The Royal Institution of Chartered Surveyors (RICS) recently announced significant changes to the Red Book UK National Supplement, effective from 1 May 2024. This update reflects the evolving property market landscape and aims to enhance transparency, consistency, and address concerns raised in the Valuation Review. Let's delve deeper into these critical changes:
- Addressing Sustainability:
Integration of ESG (Environmental, Social, and Governance) factors: Recognizing the growing importance of sustainability in property value, valuers are now mandated to consider ESG factors within their valuation methodology and reasoning. This ensures that property assessments account for potential environmental risks, social responsibility aspects, and corporate governance practices, providing a more comprehensive picture of an asset's value.
- Projecting Values with Clarity:
New procedures for providing projected values: The updated guidance clarifies the process for valuers to offer projections of future value. This requires explicit consent from the client and necessitates clear disclosure of any limitations, assumptions, and disclaimers associated with the projection.
- Enhancing Residential Property Valuations:
Specific guidance for residential valuers: The revised supplement offers dedicated guidance for valuers dealing with residential properties. This includes, but is not limited to, considerations for different property types, local market conditions, and valuation methodologies specific to the residential sector. Additionally, interim guidelines for valuations conducted for mortgage purposes are being introduced, ensuring consistency and transparency in this crucial aspect of the property market.
- Ensuring Independence and Reducing Conflicts:
Mandatory Valuer Rotation Policy: A significant change is the introduction of a mandatory rotation policy for regulated purpose valuations (valuations relied upon by third parties). This policy stipulates a maximum term of 5 years for an individual valuer and 10 years for a valuation firm working on the same property. This aims to mitigate potential conflicts of interest and promote greater objectivity in the valuation process.
- Land and Building Apportionment:
Introduction of hypothetical apportionment methods: The update provides valuers with standardized methods for apportioning the value of a property between land and buildings. This includes using prevailing land values, depreciated replacement cost (DRC) of the building, and a percentage-based approach.
- Streamlining Valuation Reporting:
Focus on primary valuation approach: Valuers are no longer obligated to present alternative valuation methods unless specifically requested by the client. However, any significant deviations from the market value must be clearly disclosed within the valuation report.
- Public Sector Valuations under IFRS:
Shifting the basis of value in the public sector: For public sector entities reporting under International Financial Reporting Standards (IFRS), the update specifies that the basis of value for existing use valuations should be "Existing Use Value" (EUV) instead of "fair value" as mandated by IFRS 13. This aligns with the specific context of public sector assets and ensures a more appropriate valuation approach.
The RICS Red Book UK Supplement 2023 reflects the institution's commitment to maintaining high professional standards and adapting to the dynamic property market. These changes promote transparency, address potential conflicts of interest, and encourage the integration of sustainability considerations into property valuation.
Please Note: This article provides general information and does not constitute professional advice. Please consult with a qualified RICS Chartered Surveyor for specific property-related concerns.
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