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Valuation > RED BOOK GLOBAL > Flashcards

RED BOOK GLOBAL Flashcards

1
Q

What are the changes to the new Red Book Global 2020?

A
  • “Red Book Global”
  • PS1: written valuations now include paper and electronic formats (financial modelling/ AVM)
  • PS2: professional scepticism (a questioning mind)
  • VPS 1: ref. to IVS 239 re non-financial liabilities
  • VPS 3: highlights importance of sustainability and the environmental matters in valuation
  • VPGA 1: (5) Performance Standards
  • VPGA 8: re sustainability impacts on value “only where existing market evidence would support this”
  • VPS 5/ VPGA: updated to wording and cross-ref. IVS 220
  • PART 6: reproduction of IVS 220
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2
Q

What parts of the Red Book Global apply under the ‘exceptions’?

A

Only VPS 1-5

There are no exemptions to compliance with PS 1 and PS 2

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3
Q

What are the areas of exception to compliance with VPS 1-5?

A 
AGENCY
LITIGATION / NEGOTIATION
INTERNAL PURPOSES ONLY
EXPERT WITNESS VALUATION
STATUTORY FUNCTION
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4
Q

What does Statutory Function relate to?

A

Where members perform statutory roles/ duties where these statutory provisions will typically define the task and govern the manner in which is it to be carried out (normally involving the formal appointment of an individual to that specific role) e.g. providing a valuation for inclusion in a statutory tax return (to a tax authority)

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5
Q

What is the purpose of the Red Book Global?

A

CONSISTENCY

OBJECTIVITY

TRANSPARENCY

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6
Q

What is defined as a written valuation?

A

Written valuations include both paper and electronic or digital forms (including financial models/ AVM outputs)

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7
Q

Must oral valuations comply with VPS 1-5 ?

A

Yes - valuers providing oral valuation advice must comply with the same requirements as those for written valuations

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8
Q

What does VPS stand for?

A

Valuation Technical and Performance Standards

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9
Q

What are PS 1 and PS 2?

A

PS 1: Compliance with standards where written valuations are provided

PS 2: Ethics, Competence, Objectivity and Disclosures

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10
Q

What are VPS 1-5?

A

VPS 1: ToE

VPS 2: Inspections, Investigations, Records

VPS 3: Valuation Reports

VPS 4: Bases of Value, Assumptions, Special Assumptions

VPS 5: Valuation Approaches and Methods

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11
Q

Is an Replacement Cost Assessment (RCA) provided for insurance purposes considered to be a written opinion of value?

A

No

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12
Q

What does VPGA stand for?

A

Valuation Practice Guidance Applications

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13
Q

Which part of the Red Book Global relates to accounts valuations?

A

VPGA 1

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14
Q

Which part of the Red Book Global relates to secured lending valuations?

A

VPGA 2

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15
Q

Which part of the Red Book Global relates to sustainability and environmental factors influencing value?

A

VPS 3 (Valuation Reports) and VPGA 8 (Valuation of Real Property Interests)

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16
Q

Which part of the Red Book Global includes factors influencing value to look for on inspection?

A

VPGA 8: Valuation of Real Property Interests

17
Q

What is arguably the most relevant part of the Red Book Global in recent times?

A

VPGA 10: Matters that give rise to material valuation uncertainty

18
Q

What does VPGA 10 recommend?

A
  • Reports must not be misleading or create a false impression
  • The valuer should expressly draw attention to and comment on the issues relating to material uncertainty as at the valuation date
  • Standard caveats should not be used
  • No ranges of likely values should be given. Only one single value stated.
19
Q

What does VPGA 8 prescribe regarding reflecting sustainability implications on value?

A

This should be reflected in the value only where:

  • there is existing evidence to support this impact
  • valuer considers it likely that potential bidders would reflect these matters in their bids.
  • When valuing on the basis of investment value / worth and these matters could influence investment decisions
20
Q

Under VPGA 2, what additional criteria may some lenders require of a valuers independence?

A

“INDEPENDENT Valuer”

Independent Valuer: no previous, current or anticipated involvement with the (prospective) borrower, asset, or any other connected party within 2 years preceding the date of instruction or date of ToE (whichever is earlier)

21
Q

What is the difference between an Internal Valuer and an External Valuer?

A

Internal:

  • Employed by firm to value their assets
  • Values for internal purposes only
  • Not to be relied upon by 3rd parties

External:
- Has no material links with the asset to be valued or the client

22
Q

Under IVS 105, what are the principle valuation approaches?

A
  1. Market (Comparable method)
  2. Income (Investment, Residual and Profits method)
  3. Cost (DRC method)
23
Q

What does the Red Book Global require of terms of engagement?

A

To include, at a minimum:

  1. Name and status of valuer
  2. Name of client
  3. Identify any other intended users
  4. Property address *(2017)
  5. Valuation currency *(2017)
  6. Purpose
  7. Basis
  8. Valuation date
  9. Fee basis
  10. Nature and source of info to be relied upon
  11. Extent of investigations
  12. PII *(2017)
  13. CHP
  14. Format of report
  15. Assumptions/special assumptions
  16. Restrictions on use/distribution/publication
  17. Confirmation of IVS compliance
  18. Statement that valuation may be subject to RICS monitoring
24
Q

What is an assumption?

A

Matters that can reasonably be accepted as fact without verification

25
Q

What is a special assumption?

A

Assumes matters that differ from actual facts existing at the valuation date, or that would not be made by a typical market participant at the valuation date

26
Q

Are desktop valuations allowed?

A

Restricted information valuations (Without inspection) should only be undertaken where the valuer is satisfied that there have been no material changes to the property since their last valuation, that would impact value
- these terms must be stated in the ToE and report

27
Q

Can valuers undertake desktop valuations where there have been material changes to the property?

A

Yes as long as the valuation is agreed to be for:

  • internal purposes only
  • not to be published/disclosed with 3rd parties
  • client accepts responsibility for the associated risk
28
Q

When undertaking a restricted information valuation (desktop), what factors should the valuer consider/ensure are agreed?

A
  1. nature of restriction to be agreed in ToE
  2. possible valuation implications of the restriction to be confirmed in writing before value is reported
  3. is the restriction reasonable in the context of the valuation purpose?
  4. refer to restriction within the report
29
Q

What does the Red Book Global recommend for the contents of a valuation report?

A

Reports should include, as a minimum:

  1. Name and status of valuer
  2. name of client
  3. Asset being valued
  4. Valuation date
  5. Date of report
  6. Purpose
  7. Basis
  8. Approach/method
  9. Assumptions/special assumptions
  10. Extent of investigations
  11. Nature and source of info being relied upon
  12. Value
  13. Confirmation of IVS compliance
  14. Restrictions on use/distribution/publication
  15. Comment on material uncertainty
  16. PII
30
Q

What are the additional reporting requirement for loan security valuations?

A
  • disclosure of any previous, anticipated, or current involvement (confirm ‘independent valuer’) or lack thereof
  • valuation method adopted and calculation used
  • where there has been a previous transaction involving the property, the extent to which this price/value has been accepted as evidence of value
  • suitability for loan security
  • other factors that could impact value
  • ref. to environmental/sustainability matters
  • (special assumptions) any material diff. between the two values

N.B. Typically asked for an assessment of covenant strength, and VPV/ valuation on assumption of restricted marketing/forced sale

31
Q

Does Market Value account for any alternative use value?

A

Yes, under IVS, Market Value is to reflect the highest and best use of an asset that maximises its potential and is legally and financially feasible.

Valuation (3 decks)

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