The RICS Red Book is undergoing significant changes to align with the new International Valuation Standards (IVS) published in January 2024, which will become effective in January 2025. These proposed updates are set to include a revised structure, enhanced focus on ESG data, valuation modelling, and a series of administrative adjustments. Below, we outline the key themes and changes to help valuation professionals prepare for the updates.
Integration and Alignment with IVS:
To maintain consistency with the latest IVS, the Red Book will see several structural changes, particularly around mandatory Valuation Technical and Performance Standards (VPS). The number of VPSs has been increased from five to six:
- VPS 1 remains unchanged.
- VPS 2 has been renumbered to VPS 4.
- VPS 3 is now VPS 6.
- VPS 4 becomes VPS 2.
- VPS 5 has been split into two parts: VPS 3 for valuation approaches and methods, and a new VPS 5 dedicated to valuation models.
Technology and AI:
The updated standards in PS 1 reinforce compliance requirements where a written valuation is provided. While AI is not prohibited, the valuer’s professional judgement remains central to producing a compliant valuation. Emphasising good documentation, transparency, and ethics, the Red Book acknowledges the growing role of technology while maintaining the integrity of professional valuations.
Enhanced Focus on ESG:
ESG considerations have been part of the Red Book since 2012, with mandatory standards introduced in 2014. The 2024 update further integrates ESG by defining a performance framework to measure objectives aligned with sustainability goals. Key changes include:
- Mandatory consideration of ESG within the scope of work and mirrored in reporting standards.
- Specific ESG considerations at the asset level, including the analysis and adjustment of comparable evidence.
- A data and inputs appendix on ESG, offering an overview of key criteria.
Random Fact: The number of ESG references has grown from 28 to 59, reflecting the increasing importance of sustainability in valuations.
Financial Reporting and New Guidance Notes:
The rewrite of VPGA 1 now includes expanded guidance on relevant international financial reporting standards such as IFRS 13, IAS 16, IAS 40, IFRS 16, and the newly introduced IFRS S1 and S2, which relate to sustainability and climate disclosures. The aim is to balance UK-specific guidance with broader international coverage, supporting valuers in navigating global standards and addressing the growing importance of auditors in the valuation process.
VPGA 2 – Valuations for Secured Lending:
Administrative changes include a slight title modification and the removal of repetitive content. A stronger focus on conflicts of interest in the context of secured lending has been introduced, along with new content on taking instructions and disclosures.
References to master service agreements provide clarity on when separate terms of engagement are required. New ESG-related content includes examples of special assumptions around assets meeting energy efficiency and net-zero targets.
VPGA 10 – Material Valuation Uncertainty:
The updated guidance clarifies the distinction between material valuation uncertainty and the general uncertainty inherent in all valuations. It provides practical advice on when it may be appropriate to include or remove material valuation uncertainty declarations.
Next Steps in the Update Process:
These proposed changes to the Global Red Book are currently under review. Feedback collected during the consultation period will be considered by the global valuation standards expert working group before final approval by the Knowledge and Practice Board. The standards will then undergo further scrutiny by RICS to ensure alignment with public interest processes.