What is a Red Book valuation?
Red Book Global Standards are a set of mandatory standards for Royal Institution of Chartered Surveyors (RICS) members providing written valuations. The aim of the rules and guidelines is to produce valuations that can be trusted—so property owners can have confidence that an RICS valuation is done to the highest standard. Chartered Surveyors and RICS Registered Valuers must follow the Red Book valuation guidelines when carrying out valuations.
Red Book valuations are also known as RICS valuations. They do not instruct an RICS member on how to value an individual property.
What's in a Red Book valuation?
At a minimum a Red Book valuation will identify the asset and confirm the purpose of the valuation (e.g. for a mortgage application, inheritance tax calculation, etc.). While the standards do not prescribe a specific format for reports, valuers are advised to include the following headers to ensure a report that is fit for purpose:
- Identification and status of the valuer. An individual valuer or member of a firm must be named; a valuation cannot be prepared by a firm.
- Identification of the client and any other intended users. This can include property owners, banking institutions, solicitors, accountants, etc.
- Purpose of the valuation. The report must not be unambiguous but instead state the purpose of the valuation (e.g. )
- Identification of the asset(s) or liability(ies) valued. Providing clarity over other assets, fractional interest in assets, portfolios of assets, etc.
- Basis(es) of value adopted. The basis of value and its definition must be stated in full in the report.
- Valuation date. This may differ from the date that the valuation report is issued.
- Extent of investigation. Should reflect limitations on those investigations set out in the terms of engagement (scope of work); should record the date and extent of any inspection, including mention if parts of a property were not available for inspection.
- Nature and source(s) of the information relied upon. Disclosure of the nature and source of any relevant information used in the valuation process and the steps taken to verify the information, including if any non-verifiable information was provided by the commissioning party.
- Assumptions and special assumptions. Assumptions used to arrive at a valuation must be clearly stated.
- Restrictions on use, distribution and publication of the report. Note, 'publication’ does not providing the report or the valuation to a mortgage (lending) applicant or borrower.
- Confirmation that the valuation has been undertaken in accordance with the IVS. Confirmation that the valuation is in accordance with the International Valuation Standards (IVS) or the RICS Valuation – Global Standards.
- Valuation approach and reasoning. Identification of the valuation methods used, the key inputs and the reasons a method was chosen.
- Amount of the valuation or valuations. Included in the main body of the report in words and figures, using the appropriate currency.
- Date of the valuation report. This may differ from the date of the valuation.
- Commentary on any material uncertainty in relation to the valuation where it is essential to ensure clarity on the part of the valuation user. Required only when the degree of uncertainty in a valuation is material—that is, it falls outside of any normal or expected levels of uncertainty.
- A statement setting out any limitations on liability that have been agreed. For more information read about professional indemnity insurance coverage for RICS members here.
Who needs a Red Book valuation?
Red Book valuations can be requested by property owners, solicitors, accountants and banking institutions. Here are some examples of when a Red Book Valuation might be required:
- Secured Lending. e.g. for banks and mortgage providers to ensure a property used as collateral is sufficient to cover a mortgage.
- Legal proceedings. e.g. in the case of divorce to value assets.
- Tax calculations. e.g. for the purposes of inheritance tax calculations.
Terms of Engagement
The terms of engagement ensure both the valuer and the commissioning party agree on the scope of work at the beginning of a valuation, to ensure the client's needs are being met. It should include clearly convey (in language the client will understand) the valuation requirements and processes that will be used to arrive at the valuation. Written terms of engagement are required for all valuation work.
According to Red Book standards, terms of engagement must address the following:
- a. Identification and status of the valuer
- b. Identification of the client(s)
- c. Identification of any other intended users
- d. Identification of the asset(s) or liability(ies) being valued
- e. Valuation (financial) currency
- f. Purpose of the valuation
- g. Basis(es) of value adopted
- h. Valuation date
- i. Nature and extent of the valuer’s work – including investigations – and any
- limitations thereon
- j. Nature and source(s) of information upon which the valuer will rely
- k. All assumptions and special assumptions to be made
- l. Format of the report
- m. Restrictions on use, distribution and publication of the report
- n. Confirmation that the valuation will be undertaken in accordance with the IVS
- o. The basis on which the fee will be calculated
- p. Where the firm is registered for regulation by RICS, reference to the firm’s
- complaints handling procedure, with a copy available on request
- q. A statement that compliance with these standards may be subject to
- monitoring under RICS’ conduct and disciplinary regulations
- r. A statement setting out any limitations on liability that have been agreed.
What's the latest Red Book version?
The latest edition of the RICS ‘Red Book Global’ took effect from 31 January 2020. This edition applies to all valuations where the valuation date is on or after 31 January 2020. A new edition is typically published every 2 to 3 years.
How long does a Red Book valuation last?
Typically a Red Book valuation is good for three months. However, in some circumstances a Red Book valuation can be extended, so long as the request is made within two weeks of the end of the initial three-month period.
How much is a Red Book valuation?
RICS does not publish a schedule of recommended fees, so costs will vary from one Chartered Surveyor or Valuer to the next. However, it's unusual to get a Red Book valuation for under £500 and many start from £1,000.
Do I need a Red Book valuation for insurance?
Depending on the value of a property and its use (e.g. commercial or residential) an insurance underwriter might request a Red Book valuation to get an accurate figure. While Red Book valuations commonly use market value to determine a valuation, keep in mind the market value is not the figure a property owner uses when buying insurance. Insurers care about the rebuild cost, not the market value. Market value reflects the value of the land; rebuild cost does not and is therefore lower. So Red Book valuations that will be used for calculating the rebuild cost for insurance must cover the reinstatement value as well.