• Blog
  • Process
  • FAQ
  • Contact
  • Agent Login
  • Surveyor Login
  • Homebuyer Login
  • RICS Red Book Valuation

    25th April 2018

    RICS Red Book Valuation

    RICS Valuation – Professional Standards (the ‘Red Book’) contains mandatory rules, best practice guidance and related commentary for all members undertaking asset valuations to ensure that the valuation you receive is as accurate as possible and contains all the information required for the different valuation types that exist.

    Get Quotes

     

    Different Reasons for Valuations

    1. Valuations for Property Purchase

    Prepared in accordance with the guidelines set out in the RICS Red Book, this type of report contains brief comments on the condition of a property and may recommend that a further survey (such as a Level 2 Homebuyer Report or Level 3 Building Survey). The Valuer determines if you, the buyer, are purchasing the property for what they consider to be a reasonable market price.

    The report must adhere to the following RICS rules and guidelines:

    a. The Surveyor must be registered with RICS (associate member AssocRICS, a Member (MRICS), or a Fellow (FRICS). They must additionally be a RICS Registered Valuer.

    b. The Surveyors must provide 3 comparable properties to justify the valuation. Each property must have been sold within the past 6 months, be within the same area and be similar to the property being valued.

    c. The valuation is valid for 3 months but can be extended if requested. This request must be within 2 weeks of the 3 month valuation expiring. This is to allow for the fact that the market values are not static and move over time as supply and demand change.

     

    2. Inheritance Tax and Probation Valuations

    In order to calculate the inheritance tax that is due on a persons estate when they die, it must be valued professionally. A probate valuation provides an accurate reflection of what the property in question would sell for on the open market on the date that the owner died. Again, it is prepared in line with the RICS Red Book Guidelines.

    A valuation by a RICS Registered Valuer will be accepted by HM Revenue and Customs. An estate agents valuation, on the other hand, is not suitable as these valuations are suggested as a price at which a property should be marketed.

    It should be noted that HMRC can challenge a valuation report if they believe it to be too low (reducing the tax that is owed) and can request that your Valuer justifies their reasoning via site inspection notes and comparable property sales.

     

    3. Shared Ownership and Equity Release Valuations

    Many properties have been purchased through schemes such as the Help to Buy Scheme. In such cases individuals have agreed to either part own / part rent their property. In the case of equity release individuals have taken out an equity loan against part of their property. In both cases, when the property is sold, a RICS Red Book Valuation is required to establish the current market value at which the property must be sold.

     

    4. Matrimonial Valuations

    During the legal separation of a couple, the assets owned by both parties need to be valued in order to establish the total value of assets held before deciding how these assets should be split. More often than not this includes property. A valuation report provides the market value of a property at a given date. A RICS Red Book Valuation is of particular importance when the valuation is required for formal court proceedings.

     

    5. Court Proceedings

    In any instances where a property valuation is required during court proceedings a RICS Red Book Valuation is required. This report must adhere to Civil Procedure Rules (rules set out for expert witness and assessors).

     

     

    Does a Mortgage Valuation follow these guidelines?

    In short, it doesn’t need to. A lender (such as a bank) requests a surveyor assesses the property so that they can determine if it is safe to lend the requested amount of money. The lender needs to know that the property is a safe asset to lend against and they can recover their loan should the borrower default.

    Whilst each bank has their own criteria, they will all follow relatively similar guidelines.

    As the mortgage valuation is only for the lender to assess that they can recover their loan value if needed, it is recommended that you get your own valuation as part of a Homebuyer Report or Building Survey.

     

    Methods of Valuing a Property

    There are five methods in which a property valuation can be made which are recognised across the world.

    a. Comparative Method

    Using this technique, the property being valued in compared with similar properties in the area. For residential purchasers this is the method you are most likely to see with three comparable properties presented to justify your valuation.

     

    b. Investment Method

    This method is most commonly used for commercial valuations and HMO valuations. It uses discounted cash flow techniques to establish the value through the income produced through the asset (e.g. via rents).

     

    c. Residual Method

    Most suited to establishing the value of development sites (land). It considers the cost of developing the land in question as well as the final gross developing value to assign a current value on the land.

     

    d. Profits Method

    Most suited to valuing a business premises such as a hotel, cinema or restaurant.

     

    e. Replacement Cost Method

    A method generally used for more unusual buildings where there is little comparable evidence (method a) such as churches or schools. The valuation is made up of the cost of the land and the cost of rebuilding the structure.

     

    Get Valuation Quotes Now