by Jen Lemen
RICS Alert - Summer 2017 Red Book Update
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Our RICS Alert blog series provides you with the latest updates on professional standards and guidance.
This blog article will focus on what you need to know as a valuer about the latest update to RICS Valuation - Global Standards 2017 (otherwise known as the Red Book).
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Why is this relevant?
In simple terms, if you provide written property valuations then you need to know all about the Red Book. If you don't, you leave yourself open to potential professional negligence claims.
In this blog, we will consider the following:
- What is the Red Book?
- Do I have to follow it?
- When does the new version apply from?
- Why were the changes made?
- What changes have been made?
- Top tips for good valuation practice
Relevant RICS APC competencies:
- Conduct rules, ethics and professional practice
What is the Red Book?
The Red Book is the valuer's best practice bible. It aims to:
- Provide consistency, objectivity and transparency
- 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
However, the Red Book does not instruct valuers how to value - it instead provides the framework for valuation to which each individual valuer will apply their own skills and experience.
Do I have to follow it?
Any member providing a written valuation must comply with the mandatory standards of the Red Book. Some guidance is only advisory, i.e. Valuation Practice Guidance Applications (VPGAs) - although this mainly relates to specific valuation applications and types of asset.
Essentially, if a professional negligence claim is brought against you, following the RICS standards may provide you with a partial defence.
When does the new version apply from?
1 July 2017.
Why were the changes made?
- To accord with the latest International Valuation Standards (IVS) 2017
- To take account of public consultation which produced over 120 responses on the draft documentation
- To reflect the latest international standards for ethics (including conflicts of interest) and for measurement
- To recognise the importance of sustainability as a market factor
- To ensure that RICS members remain at the forefront of the field of valuation
What key changes have been made?
- Introduction - what is mandatory and what is advisory has been made clear
- Glossary - updated to reflect changes to IVS
- PS1 - additional explanation in relation to the 5 exceptions (e.g. purely for internal purposes), plus clarification on when departures may arise in relation to VPS1-5
- PS2 - requirement for appropriate Terms of Engagement where VPS1 is not mandatory
- VPS1 - difference between reliance on information and making of an assumption clarified
- VPS2 - awareness of sustainability factors raised, but the matter is still left to the valuer's judgement rather than prescriptive requirements being stated
- VPS3 - special assumptions must now also be stated in any executive summary, as well as in the body of the report. Clarification around when a comment on material uncertainty needs to be made (see detailed guidance in VPGA10)
- VPS4 - clarification over forced sales. This is not a basis of value, but a specific situation under which a transaction takes place
- VPS5 (new) - commentary relating to valuation approaches and methods, although the emphasis is on the valuer to adopt and justify use of the most appropriate method
- VPGAs - some minor changes relating to specific valuation and asset types
Top tips for good valuation practice
- Be familiar with the Red Book and understand what you need to do
- Understand the difference between an assumption and a special assumption
- Ensure you know what to include in your Terms of Engagement and within your valuation report
- Reflect specific guidance (in VPGAs) relating to your valuation or asset type within your valuation report
- Check prudently for conflicts of interest and know what to do if you identify one
- Ensure you include sufficient justification within your report and supporting appendices
- Keep your file notes in good order and archive them safely and securely for future reference
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