposed changes to the Red Book Global Standards from 1 July to 2 August 2024. Members comments gathered during the consultation will be vital to shape the final version, which will be published later this year.

Members are obliged to adhere to the Red Book Global Standards and non-compliance can result in disciplinary action, including loss of RICS accreditation.

Following the standards will ensure that the valuation reflects global best practice, which is especially important for clients involved in international transactions or investments.

Adhering to local standards will meanwhile ensure that the valuation is relevant and accurate in context, addressing specific legal and market conditions.

The obligation to follow both the Red Book Global Standards and local valuation standards is not a matter of choice but a professional necessity.

By adhering to both, the valuer will ensure legal compliance, enhance their professional credibility, reassure their clients and manage risks effectively.