Applying Red Book outside of the UK

For the most part, this guide has discussed the application of the Red Book to the UK. However, RICS is a worldwide institution and the standards should be applied globally. While the Red Book is IVS compliant, it can cause apparent conflicts with local legal or practical requirements in some countries or special provisions are required in certain instances.

In all countries, the Global Standards will apply but they may be modified or extended by local standards and guidance for specific countries.

The Red Book recognises that local statute or regulation may have specific requirements that expand the global standards and that such requirements may be the subject of other valuation standards (PS 1 paragraph 4) or RICS national association valuation standards (PS 1 paragraph 5).

PS 1 paragraph 4, Other valuation standards

‘4.1 RICS recognises that a member may be requested to provide a report that complies with standards other than these professional standards and valuation practice statements. This will normally arise in relation to the particular requirements that apply within individual jurisdictions.

4.2 In these cases a statement must be included in the terms of engagement and the report (VPS 1 paragraph 9(k) … and VPS 3 paragraph 7(k) …) that:

• the named standards have been complied with;
• the valuation will also comply with the Red Book; and, if appropriate,
• the valuation will also comply with IVS.’

PS 1 paragraph 5, RICS national association valuation standards states:

‘5.1 RICS national association valuation standards have mandatory status in the countries or states to which they apply and are intended to supplement the relevant global valuation standards to meet local statutory or regulatory requirements where these are not embodied in a self-contained set of standards of the type envisaged in paragraph 4 above.

5.2 Where the valuation involves assets in 2 or more countries or states with different valuation standards, the member must agree with the client which standards will apply to the instruction.’

In the same way that RICS produces UK-specific valuation standards (UKVS), valuation appendices (UKVA) and valuation practice guidance notes (UKGN), specific standards and guidance are gradually being published for other countries throughout the world.

Where they exist you are advised to read them carefully before carrying out any valuations in the country. To provide an example of how the standards might be modified in other jurisdictions, some examples of guidance in preparation at the time of writing this guide are as follows.

Brazil

In Brazil the Federal law requires valuers to comply with the standards of Associao Brasileira de Normas Técnicas (ABNT). Accordingly, the RICS Valuation Professional Group Brazil has developed these national standards (BRVS) to assist RICS members on the application of the Red Book to valuations that have to be provided in compliance with Brazilian jurisdiction.

The requirements do not represent major differences, although it should be particularly noted that the ABNT definition of market value is:

‘the most likely amount for which an asset would be traded, voluntarily and consciously, on a specified reference date, in accordance with existing market conditions.’

Although it differs from the international definition, it is considered to be effectively the same insofar as value is concerned.

It also imposes certain restrictions and requirements regarding analysis of comparable evidence.

The market data should be analysed to be compatible with the valuation method chosen and the assessment of value should be done in accordance with the method of valuation that is most suitable to the market for that asset and the treatment of the market data, reflecting:

1. rounding the final valuation figures, providing the end result does not exceed 1% of the initial estimate, up or down;
2. an indication of the price span admissible in relation to the final valuation figure, providing the correspondent probability is indicated;
3. In accordance with the objective of the valuation the valuer should analyse the market of the asset being valued and state in the report its liquidity and, when possible, the structure, the behaviour and the performance of that market.

Canada

RICS has produced RICS Red Book Canadian Jurisdictional Applications (CANGN 1) because the Appraisal Institute of Canada publishes its own standards in compliance with IVS, known as Canadian Uniform Standards of Appraisal Practice (CUSPAP). Any Red Book valuation carried out in Canada also has to comply with CUSPAP.

The guidance mainly relates to slight differences in terminology (e.g. ‘appraisal’ or ‘valuation’; ‘appraiser’ or ‘valuer’; ‘assignment or instruction’; etc.) or interpretation (e.g. ethics standards vary slightly although the overall concepts and result are similar).

The 2 main differences appear to be that in accordance with CUSPAP:

• when a basis of value (definition of value) is prescribed by law or regulation in a valuation assignment provided in Canada and that basis is different than those recognised in the Red Book, no further explanation other than compliance with the particular law or regulation, or description of the difference, is required of the valuer; and
• the requirement that in regards to exceptions, full compliance to CUSPAP is required whether the appraisal or valuation related advice is provided in written format or orally, regardless of the client’s intended use.

In Canada, as in many countries, valuers have to be locally registered or licensed to practise.

France

It is a mandatory requirement that valuers in France must comply with the Charte de l’Expertise en Evaluation Immobilière which defines the duty of property valuers in France. Although there are no major differences making the Red Book incompatible with the Charter, there are some technical aspects specific to the French real estate market.

For example, regulated purpose valuations such as valuations for L’organismes de Placement Collectifs en Immobiliér (OPCIs) – an unquoted investment vehicle mainly comprising real estate – are required to enable the OPCI to publish the net asset value at least once every 6 months. In this example they have to be carried out under specific rules under the French Code monétaire et financier and various AMF rules 4 times a year by 2 valuers, one providing the valuation and the other reviewing it.

Specific guidance also covers:

• valuers’ duties and qualifications;
• valuation methodologies – some are specific to the French market;
• valuation instructions and due diligence;
• ethics and independence; and
• impact of sustainable development on valuations – there is no equivalent in the Red Book.

USA

The guidance note, Application of RICS Valuation – Professional Standards in the United States provides guidance on the effect of US jurisdiction on the applications in particular, Uniform Standards of Professional Appraisal Practice (USPAP) in the ‘Yellow Book’.

Much of it, including the terminology for valuations, valuers, etc. application to valuations, whether oral or written, is similar to that described above for Canada. The adjustments and amendments required to comply with USPAP are not major but require some adjustment to the scope of work (the US term for terms of engagement) including:

• stating that it is USPAP compliant;
• there is provision for future valuation dates (subject to specific assumptions and conditions);
• some elements relating to investigations relating to business valuation and intangible asset valuation assignments do not apply in the US jurisdiction; and
• when reporting the type of report in accordance with USPAP must be clearly labelled.

At the time of writing this guide (December 2013) the current USPAP relates to the 2012 edition of the Red Book but this will, no doubt, be updated in the near future. The principles should be unchanged and it will mainly be a change of references as the current edition refers to VS 1–6, which have been superseded in the latest edition of the Red Book by PS and VPS designations.

General

In general, RICS valuers would not be expected to provide any lesser service than is required to comply with the Red Book requirements.

For the above-mentioned countries only an outline of requirements is given and these are chosen solely as examples of additional guidance provided to members by RICS. When carrying out valuations in countries outside of the UK, you are advised to contact RICS to obtain a copy of the latest guidance for the particular country where the property is located, to ensure compliance with local standards. For example, Application of the RICS Valuation – Professional Standards for Germany and France, respectively, should be published in the near future, having both been published as drafts with consultation periods ending in November 2014.