RICS Assessment of Professional Competence (APC) Valuation Syllabus

Valuation syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Valuation in RICS Assessment of Professional Competence (APC), not a summary of it.

1. 1

   Valuation Standards and Governance

   5 topics

   • RICS Valuation - Global Standards (Red Book Global)
     • Mandatory and advisory professional standards (VPS/VPGA)
     • IVS alignment and compliance
   • Terms of engagement and scope of work (VPS 1)
   • Bases of value and assumptions (VPS 4)
     • Market value, market rent, fair value and investment value
     • Special assumptions and special purchasers
   • Valuation reporting requirements (VPS 3)
   • Independence, objectivity and valuer rotation
2. 2

   Valuation Approaches and Methods

   6 topics

   • The comparable method and analysing evidence
     • Hierarchy of evidence and zoning of retail units
     • Adjusting comparables for differences
   • The investment method and yield analysis
     • All risks yield, term and reversion
     • Hardcore/layer and equivalent yield techniques
   • Discounted cash flow (DCF) modelling
     • NPV, IRR and discount rate selection
   • The profits (accounts) method
   • The residual method for development appraisal
     • Gross development value and developer's profit
   • The depreciated replacement cost (contractor's) method
3. 3

   Valuation Mathematics and Inputs

   4 topics

   • The six functions of one (compounding and discounting)
   • Years' Purchase, single rate and dual rate
   • Capitalisation, deferment and growth assumptions
   • Treatment of incentives, voids and reviews
4. 4

   Specialist and Statutory Valuations

   5 topics

   • Secured lending valuations and conflicts (VPGA 2)
   • Valuation for financial reporting (VPGA 1)
     • Fair value under IFRS 13
   • Valuation for taxation purposes
     • Inheritance tax, capital gains tax and SDLT
   • Insurance reinstatement cost assessment
   • Compulsory purchase and statutory compensation basics

Valuation flashcards for RICS Assessment of Professional Competence (APC)

18 of 71 cards from the Valuation deck — real questions with worked answers.

1. What is the "Red Book Global" and what is its purpose?

   The RICS Valuation - Global Standards. It sets out mandatory professional and ethical standards plus implementation guidance for RICS members undertaking valuations, to ensure consistency, transparency, objectivity and high-quality, credible valuations worldwide.

2. What are the two main parts of mandatory standards in the Red Book Global?

   The Professional Standards (PS 1 and PS 2) and the Valuation Technical and Performance Standards (the VPS, numbered VPS 1 to VPS 5). VPGAs (Valuation Practice Guidance Applications) are advisory, not mandatory.

3. List the five Valuation Technical and Performance Standards (VPS 1-5) in the Red Book.

   VPS 1 - Terms of engagement (scope of work); VPS 2 - Inspections, investigations and records; VPS 3 - Valuation reports; VPS 4 - Bases of value, assumptions and special assumptions; VPS 5 - Valuation approaches and methods.

4. Under the Red Book, what is the difference between the IVS-recognised valuation approaches and methods?

   There are three approaches: the market approach, the income approach and the cost approach. Each approach contains specific methods (e.g. comparable, investment/DCF, residual, profits, depreciated replacement cost).

5. Under VPS 1, what minimum matters must be confirmed in the terms of engagement before a valuation is undertaken?

   At least: identification of valuer and client, intended users, asset/liability valued, currency, purpose, basis of value, valuation date, extent of investigation, sources of information, assumptions/special assumptions, format of report, restrictions on use, confirmation Red Book applies, basis of fees, and reference to complaints handling/PII/limitation of liability.

6. Under VPS 4, define "Market Value" as adopted by RICS from the IVS.

   "The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion."

7. Under VPS 4, define "Market Rent".

   "The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion."

8. Under VPS 4, define "Fair Value" (IVS definition) and note the IFRS distinction.

   IVS Fair Value: "The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties." For financial reporting, IFRS 13 Fair Value is treated as generally consistent with Market Value.

9. Under VPS 4, define "Investment Value" (Worth).

   The value of an asset to a particular owner or prospective owner for individual investment or operational objectives. It is entity-specific and may differ from Market Value because it reflects that party's own assumptions, finance and tax position.

10. Under VPS 4, what is the difference between an "assumption" and a "special assumption"?

    An assumption is a matter reasonably accepted as fact without specific investigation. A special assumption assumes facts that differ from those existing at the valuation date, or that would not be made by a typical market participant (e.g. valuing as if a planning consent had been granted).

11. Under VPS 3, what are the minimum contents required in a valuation report?

    It must address the same matters as VPS 1 terms of engagement, plus: the valuation approach and reasoning, the valuation figure(s), any material uncertainty, the valuer's confirmation it accords with the Red Book, and the date of the report. Essentially the report mirrors the agreed terms and states the opinion of value.

12. What is "material valuation uncertainty" and how must it be handled under the Red Book?

    Where a shortage of market evidence or unprecedented circumstances means significantly less certainty can be attached to the valuation. The valuer must disclose it clearly in the report, explaining its cause and that the figure is reported on that basis - it does not mean the valuation is unreliable.

13. Why are independence, objectivity and valuer rotation important in valuation, per RICS?

    To protect public confidence and avoid undue familiarity or bias. Long engagements can create a self-interest/familiarity threat, so rotation of the responsible valuer or firm is used (notably for regulated entity/financial reporting clients) to safeguard independence and objectivity.

14. What threats to objectivity must a valuer identify and manage under PS 2 of the Red Book?

    Self-interest, self-review, advocacy, familiarity and intimidation threats. The valuer must declare conflicts of interest, apply safeguards, and decline or withdraw where an unmanageable conflict exists.

15. Describe the comparable method of valuation and its basic process.

    It estimates value by analysing transactions of comparable assets. Process: gather comparable evidence, verify and analyse it to a common unit (e.g. price per m^2 or rent per m^2), adjust for differences (location, size, condition, date, tenure), and apply the adjusted rate to the subject property.

16. In the comparable method, what is the recognised hierarchy of evidence?

    Best: open-market transactions/lettings of identical or very similar properties (completed and verifiable). Then comparable transactions of similar properties; then rent reviews/lease renewals and expert/court determinations; weakest: asking prices, hearsay and other secondary evidence.

17. What is the basic formula linking capital value, rent and yield in the investment method?

    $$\text{Capital Value} = \frac{\text{Net Income}}{\text{Yield}} = \text{Net Income} \times \text{YP}$$ where the Years' Purchase (YP) in perpetuity is $\frac{1}{i}$ and $i$ is the yield expressed as a decimal.

18. Define "All Risks Yield" (ARY) in investment valuation.

    The remunerative rate of interest (capitalisation rate) derived from comparable market transactions that reflects all the prospects and risks of an investment - including growth, risk, liquidity and management - in a single figure used to capitalise the income.

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