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Valuation Standards and the Red Book 14th April 2008 Moscow Andrew Renshaw FRICS Head of Valuation Jones Lang LaSalle, London. Why have Global Valuation Standards?. Valuers supply global clients: Banks, Investment Funds, Corporate Entities

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Valuation Standards and the Red Book

14th April 2008


Andrew Renshaw FRICS

Head of Valuation

Jones Lang LaSalle, London


Valuers supply global clients: Banks, Investment Funds, Corporate Entities

  • Clients need consistency of service wherever they operate worldwide
  • Real Estate is a global industry
  • National boundaries result in different legal requirements- but basic “rules of engagement” the same worldwide.

Effective performance measurement is a MUST

Investors and shareholders demand up-to-date information on

their assets

Valuation underpins:

Collective Real Estate investment vehicle – Increased frequency of revaluation- in some cases quarterly revaluation now in place

Financial reporting- Global financial reporting practices changing driven by fair value revolution (esp. US)

Banking-debt securitisation has led drive to revalue portfolios

Many other transactions such as company flotations (IPO)

Valuation of Increasing Importance


Public confidence in valuation is essential

Transaction volumes in European Real Estate markets (2007)

totalled Euro244bn

Most of this underpinned by valuations

Huge amounts of public and private equity

Robust standards must form the basis of public confidence

Trust and Public Confidence


RICS and Valuation

  • RICS represents 35,000 valuation professionals in 50 National
  • Associations worldwide
  • RICS is the world’s leading mark of quality in valuation: Education,
  • Standards, Regulation
  • Education: Rigorous entry requirements - 7 core areas of technical
  • expertise and 10 defined business competencies, demanding lifelong
  • learning
  • Regulation: Work of all members strictly regulated by these RICS
  • standards
  • Standards: “The Red Book”- fully compliant with International Valuation
  • Standards and constantly updated to reflect emerging practice,
  • Guidance on latest valuation methods, Global rules of conduct for
  • members and Firms

IVSC first established in 1981 by 2 states. Now contribution

from 50 member states

IVS sets the common governing definitions and principles

of valuation practice, that are increasing demanded by the


IVSC 8th Edition 2007 published August 2007

RICS Red Book reflects the requirements of the IVS

IVSC currently restructuring to provide standards for all

assets – tangible and intangible

International Valuation Standards




  • Originally introduced in 1974 the fifth edition came into effect on 1 May 2003 and the sixth edition on 1 January 2008 (including non-English language versions)
  • Contains global and local standards
  • Deals with practice standards and not methodology
  • Free to all RICS members online,,


Global Standards

  • The RICS Rules of Conduct were revised in 2007
  • Three new standards have been introduced to deal with the status and application of the Valuation Standards
  • Fair Value is introduced as a basis of valuation
  • The links with IVS, and international definitions have been strengthened by revising the standards to incorporate IVS definitions and applications
  • The format of the book has changed to make it smaller and easier to navigate

Reasons for the sixth edition (global)


TRANSLATIONS: Red Book is currently available online in Russian, Chinese, German and French. Soon to follow, translations in: Dutch, Spanish and Italian.

LOCALISATION: National Material will be added over time. This will be done in co-ordination with local standards setters wherever appropriate.

Developing the RICS Red Book Worldwide




Practice Statements (Global)

Guidance Notes (Global)

Practice Statements (National)

Guidance Notes (National)

RICS Red Book- The Structure


Purpose of the standards

  • International Valuation Standards (IVS)
  • Enforcement of the standards
  • Arrangement of the standards
  • Amendments and exposure drafts


contains only words and terms that are used in rics standards ivs definitions adopted
Contains only words and terms

that are used in RICS


IVS definitions adopted



PS 1. Compliance and ethical requirements

PS 2. Agreement of Terms of Engagement

PS 3. Bases of Value

PS 4. Applications

PS 5. Investigations

PS 6. Valuation reports

The Global Practice Statements


Global Practice Statements

PS 1 Compliance and ethical requirements



PS 1.1 Compliance with these standards

PS 1.2 Exceptions

PS 1.3 Departures

PS 1.4 Qualifications of the valuer

PS 1.5 Knowledge and skills

PS 1.6 Independence and objectivity

PS 1.7 Additional criteria for independence

Compliance with these standards – PS 1


The status of the standards

  • RICS’ national practice statements
  • Compliance with other valuation standards
  • Guidance Notes
  • Monitoring compliance with the standards

Compliance– PS 1.1


Exceptions – PS 1.2

Advice during litigation Arbitration and similar


During negotiations Internal valuations

Certain agency or brokerage work

Antiques, etc. separately valued

Departures – PS 1.3

Exceptions and departures


Valuations under Standards must have an appropriately qualified

  • member taking responsibility for them
  • Must have experience, knowledge, skills AND the ability to act
  • with independence and objectivity

Qualifying as a Valuer – PS 1.4 & 1.5


Achieved by valuer, (and the valuer’s firm) :

Complying with the Rules of Conduct

Acting with independence, integrity and objectivity

Maintaining confidentiality

Avoiding conflicts

Independence and objectivity – PS 1.6 & 1.7


Agreement of Terms of Engagement –PS 2

PS 2.1

Provides a list of matters that must be referred to in the Terms of Engagement



All valuations are subject to assumptions

No such thing as a “standard” assumption which

can be implied without being stated

Made where reasonable for a valuer to accept

something as fact without specific investigation

Terms of Engagement

all now recognised globally market value market rent worth and investment value fair value
All now recognised globally:

Market Value

Market Rent

Worth and Investment Value

Fair Value

Bases of Valuation – PS 3


Bases of Valuation - 1

  • International definition in Red Book since 1995
  • Market Value (PS 3.2)
  • DRC is a method of valuation NOT a basis
market rent definition modified market value with additional assumption
Market Rent


Modified Market Value with additional assumption

Bases of Valuation - 2


Worth and investment value

  • Definition:
    • Value specific to a particular party. It may differ from Market Value

Bases of valuation - 3


Fair Value

  • Definition:
  • May use assumptions that differ from MV

Bases of Valuation - 4


Extent of inspection and investigation (if any) depends on the terms of reference

  • Verification of information

Investigations – PS 5


Some important points:

  • Signatory must be an individual (Appendix 6.1.(s))
  • Simplified list of mandatory contents
  • Formal/Informal
  • Reports not certificates
  • Draft reports

Reports – PS 6

all opinions of value have a degree of uncertainty gn 5 valuation uncertainty
All opinions of value have a degree of uncertainty

GN 5 “Valuation Uncertainty”

Reports – Valuation Uncertainty - 1


Reports – Valuation Uncertainty - 2

  • Identifying Uncertainty
          • Nature of property or location
          • Restrictions on enquiries or information given
          • Method of valuation
          • Hope value
          • Legal changes
          • Market instability

Reports – Valuation Uncertainty - 3

  • Reporting Uncertainty
    • Research indicates that clients do not want a scientific
    • statement of uncertainty
    • Limited to drawing attention to the uncertainty, its cause,
    • and the degree to which it is reflected
    • Most valuations have to be a single figure
    • Consider sensitivity analysis

Reports – Valuation Uncertainty - 4

  • Uncertainty – WARNINGS
  • Make explicit comment on material uncertainty
  • The existence of material uncertainty is not a licence
  • to determine a valuation figure different from that
  • which represents the Valuer’s honest opinion

Guidance Notes

  • GN 1 Trade Related Property Valuations
  • GN 2 Plant & Equipment
  • GN 3 Valuations of Portfolios and Groups of
  • Properties
  • GN 4 Mineral Bearing Land and Waste Management
  • Sites
  • GN 5 Valuation Uncertainty

Things to remember about the Red Book……

It applies wherever you are practising

Compliant with International Valuation Standards

Reinforces the RICS’ Rules of Conduct

Ethical issues focus on independence and avoidance of conflict

Practice statements are specific numbered rule



To the RICS Russian Red Book Committee:

Igor Artemenkov FRICS (Chairman RICS Rossia)

Andrey Kuzmin (DTZ)

Alexander Yakovlev (DTZ)

Anna Sorokina (C&W)

Dmitry Romanov MRICS (JLL)

Robert Mayhew MRICS (JLL)

For Russian translation of RICS Valuation Standards (The Red Book):

Thank you ...


Introducing the RICS Red Book

Questions and Discussions