RICS Revision Notes - Level 3 - PDF

ETHICS & RULES OF CONDUCT LEVEL 3 Background to Royal Institution of Chartered Surveyors: Fellow - 5 or more years as MRICS; a leadership role; RICS was founded in 1868 profe...

ETHICS & RULES OF CONDUCT LEVEL 3 Background to Royal Institution of Chartered Surveyors: Fellow - 5 or more years as MRICS; a leadership role; RICS was founded in 1868 professional/technical achievement; academic achievement; or Royal charter granted by Privy Council 1881 raising profile of RICS RICS Regs and Bye-laws set out the governance of the Institution RICS currently governed under the Royal Charter by various 4 levels of membership: internal councils and boards 1) FRICS Governing Council has over 20 members 2) MRICS Current Chief Exec - Justin Young 3) AssocRICS Current President, effect from 1 Jan 2024 - Tina Paillet 4) Trainee/Student ROLE OF THE RICS 5 BENEFITS OF BEING A RICS MEMBER: "The RICS promotes and enforces the highest professional 1) Status - Profoessional credentials provide client qualifications and standards in the development and maangement confidence of land, real estate, construction and infrastructure" (RICS, 2020) 2) Recognition - Promotion of professional excellence to governments and markets 1) To maintain the highest standards of education and training 3) Market Advantage - RICS Status and standards gives you 2) To protect consumers through strict regulation of competitive advantage professional standards 4) Knowledge - International practice standards, 3) To be the leading source of information and independent professional guidance CPD and knowledge sharing advice on land, property, construction and assocaited 5) Network - Access to professionals worldwide (over enironmental issues 140,000 members) BICHARD REVIEW: Independent review commissioned by the RICS Governing Board in Dec 2021 into the purpose governance and strategy of the RICS Commissioned following the Levitt Review and aimed to create a new sense of purpose and direction of the RICS The review advised 36 recommednations that are currently being implemented, including: Commercial Activity will now be separated from other activities within the RICS and led by a suitable qualified executive with strong commercial experience who reports to the Commercial Committee. RICS Matrics should give younger members a stronger voice through an improved governance structure with an appropriately selected representative from the community of younger members to sit on the Governing Council. A Diversity and Inclusion Panel will be setup to provide advice to the RICS Board and Standards and Regulation Board. Improvement of Technology within the RICS. A Public Interest Panel will be setup to advise the Governing Council. The Governance Structure will be updated to include a Public Interest Panel, Sustainability Panel, Commercial Committee and Audit, Risk, Finance & Assurance Committee. RICS published 5 Future Foundations in Nov 2023 following the Bichard Review VISION MISSION A natural and built environment that is Inspire members sustainable, resilient and inclusive for all Advane Knowledge Uphold standards STRATEGIC GOALS VALUES Lead and influence on sustainability Professional Attract a diverse next generation Collaborative Strengthen trust in the profession Inclusive Enhance member value and engagement Ambitious A WORLD CLASS ORGANISATION An efficient, effective and inspiring professional body that is easy to do business with ETHICS & RULES OF CONDUCT LEVEL 3 RICS RULES OF CONDUCT 2021 New rules effective 2nd Feb 2022 Single set of rules apply to both members and Firms Provides simple structure with clear example behaviours for each rule Rules accompaies by 12 supporting case studies RICS published new material/detailed guidance on Rule 4 in March 2024 - Diversity equity & inclusion 1) Members & firms must be honest, act with integrity and RICS Members must: comply with their personal obligations, including obligations to o Comply with PCD requirements (20 hours per annum - at RICS least 10 (50%) to be formal) o Formal - structured learning, with clear 2) Must maintain professional competence and ensure services objectives/outcomes eg, professional courses/seminars are provided by competent individuals who have necessary o Informal - self managed learning/private study expertise o Cooperate with RICS o Promptly provide all info reasonably requested by the 3) Must provide good quality and diligent service Standards Regulation Board, or those exercising delegated authority on its behalf 4) Must treat others with respect & encourage diversity and inclusion (Read update on Website) RICS Firms must: o publish complaints handling procedure including ADR 5) Act in public interest, take responsibility for actions and act to provider. approved by RICS, and maintain a complaints prevent harm and maintain public confidence in the log profession o Ensure all previous and current work is covered by adequate Professional Indemnity (PI) cover - should meet standard approved by RICS o If a sole Principle, arrangements for their work to RICS CORE MATERIAL: continue in event of incpacity, death or absence o Cooperate with RICS RICS Professional Standards o Promptly provide all info reasonably requested by the New Category of core material repalcing Professional Statements Standards Regulation Board, or those exercising and Guidance Notes delegated authority on its behalf Set of requirements and expectations for RICS members and o Display on business literature, in accordance with RICS firms about how they provide services or the outcomes of their policy on designations, a designation to denote they are actions regulated by RICS May include mandatory requiremtns, which use the word "must" o Report to RICS any matter they are required to report - these must be complied with under the Rules for Registration of Firms Also may inlcude recommended best practice which use the word "should" RICS Practice Information Disciplinary Procedures: not advice o Cundertaken by Standards and Regulation board info to supprt practical knoweldge and performance o Disciplinary procedure can be triggered by a complaint can include good practice, information, insights and processes to the RICS, alleegation by client or third party o Where a member or firm has failed to follow RICS RICS Practice Alerts guidance this will be considered by RICS as part of key tools for alerting profession of emerging areas of risk procedures o RICS Regulatory Decision Making 2022 provides outline of the regulatory approach o The disciplinary process is set out in the RCIS Regulatory Social Media: Tribunal Rules, 2022 Use of Social Media: Guidance for RICS Members, 2021 3 Levels of disciplinary action: Reminds members f standards / professional behaviour 1) Action of Head of Regulation RICS likely to investigate concerns about social media posts 2) Discplinary Panel where they involve: 3) Appeal Panel discrimination dishonesty abusive behaviour Initial formal investigation by Head of Regulation - bullying/harrassment he/she can initiate one of 4 following actions upon ignoring previous advice/warnings completion of their investigation if they consider disciplinary required: RICS unlikley to investigate when: 1) Serve Fixed Penalty notice the post is critical of a firms policies rather than individuals 2) Make Regulatory Compliance Order use professional/respectful language 3) Refer matter to single member of Regulatory Tribunal post is removed when asked to do so 4) Refer matter to Disciplinary Panel Will investigate personal post may damage rep of profession HANDLING CLIENTS MONEY RICS Professional Standard: Client Money Handling, October 2019 (effective Jan 2020) - 6 main areas of good practice: 1) Holding client money 2) Providing info to clinets 3) Receipts of client money 4) Payments from client accounts 5) Accounting records and controls 6) Compliance Members must be aware of the following procedures: Client accounts kept seperately and clearly identifiable Word 'client' is on the bank account and cheque book Client must be able to have their money on deand Payment of interest is agreed with a client and accounts must be kept in credi Regular bank reconciliation Accurate records are kept with running balance available Annual audit and reporting obligations by certified accountant Signatories agreed with authorised staff - two signatures must be required All firms handling client money need to display their procedures document on their website RICS also runs a Client' Money Protection Scheme -provides last resort protection in instances where an RICS Firm is unable to repay clients money. STARTING A NEW PRACTICE CLOSING A PRACTICE RICS COMPLIANCE RICS COMPLIANCE o Inform RICS of your new practice by completing Firm o Inform RICS of closure and deregister Details form o Ensure clients are informed at earliest opportunity o Appoint a Responsible Person for all RICS Communication o handover arrangements made with new firm o Register with RICS for regulation of the firm o Return any monies held by clients to their own accounts o Arrange PII insurance and send details to RICS o Inform insurers and procure professional indemnity run off o Set up procedures for Handling Client Money, inc cover for min. 6 years for expiry of policy in accordance with protection scheme RICS requirements o Register for the RICS Valuer Registration Scheme (VRS) if o Retain a copy of the client files and records for a min. 6 years undertaking Red Book Vals o Complaints handling procedure - obatin RICS approval o Appoint Complaints handling officer o Use logo kit frokm RICS to comply with 'Regulated by RICS' designation o Ensure CPD logged - set up a staff training plan o Complete online RICS Annual Return at end of each year STATUTORY COMPLIANCE o Disclose business name o Disability discrimination compliance - Equality Act 2010 o Financial Services compliance - Financial Services and Markets Act 2000, Financial Services Act 2012 o Bribery Act 2010 compliance o Appoint Money Laundering Reporting Officer - Money Laundering Regulations 2017 o H&S compliance - H&S Act 1974 o Asbestos Register o Fire Safety Complaince o Register for Data protection o Inform HMRC for VAT and TAx registration o Insurance compliance ETHICS & RULES OF CONDUCT LEVEL 3 TERMS OF ENGAGEMENT May be approproate to decline instruction, for example: Must state in writing the clients agreement to the proposed you are not competent to do the work fee basis, payment of expenses (& how calculated) and that a You dont have sufficient facts on the issue copy of the firms complaints handling procedure is availbale Client will not sige ToE or complete AML cheks upon request Conflict of interest 3 steps to follow: Professional indemnity insurance laibility cap cannot be 1) Check professional competency agreed 2) No conflicts of interest If advice is for a friend or free of charge and PI insurance 3) Confirm terms of engagement in writing and get written wont cover work carried out on personal basis approval from client BEFORE starting work on the Client on UK Gov Sanctions list instruction RICS decision Tree sets out framework for considering whether to act for a client FEE NEGOTIATIONS CONFLICTS OF INTEREST Should avoid price fixing, fee cutting or collusion with competitors Conflicts between 2 Clients fees should be market-based and agreed When impartiality is threatened due to existence of conflict between 2 clients: on ad-hoc basis Financial interest you can enter into further fee personal interest negotiations after submitting initial fee Commercial relationship proposal, so long as you act in Acting on both sides of the transaction professional manner deciding fee, consider amount of time & Conflict avoidance Vs Management (No Vs. Yes) resources required and that you have Avoidance - when you do not take the instruction correct expertise - you may wish to make Management - when accpeted instruction with agreed steps in place to manage reasonable profit teh conflict, such as information/ethical barrier, with written agreement of all tied to scope of works parties you should not be seen undercutting another firm RICS Global Professional Standard: Conflicts of Interest, 2017 be completely transparent with clients Mandatory standard effective 01 Jan 2018 and consumers - if in receipt of referral "Member must not advise or represent client where doing so would involve a fee, state so in ToE conflict of interest or a significant risk of a conlfict, other than where all those Referral fees to be considered in context who are, or may be affected, have provided their informed consent". of Bribery Act 2010 & RICS RULES OF CONDUCT Three types of conflift, defined as: PARTY CONFLICT - relating to work on the same or related instruction for two different parties CONFLICT - 3 StepProcess OWN INTEREST CONFLICT - a personal interest 1) CONFLICT AVOIDANCE CONFIDENTIAL INFORMATION CONFLICT - relating to work between two parties On receipt of full facts, consider if that is confidential conflict is irresolvable - is your impartiality compromised and therefore Informed Consent instruction to be avoided - or can it be sought only where the RICS member or firm is satisfied that proceeding despite managed? a conflict is in the interests of all those who are or may be affected and is not Decide if you want to accept instruction prohibited by law (RICS 2017) from Client A and Client B can only be given in writing by the party if the person explaining the position to them is entirely transparent about material factors and sure that the party 2) WRITTEN ADVICE TO BOTH PARTIES affected understands what they are doing If accepting, set out in writing the following to Members should only seek informed consent if satisfied that all parties are best both clients: served by doing so Disclose nature of conflict and all relevant facts - set out proposals for how you/firm Other key areas: will manage all conflicts must be managed in accoradance with the RICS Professional Be clear - ensure both parties can make Standard their own decision RICS firm must have in place effectice systems and controls to ensure full Request written confirmation from both compliance clients of their informed consent all firms muct keep records to show their compliance with the Standard 3) CONFLICT MANAGEMENT Once you have written consent from both clients of your declaration of the conflict and your proposals to manage Information/ethical barriers - should operate as follows: the matter, set up an info barrier in must be robust enough with no chnce of info passing between the two parties accordance with the provisions agreed must take reasonable steps to operate effectice barrier Surveyors acting must be different and physically seperated, preferably in different buildings or floors Virtual IT barrier - all info stored securely Claear audit trail of conflict check process - compliance officer to oversee  RICS Ethics Decision Tree RICS provides the decision tree (above) and case studies demonstrating different ethical scenarios Decision Tree provides framework of questions members should ask themselves when facing a potentially unethical situation Encourages consideration of legalality of ones actions and the consistency with RICS Rules, as well as consult with appropriate people and have clear reasoning before making a decision. Ultimate test is whether you would be content to have your decision / actions made public RICS Regulation Confidential Hotline offers assistance with any ethical issue Complaints Handling Procedure (CHP) Complaints Handling Procedure (CHP RICS firms must have a published CHP Stage One (in house) Should be inlcuded in ToE CHP should be issued on receipt of a complaint from valid PII insurance should be notified if a complaint is complainant who firm owes duty of care received as could lead to claim for negligence procedure must be quick clear and transparent and impartial Complaints log must be maintained to show details Detail nominated person who will investigate the compliant progress and outcome of all complaints (Complainst Handling Office) Must include RICS Approved Alternative Dispute Complaint must be made in writing Resolution (ADR) mechanism Procedures and strict timescales for investigation should be recorded Complaint should be acknowledged in 7 days and investigated in 28 days Stage Two - ADR if complainant not happy with the review, second stage is uding an independent redress scheme that the firm has chosen name of teh appropriate redress mechanism must be provided to the complainant - eg, The Centre of Effecte Dispute Resolustion (CEDR), The Property Redress Scheme, and the RICS Dispute Resolution Service. RICS will only become involved if a member fails to respond to the complainant or prevtns access to a redress scheme Sole practictioner is advised to nominate a surveyor in another firm to act as their complaints handling officer PROFESSIONAL INDEMNITY INSURANCE MANDATORY for surveyors working in practice Protects clients surveyors and third parties agianst negligence claims where a duty of care was breached and a claim for damages arises RICS PROFESSIONAL INDEMNITY INSURANCE REQUIREMENTS (effective April 2022) Members must ensure adequate and appropriate level of insurance in place for each instruction have considered potential liabilities All policies must be underwritten by an RICS approved insurer, found on the RICS wesbite Current min. requirements based on turnover: Firms turnover in Min. level of PII required preceding year for each and every claim £100k or less £250,000 £100,001 to £200,000 £500,000 £200,001 + £1,000,000 Firms have to consider likely risk profile of negligence claims when deciding upon level of insurance needed. The above are only minimum requirements If a new business, estimate teh turnover and adjust accordingly, in due course Maximum level of uninsured excess required by RICS: Firms turnover in preceding year Max. uninsured excess Up to £10mil The greater of 2.5% of sum insured, or £10,000 Over £10mil No set limit The policy should be fully retroactive PII policies work on a claims made basis - policies cover claims made during the period of insurance regardless of when the negligent act occured PII certificate to be set to RICS on an annual basis as part of firms annual return to RICS Early notification to insurers is required when potential claim arises PII cover is needed for pro-bono (unaid) work RICS assigned risk pool is available at a cost for members who cannot arrange cover RICS runs a Members Support Service (MMS) for members facing claims for work carried out by an employer who has gone into administration - help, advice and further support Most firms aim to cap their liability with clients for individual instructions "Adequate and appropriate" RUN OFF COVER is required following cessation of trading: For consumer claims, a min. of £1mil of aggregate cover over a period of 6 years For commercial claims, firms must consider what is adequate for a min. of 6 years Firms that are unable to obtain run-off cover from their incumbent insurer or the open market will be able to apply for coverage to the RICS Run-off Pool RICS Practice Information - Risk, Liability and Insurance 2021 Recommends use of liability caps to manage risks associated with professional work Be aware of third party reliance - make it clear that advice can only be relied upon by the client named in the terms of engagement NEGLIGENCE Duty of care to clients and third parties - using reasonable care and skill When there is a breach, resulting in a loss, a claim for damages arises Yianni V Edwin Evans (1981) - case established a resi valuer instructed by motgagor lending institution could ow a duty of care in tort to a mortgagee purchaser relying on a valuation Scullion V Bank of Scotland (2010) - a breach of duty of care owed to Mr Scullion in relation to a valuation report prepared for a flat in Cobham, Surrey. Court of Appeal held that a surveyor who provides advice on value to a lender in respect of a buy to let purchase does not owe a duty of care to the borrower who is seeking funding to purchase the property. It over-turned original decision in the case of a "commercially astute" borrower Limitation Act 1980 Current limitation periods are: Contract - 6 years from date of negligent act, breach of contract, or omission. Section 14A provides alternative limitation period of 3 years from date of knowledge of teh damage subject to the 15 years longstop from the negligent act or omission Tort - 6 years from date the claimant suffered the loss Avoidance of Negligence Clearly understand client objectives and confrim precise instructions in writing in terms of engagement Ensure they are competent to undertake the instruction Undertake the work in accordance with RICS advice Make detailed file notes and pictures Keep up to date with maret knowledge and undertake CPD Cap professional liability excess on PII policy in the terms of engagement ETHICS & RULES OF CONDUCT LEVEL 3 Hospitality, promotional and other low value business expenditure which genuinely promotes and improves business image is an ecceptable and key part of doing busines, by the first in caccordance with their anti-bribery procedures BRIBERY ACT 2010 BRIBERY ACT 2010 aims to reduce bribery in business in UK and abroad Based on 6 Principles: DEFINTION: A bribe can be the giving, offering, 1) Proportionality promising or receiving of an advantage such as a 2) Top level commitment payment, gift or service for an action which is 3) Risk assessment illegal or a breach of trust 4) Due diligence 5) Communication 6) Monitoring and review BRIBERY ACT 2010 BRIBERY ACT 2010 Companies are responsible for their employees The 4 offences are: corrupt acts unless they had adequate policies and 1) Bribing procedures in placeto combat bribery 2) Receiving a bribe Certain forms of lavish corporate entertainment can 3) Bribing a foreign public official be classed as bribery. 4) Failing to prevent a bribe Must be reasonable and proportionate and must be recorded in a gift/hospitality log Companies must meet criteria to prove they have taken steps to prevent bribery: BRIBERY ACT 2010 ID of potential risks Penalties: staff training Act is policed by the Serious Fraud Office clear policies Individuals: Max penalty of 10 years in prison & an regular reviews unlimited fine There is a defence is you can show adequate Companies: unlimited fine procedures are in place to combat bribery MONEY LAUNDERING MONEY LAUNDERING, TERRORIST FINANCING AND TRANSFER OF FUNDS (INFORMATION ON THE PAYER) REGULATIONS, 2017 (AS AMENDED 2023) DEFINTION: When proceeds of criminal activities are disguised or converted and then realised as legitimate assets MONEY LAUNDERING Key provisions of the Regs: Written Money Laundering and terrorist financing risk assessment systems policies and procedures to address money laundering and terrorist financing risks and to meet the requirements under the regs Adopts appropriate internal controls Comply with new customer, enhanced and simplified DD requirements Comply with requirments around politically exposed persons (PEPS) Apprpriate record keeping, policies and procedures AML checks to confirm ID of proposed purchaser of property and check purchaers source of funds by vendors agent before contracts are exchanged When assessing need for enhanced DD, include additional high-risk factors and seek additional information in some cases, eg. where transactions between 2 parties based in high-risk third countries MONEY LAUNDERING MONEY LAUNDERING Estate agents legal obligations: Firms must have polices in place to identify and scrutise Letting agents to register with HMRC if they let individual transactions which are: properties for more than the equivalent of 10,000 euros or complex or unusually large more contain unusual patterns of transactions Gov guidance "Estate agency business guidance for money are without apparent economic or legal purpose laundering supervision", updated n Jun 21 also includes sales agents requirements Firms must have group wide procedures to share information Companies and individuals to be approved and remain and to train anyone capabale of identifying or preventing registered to trade money laundering risks DD checks on vendors purchasers landlords and tenants Enhanced DD if red flags occur (eg. high risk countries)  LEVELS OF DUE DILIGENCE 1) CUSTOMER DUE DILIGENCE ID the client and verify their ID with reliable independent source (eg. passport, driving licence) Reasonable endeavours to ID any beneficial owners of the client - & to verify the ID or person responsible for managing if not able to do so from teh 'Persons of Significant Control' option on Companies House Company - name address and company number is required Names of directors unless company is listed on a regulated market (london stock exchange) Obtain info on purpose and intended nature of the business relationship and propsoed fundign arrangements as appropriate 2) ENHANCED DUE DILIGENCE Additional procedures are required for any transaction or business relationship involving a person in an established 'high risk third country' or a politically exposed person (PEP), a PEP family membe or business associate. EDD requires additional evidence and monitoring PEP describes someone who has been entrusted with a prominent public function PEP presents higher risk for involvement in briberyand corruption by virtue of their position and influence Detailed examination of the background and purpose of the transaction and increased monitoring required Other key requirements of the Regs: PENALTIES There is a limited of 10,000 Euros for acceptance of cash Max 14 yrs prison sentence and/or unlimited fine for Ongoing business relationship with client should be assisting woth money laundering monitored Max 5 yrs prison sentence and/or unlimited fine for Detailed records kepts of the procedures in place tipping off a person by informing them that they are Senior member of staff / Board member must be appointed under suspicion for money laundering or for failing to to take responsibility for all compliance report suspicion Nominated person (the Money Laundering Reporting Officer) appointed to report any suspicions (Suspicious Activity Report (SAR)) to National Crime Agency RED FLAGS Firm must maintain records for min. 5 years and to report to Inability/unwillingness to provide ID Docs Companies House any discrepancies between info firm Changes to parties involved in transactions holds on their clients vs. info held on Companies House Unusual transaction feautures - unescpected urgency, Register potential loss making etc Payment fo fees, purchase or rental monies in unusual currencies Type of organisation Evidence of constitution required Public Limited Company London Stock Exchange Listing Publicly accountable body Government ownership / cotrol Cert. of incorporation Full name, registered number, business adress Private Limited Company Names of all directors & shareholders with 25% or more holding ID of higher risk client Copy of passport or driving licence with photo Private individual Bank statement credit card bill etc to show evidence of address, not more than 3 months old Other relevant legislation SANCTIONS & ANTI MONEY LAUNDERING ACT 2018 Under this legislation, wider sanctions have been issued in light of geopolitical acticities such as the Ukraine war RICS provides guidance in RICS ANTI MONEY LAUNDERING SANCTIONS UPDATE 2022 PROCEEDS OF CRIME ACT 2002 Provides powers for enforcement authorities in the UK to recover (in criminal and civil proceedings) money and other assets which are deemed to be proceeds of crime Creates a set of criminal offences intended to combat AML offences  REVISION TIP Can you describe / explain how you would undertake DD prior to and during instructions? Can you explain your firms anti-bribery procedures / gift register requirements / AML procedures If asked about the acceptance of cash/gifts etc, consider the follwing: Bribert Act 2010 RICS Professional Standard Your firms procedures Professionalism, objectivity, transparency (RICS Rules) Proportionality Sanctions If asked about AML, consider: MONEY LAUNDERING, TERRORIST FINANCING AND TRANSFER OF FUNDS (INFORMATION ON THE PAYER) REGULATIONS, 2017 (AS AMENDED 2023) RICS professional Standard (but law comes first) DD procedures (inc. for estate agents) Red flags RICS PROFESSIONAL STANDARD: COUNTERING BRIBERY, CORREUPTION, MONEY LAUNDERING AND TERRORIST FINANCING, 2019 Sets out mandatory requirements for RICS members and firms divided into 3 parts: 1) Mandatory requirements 2) Guidance setting out good practice for the above 3) Supplementary guidance on some of the concepts set out in Parts 1 and 2 PART 1 BRIBERY AND CORRUPTION (B&C) RICS Regulated firms must : Not offer or accept anything that could be considered a bribe Have procedures in place that comply with the law Report suspicion to the relevant authority Act with due diligence, perform periodic written evaluations of the risks the firm faces Retain records to show how the firm has met the requirements of the Professional Standard MONEY LAUNDERING AND TERRORIST FINANCING (ML & TF) Firms must : Not Facilitate or be complicit in ML or TF have systems in place to comply with the law Report suspicion Evaluate and review the risks to the firm Use thrid party reliance for checks only when there is confidence for the quality of information provided by the third party Take appropriate measures to understand the client and purpose of the instruction Verify client with basic ID checks Retain records to show how the firm has met the requirements of the Professional Standard PART 2 GUIDANCE Have a written policy in place and senior management to take control of procedures Publish a code of behaviour and provide staff training Encourage transparency Set up a gifts register Keep up to date with legislation PART 2 SUPPLEMENTARY GUIDANCE Establishing a risk based approach - consider the three W's when assessing risk: WHO you act for WHAT are you doing WHY you are asked to do something Dealing with PEP's - they are higher risk - enhanced DD required Need to ID beneficial owners of a company (Cert of Incorporation, Annual Return, Companies House) HEALTH & SAFETY LEVEL 2 RICS PROFESSIONAL STANDARD: SURVEYING SAFELY - H&S The structure of the document: PRINCIPLES FOR PROPERTY PROFESSIONALS, 2nd Ed. 2018 1) Personal responsibilities Professional standard sets out: 2) Assessing hazards and risks good practice principles for the management of H&S for 3) Workplace H&S RICS members and firms 4) Visiting premises and sites Principles for those engaged in the built environment and 5) Fire Safety includes H&S responsibilities 6) Residential property surveying At a corporate level (whether the RICS firm is large or 7) Procurement & management of contractors small) at the level of the individual RICS member Key areas of advice include: How to address fire safety RICS Regulated Firms must ensure they provide: Assessing hazards and risks A safe working environment Occupational health (inc. stress and bullying) safe work equipment visiting sites (inc travel arrangements, PPE, lone working) safe systems of work Tell someone where you are going and when you leave (linked to Competent Staff inspection and firms policies) PPE Concept of 'Safe Person' - Person assumes own behavioural emphasis is placed on members having correct operational responsibility for their own, colleagues & others H&S while at practices in place work. Ensures people take responsibility for their actions Legal considerations and duties H&S at Work 1974, as amended PPE at Works Regulations 2022 Duty to every employer to ensure as reaonably practicable the H&S Extends employers duty to ensure appropriate PPE for and welfare of all employees employees & contractors Policed by the H&S executive (HSE) as a criminal offence Includes cleaning, security and construction workers Reporting of injuries and dangerous occurences (1995 Regs) Regular risk assessments (1999 Regulations) O&M manuals to be held on site (H&S info) Reporting of Injuries, Diseases & Dangerous Occurences Regs 2013 (RIDDOR) Method statement Trigger date for reporting injuries is over 7 days Doc that details teh way a task or process is to be completed and incapacitation prior approved Such an injury must be reported to HSE within 15 days of outlines hazards involved, includes step by step on how to do job accident safely An accident books must be kept, min. of 3 years records, details controls measures in place to ensure safety of all people must record all 3-day plus injuries affected Public liability insurance HAZARD provides coverage against claims made by members of the public Anything that has potential to cause harm (eg. wet floor) for injuries or property damage caused by the policyholder’s RISK business activities. the likelihood and potential severity of harm or injury Copy of contractors all risks and public libaility cover is needed occurring to people as a result of a hazard before works commence It is a legal requirement for firms employing 5 or more staff to carry Risk assessment setting out the risk and control measures out: Details of planning, implementation of the H&S policy, and control measures 1) Risk Assessments Identify hazards present 3) 6 Pack of H&S Regs identify the poeple at risk (employees, visitors, contractors) Group of 6 regs introduced in 1993 coverign H&S compliance evaluate the risk with likelihood & severity of any accidents - The regs clarify how employers must comply with the H&S at work existing control measures should be identified & evaluated Act 1974 Record findings 1) Management of H&S at work Review risk assessments annually 2) Display screen equipment Advise all those affected of the risk assessment outcome, 3) Manual handling Operations methods of work & precautions to minimise or eliminate risk 4) PPE at work 5) Provision and use of work equipment 2) H&S policy document 6) Workplace Health Safety and Welfare A policy setting out the organisations commitment to H&S Details of the H&S structure, with roles and responsibilities FIRE SAFETY Regulatory Reform (Fire Safety) Order 2005 Also known as Fire Risk Management Regulatory Reform (Fire Safety) order based on a risk assessment with emphasis on fire prevention applies ot non-domestic premises in England & wales 'Responsible Person' (RP) is the employer, occupier who controls the premises, or owner if vacant fire precautions (folloiwng risk assessment) must be in place Good record keeping (risk assessment, fire policy/strategy and staff training) Regular review of assessments Covered in Part B of Building Regs Precautions may include: fire detection and warning alamr, signage, fire fighting equipment, safe exit routes, emergency lighting etc FIRE SAFETY Fire Safety Act 2021 & Fire Safety (England) Regulations 2022 Following Hackitt review 2018 Fire Safety Act 2021 came into effect in Jan 2023. It amends the Regulatory Reform (Fire Safety Order) Applies to all Resi premises in England and Wales, inc. common parts of flats and HMOs RP to assess manage and reduce fire risks posed by the structure, external wall and any common areas FRAEW (under PAS9980 guidance) reports to be carried out on multi occupied blocks of qualifying buildings Allows fire service to take enforcement against RPs not complying regular inspections to lifts must be reported to fire service Evacuations plans to be regularly updated & personal emergency evacuations plans (PEEPS) for those whose abaility may be compromised Ensure residents provided with fire saefty instructions Flat entrance doors must comply with standards FIRE SAFETY External Wall Surveys (EWS) EWS1 - designed to be used on Resi properties of any height a tool for valuers enables 'qualified professional' to confirm the EWS has been assessed for safety, considering: Height; type of cladding and how much is there; presence of balconies and combustible material EWS1 is valid for entire building for 5 years interactive decision tree via RICS helps valuers understandwhen an EWS1 is required FIRE SAFETY Building Safety Act 2022 Granted Royal Assent in April 2022 - provisions coming into force over the next 2 years (secondary legislation) Intended to enhance regulations for building safety and give residents a stronger voice in suring safety in buildings implements elements of the Hackitt review to provide a new system to oversee the whole built environment, to include: accountabilityy and duties for those responsible for safety of HRBs during construction and occupdation Residents ability to contribute to maintaining safety Enforcement to deter non-compliance nationa framework to ensure suitability of construction materials New build developers to belong to a New Homes Ombudsman scheme Intorduces the Building Safety Regulator - oversees the safety and standards of all buildings, competence and leads implementation of a new regulatory framework for HRB BSR is the Building Control Body - part of the HSE Golden Thread of Info required for all high risk buildings Mandatory occurence reporting for all HRBs New HRBs must be registered before being occupied Building Safety Case reports Extends the liability period in the Defective Premises Act 1972 from 6 years to 15 years (for claims arising after June 2022) ASBESTOS Insulating material which can cause serious health problems and fatal diseases poses no risk if left undamaged and undisturbed when distrubed. can relase small toxic fibres which lodge in lungs and cause illness 3 types: 1) Brown (amosite) 2) Blue (crocidolite) 3) White (chrysolite) White was banned in UK in 1999. Others were banned in 1985 Statutory duty to manage existing asbestos - Asbestos register The Control of Asbestos Regulations 2012 Non compliance is a criminal offence RICS Professional Standard: Asbestos 2021 Contains overview of law and industry guidance for asbestos. Sets out best practice to comply with law including common asbestos containing materials, how to commission an asbestos survey and suggested contents of an asbestos management plan As a qualified RICS surveyor, if I unexpectedly observed asbestos during a routine inspection of a residential building, I would immediately cease any activity that could disturb the material and alert the property owner or manager. I would recommend that they engage a licensed asbestos professional to conduct a thorough assessment and safely manage or remove the asbestos according to legal requirements. CLIENT CARE LEVEL 2 Level One: Level Two: Concept of identifying all clients/colleagues/third parties How to identify new clients who are your clinets and the behaviours that are How to implement systems for client care including appropriate to establish good clients relationships complaints The systems and procedures that are approrpriate for Consider how you look after and report to your clients and managing the process of client care, including complaints provide some examples of good client care The requirement to collect data, analyse and define the needs of clients Examples could include: Understanding your clients objectives and requirements Listening to the client and seek formal and informal feedback from clients Understanding the clients position and longer term goals adopting a holistic approach Responding speedily to queries and regular reporting systems and information/filing systems Consider Compliants Handling Procedure Terms of engagement COMMUNICATION & NEGOTIATION LEVEL 2 Good negotiation skills: Agreeing your clients objectives and negotiating strategy before the start of negotiations Detailed research and preperation and understanding a SWOT analysis Preparing your win-win and fallback positions and what points are non-negotiable Understanding the other partys position Creating a constructive environment for the negotiations Considering the method of communication (phone email or face to face) Developing a partnership/collaborative approach, rather than an adversarial approach Recognising the achievement of your best position for agreement Always maintain communication between the parties Walk away when you need to ACCOUNTING PRINCIPLES LEVEL 1 Public Limited Company Accounts Management accounts are prepared for internal use only Chairmans statement and are not audited Independent auditors report Audited accounts are perepared by a Chartered or Certfied Income statement (profit & loss account) Accountant Statement of financial position (balance sheet) A consolidated set of accounts comprise a number of Corporate Governance Report individual subsidiary accounts within a single set of Remuneration report accounts Other Statutory info A cash flow statement shows all actual receipts and expenditure to include VAT BALANCE SHEET IFRS 16 Statement of financial position, showing a business's International Financial Reporting Standards (IFRS) assets and liabilities at a given date, usually at the end of a An important change to how occupiers regards their financial year property liabilities Assets can include cash, property, debtors, and other IFRS 16 is the lease accounting standard which all firms investments held must comply when using IFRS Liabilities can include borrowings, overdrafts, loans and the full cost of leases have to be accounted for on the creditors balance sheet An occupiers obligation to pay rent must be recognised as a liability - expemptions exist for leases under 12 months or shorter PROFIT AND LOSS ACCOUNT Income statement is a summary of the business's income and expenditure transactions, preapred on an annual basis BUSINESS PLANNING LEVEL 1 Consider how your firm markets its business over the short, medium and long term, using a range of marketing and promotion techniques Key factors to include in a business plan include an analysis of the opportunities and risks of the business and the resources required to service clients A SWOT analysis can be a useful tool to use - unerstand its merits and how to use one The use of fee forecasts is crucial to plan future business activities and ensure attainment of a desired minumum profit margin Budgets cash flows and financial/audit controls are important to ensure the correct allocation of resources and expenditure Consider how you would set up in practice as a sole practitioner and how you would prepare a business plan Understand the different forms of business vehicles - sole practictioner, partnership, LLP, limited company and PLC Consider how a bueinss can monitor its performance and what the key management tools would be needed Can you explain you companys strategy and objectives, and how your teams performances can be measured? Consider requirements of RICS and statute when establishing a new business CONFLICT AVOIDANCE MANAGEMENT LEVEL 1 & DISPUTE RESOLUTION PROCEDURES Conflict Avoidance Conflict Management Alternative Dispute Resolution (ADR) Requires clear concise drafting of teh Involves the use of processes tools and These fall outside scope of court contract or lease and associated skills to find ways to manage disputes litigation. Advantages: documents Speed Adopt proactive avoidance risk analysis Informality - understand what could go wrong or Dispute Resolution Greater opportunity for negotiation how misinterpretation between parties The resolution of a dispute between Cost - less spent on professional fees might arise two or more parties for litigation Managing all parties expectations Can be complicated - various methods Quality of decision making - outcome requires understanding their objectives of DR have range of factors to be or award can be made by a surveyor and clearly communicating these considered - cost, access, rather than a judge Negotiating contractual obligations confidentiality, and speed Confidentiality carefully and transparently will help Most basic form could be negotiation Many recent contractos include a form avoid later conflict or at least enable between the parties of ADR that specifies how disputes are their efficient resolution Litigation is the formal legal process to be dealt with Keep good records with sufficient level that uses the civil legal system to of deatil - helps to resolve conflicts resolve a dispute that adopts a set of Mediation before they escalate rules applied by the courts Involves use of a neutral mediator who facilitates discussion sbetween the two parties to explore whether a solution Arbitration Independent Expert determination can be found Arbitrator decides a dispute acting in Can be appointed by the agreement of Confidential and informal process accordance with statute (Arbitration the parties Mediation is usually conducted on a Act 1996) Determination is binding WP basis An award is produced and binds the Will have specialist knowledge of the Mediator has no decision making parties subject area authority and cannont impose a Arbitrator has specialist knowledge of Is under duty to make their own decision on the parties subject area investigations using Proceeding normally dealt with via knowledge/experience to make a RICS Dispute Resolution Service written representations but arbitrator decision Worlds oldest and largest provider of has power to order a hearing Can in theory be sued for negligence ADR services Has the power to award costs but its difficult to overturn a decision Covers all of the above, plus: Arbitrators cannot be sued for Can be fast and cost effective solution PACT negligence but there are grounds for an Dilaps Dispute resolution appeal Ground Rent assessment can be fast, cost effective and provide a Neighbour dispute services confidential solution Telecoms ADR Boundary Dispute Mediation etc CONFLICT AVOIDANCE MANAGEMENT LEVEL 1 & DISPUTE RESOLUTION PROCEDURES REVISION TIP Dont confuse role of independent expert with role of expert witness - understand both! Inpependent expert is a dispute resolver who decides a dispute Expert witness is appointed to present evidence to a dispute resolver Expert Witness Surveyor can act as expert witness infront of a trubunal Must adhere to the rules of the tribunal - must act in accordance with RICS Practice Statement and Guidance Note for Surveyors acting as expert witnesses, 4th Ed. 2014 (to be updated 2024) Feb 24 - RICS Practice Alert issued in light of increased concern about the quality of expert witnesses Immediate action required to address evident failure of some members to comply with mandatory standards, to ensure members providing expert witness services to adhere to current edition of RICS Surveyors acting as expert witnesses. Primary duty is to the tribunal, not to the party who appointed them Should only accept instruction if they have knowledge and experience for the instruction, and no conflict Must make a decleration and give statement of truth must be independent, unbiased etc Cannot be appointed on a success related fee basis an example of expert witness: for Rent review dispute in front of an arbitrator RICS GUIDANCE Practice Statement & Guidance Note for Surveyors acting as expert witnesses, 4th Ed. 2014 (to be updated 2024) Professional Statement & Guidance Note for Surveyors acting as Advocates, 2017 Professional Standard: Conflicts of interest for members acting as dispute resolvers, 2nd Ed. 2020 DIVERSITY INCLUSION & TEAM WORKING LEVEL 1 Effective diversity inclusion and teamworking are essential skills for members given nature of their work with different clients and stakeholders Successful team working relies on understanding team dynamics - how they are formed; roles within the team A team that incorporated a diverse membership, backgrounds and qualities, is more likely to be a successful team RICS places diversity and inclusion centrally within its approach to responsible business EQUALITY ACT 2010 RULE 4 RULES OF CONDUCT, 2021 NINE characteristics of the Act: April 2024 - RICS provided further guidance on RULE 4 in respect of diversity equity and 1) gender reassignment inclusion (DEI) - this is a priority for RICS and wider profession 2) sex RULE 4 required members and firms to encourage diversity and inclusion 3) sexual orientation it gives clear definitions of diversity equity and inclusion 4) age SEE RICS website for more info - example include: 5) disability make website and other comms accessible for all 6) race how to recruit/attract wider range of talent 7) religion or belief job adverts to be inclusive / remove bias from recruitment 8) marriage and partnership Larger firms to collect and report EFI data and use it to improve 9) pregancy and maternity provide staff training DEI guidance is provided in the following 6 key areas: Inclusive culture REVISION TIP everyday life at work Understand term unconscious bias inclusive recruitment and give examples on how this may career progression & development impact your work inclusive policies and procedures Consider how your firm could improve inclusive spaces diversity in the work place and the subsequent benefits ID how and why RICS is addressing UNCONSCIOUS BIAS (UB) diversity & inclusion relates to associations we hold which are deeply ingrained and outside of our conscious Deacribe characteristics of a good awareness or control team player These associations are influenced by attitudes formed from our experiences, during our upbringing and education, and the environments in which we work and live Everyone has unconscious biases. They can be assessed through Implicit Assumptions TEAMWORKING testing Listening UB can affect how we interact with colleagues, clients and suppliers - positive actions Discussing need to be taken to esnure that these biases do not adversely prejudice people Persuading RICS have signed a Memorandum of Understanding Action Plan (MoU) intended to Respect create a more diverse equitable and inclusive sector in order to be more representative Helping - encouragement of the society it serves. Sharing The MoU requires organisations to determine reasons for poor performance in this area Participating through data collection and education Communication The Bichard Review about the future of RICS also requires RICS to improve Diversity and Reflection - identify Inclusion in decisions and action relating to its own governance. strengths/weknaesses of individuals and teams INCLUSIVE ENVIRONMENTS LEVEL 1 Designed and managed to allow people with a diverse range of needs and abilities to access and use it An environment could could be a building or place, includign homes, workplaces and shops etc Inclusive applies throughout the property lifecycle, through design/refurbishment ensuring accessibility is considered; Occupancy - ensuring users of the space can reasonably do so despite any disabilities - important for fire safety / evacuation Those responsible must have good awareness of the folloiwng issues: Different physical and mental health issues which may lead to varying accessibility requirements Factors that could lead to social isolation Consider how best practices in the design and management of spaces can be implemented The value that inclusvise environments can bring to owners and occupiers The legal framework: Equality Act 2010 Inclusive design standards contained in the Building Regulations: Approved Document M: Accessto and use of buildings 2015 as amended Planning policy and legal requirements relating to accessibility - found in planning policies and National Planning Policy Frameworks EQUALITY ACT 2010 Provides protection against wide range of discrimination and inequality, including the use of property as well as when dealing with people The act ID's four types of illegal discrimination: 1) Direct discrimination 2) Indirect discrimination 3) Harrassment 4) Victimisation Extends all obligation to all controllers of let premises Unlawfu for those managing buildings to discrminate against an occupier Lettings sales etc must not be undertaken in a way whoch could discriminate or victimise a person Landlords need to ensure all dealings with a tenant/occupier who may have protected characteristics are dealt with in accordance with the Act. Service providers have a duty to make alterations to a building to avoid disability discrimination - must be reasonable in cost, extend and disruption Reasonable test: Effectiveness of the adjustment for the disabled person Practicality of adjustment FInancial cost and likely disruption Financial and other resources availbale to the service provider SUSTAINABILITY LEVEL 1 REVISION TIPS: Awareness of the RICS commitment to Sustainability Be able to explain how the energy efficiency and carbon reduction can be improved through the design, construction use and refurbishment of different types of buildings Consider how factors such as demand and value may change depending upon the sustainability characteristics of the building RICS and the UN Global Compact published 'Advancing Responsible Business in Land, Construction, Real Estate Use and Investment, 2018' - this sets out how organisations can identify and address the impact of their activities and decision making when planning, constructing and operating buildings. RICS SUSTAINABILITY IN PRACTICE ACHIEVING NET ZERO Evidence based research, eg. "Sustainability rises up the Climate Change Act 2008, amedned in 2019, requires UK to agenda in the UK Facilities Management Sector" (2021) achieve Net Zero by 2050. Interim tagrt of reducing emissions by 78% by 2030 was since Best practice requirements, for example: introduced. 1) RICS Rules of Conduct 2021 Number of UK funds and REITS have committed to achieving 2) RICS Red Book Global 2021 (eg VPGA 8) 2050 Net zero via Better Buildings Partnership (BBP) Pledge 3) RICS Professional Standard: Residential retrofit Standard The UK Green Building Council (UKGBC) has a framework 4) RICS Professional Standard: Environmental risks and global addressign the issue, raning necessary actions: real estate, 2018 1) Needs to be acorss whole life of buildings (construction, use, refurb, demolition) 2) Reduce construction Impacts via materials used and building designs For Surveyors, the most relecvant issue is energy use in 3) Reduce Operational energy use - consider retrofit efficiency Clients' buildings and associated regulations measures and how to work with occupiers. The BBP "Design Embodied carbon throughout lifecyle of building is also of for Performance" initiative should be helpful growing importance in the market 4) Increase Renewable Energy Supply EPC's and MEES is therefore important 5) Offset any remaining carbon - considered last resort Consider how net zero targets will affect real estate EPCs The certficiation of buildings energy performance All residential properties bought, sold, or rented must have an EPC. All residential properties bought, sold, or rented must have an EPC - valid for 10 yrs The EPC must be available to potential buyers or tenants as soon as you start to market your property The EPC provides a rating for the property from A (most efficient) to G (least efficient). For rentals, since April 2018, properties must achieve a min. rating of E. This is part of the Minimum Energy Efficiency Standards (MEES). In 2023, Gov. scrapped the 2025 proposal that all new tenancies should have an EPC rating of C or above. - remains at min. E By 2028, this requirement may be extended to all existing tenancies. This was also shelved by Gov. Can be exemptions under certain circumstances, such as where improvements are not cost-effective/listed buildings etc. £200 civil fixed penalty BREEAM - THE BUILDING RESEARCH ESTABLISHMENT ENVIRONMENTAL ASSESSMENT METHOD A voluntary environmental assessment tool to rate new, refrub'd and operational buildings A buildings impact is rated by BREEAM assessors by reference to 9 weighted categories: energy consumption, water use, transport links, waste management, and health & wellbeing The five ratings are: PASS / GOOD / VERY GOOD / EXCELLENT / OUTSTANDING RICS Practice Information: The design delivery and management of healthy buildings: a practical guide, October 2023 Guidance overs advice for all members workign with existing and new buildings Sets out how healthy buildings impact our health , relating to building design, construction material, sound, light, water and air quality, building tech and management Explores role of health & wellbeing in ESG RICS PROFESSIONAL STANDARD: RESIDENTIAL RETROFIT STANDARD, MARCH 2024 Aims to guide surveyors in delivery of high quality consistent advice on energy retrofits to resi owners Ensures consumers receieve professional, regulated guidance on retrofit projects Scope - covers aspects such as, surveys inspections, design, project management Applies to a range of energy saving improvements like solar panels, heat pumps and insulation Madatory from 31 October 2024 "The framework not only reinforces qulaity, but also aligns with broader industry movements, including potential green mortgagesand incentives from lenders" VALUATION LEVEL 2 DEFINITIONS OF VALUER Commencing a Valuation Internal valuer 1) Competence employed by company to value assets of the company Do you have teh rleevant skills understandign and knoweldge For internal use only - no third party reliance (SUK)? If not, refer to RICS find a Surveyor External Valuer Has no material links with he asset to be valued, or the client 2) Independence Check for any conflicts or personal interests - Who and Why? 3) Terms of Engagement STAT DUE DILIGENCE Set out in writing full confirmation of instrucction to the client Required to check no material matters which could impact prior to starting work and receieve written confirmation back the valuation: of instruction 1) Asbestos register Confirm competence of valuer 2) Bsuienss rates/council tax Extent and limitations of valuers inpsections must be stated 3) Contamination 4) Equality Act 2010 compliance 5) Environmental matters - power lines, telecoms masts, flooding 6) EPC rating 7) Fire safety compliance 8) Highways (adpted or not) 9) Legal title and tenure - check boundaries, covenants, easements 10) Planning history and compliance (s.106 agreement) DEFINITIONS DEFINITIONS DEFINITIONS NET YIELD All RISKS YIELD The resulting All RISKS YIELD yield adjusted for purchasers costs The remunerative rate of interest used in the valuation of fully The remunerative rate of interest used in the valuation of fully let property let at market rent reflecting all the prospects and EQUIVALENT YIELD let property let at market rent reflecting all the prospects and risks attached to the particular investment Average weighted risks attached yield to the when a reversionary particular investment property is valued using an initial and reversionary yield TRUE YIELD TRUE YIELD Assumes rent is paid in advance not in arrears (traditional INITIAL YIELDrent is paid in advance not in arrears (traditional Assumes valuation practice assumes rent is paid in arrears) Simple income valuation yield practice for current assumes rentincome and is paid in current price arrears) NOMINAL YIELD REVERSIONARY NOMINAL YIELD YIELD Initial yield assuming rent paid in arrears Market rentassuming Initial yeild (MR) divided rentbypaid current price on an investment let in arrears at a rent below the MR GROSS YIELD GROSS YIELD The yield not adjusted for purchasers costs (such as an RUNNING YIELD The yield not adjusted for purchasers costs (such as an auction result) The yieldresult) auction at one moment in time VALUATION LEVEL 2 COMPARABLE METHOD RICS Professional Standard: Comparable Evidence in Real Estate Valuation 1st Ed. 2019 Principles in use of comparable evidence. Provides advice in dealing with situations where there is limited availability of evidence Sets out non-prescriptive hierarchy of evidence noting "valuer should use professional judgement to assess the relative importance of evidence on a case by case basis" 6 Steps: HOW TO FIND RELEVANT COMPARABLES 1) Search and select comparables inspection of an area to find recent market activity - seeking 2) Verify details, analyse headline rent, determine net effective agents boards rent Speak to local agents 3) Assemble comparables in schedule Auction Results (beware these are gross prices) 4) Adjust using hierarchy of evidence in-house records/ databases and webistes 5) Analyse comparables toform opinion of value Care needs to be taken when using auctions data as there may 6) Report and prepare file note be a special purchaser or insolvency sale Market sentiment can be importance where there is a lack of transactional evidence The date of evidence is crucial, hence the focus on "contemporary" in the hierarchy above HIERARCHY OF EVIDENCE Category A - direct comparables Category B - general market data that Category C - other sources completed transactions of near can provide guidance transactional evidence from other real identical properties - full and accurate info from published sources or estate types and locations info available commercial databases - importance other background data - interest rates; completed transactions of other depends on relevance, authority and stock market movement & returns similar assets - full and accurate info verifiability which can give an indication for real available other indirect evidence (eg. indices) estate yields completed transactions of other historic evidence similar assets - full data may not be demand/supply data for rent, owner available but enough reliable data is occupation, or investment available similar real estate being marketed - offers maybe made but no binding contract completed askign prices (only with careful analysis) VALUATION LEVEL 2 INVESTMENT METHOD Used when there is an income stream to value Rental income is capitalised to produce capital value Conventional method assumes growth implicit valuation approach Implied growth rate is derived from the market capitalisation rate (yield) Conventional Investment Method Rent received, or market rent, multiplied by the years purchase (YP) to calculate Market Value Importance of comparables to rents and yeild YIELD (%) = (Annual Income / Property Value) * 100 ↘ = Return on investment per annum YEARS PURCHASE (YP) =1 / Yield ↘ = The Capitalisation rate ↘ The number of years worth of income that would amount to Asset Value ↘ YP IS THE INVERSE OF YIELD ↘ eg/ 5% Yield = 1 / 0.05 = 20YP, or ↘ 20YP = 1 / 20 = 0.05 (* 100) = 5% Yield Term & Reversion Layer/Hardcore Method Used for reversionary investments (ie. when under rented - Used for over rented investments Market Rent is more than passing rent) income flow divided horizontally Term - the value of the property during teh current lease Bottom slice = Market Rent period. Capitalised until next review or lease expiry, at an Top slice = Rent passing less Market Rent until next lease event initial yield Higher yeild applied to top slice to reflect additioanl risk Reversion - the value of teh property after the current lease Different yields used depending on comparable investment period. Market Rent valued in perpetuity at a reversionary yield evidence and relative risk (Market rent / Current Price) DISCOUNTED CASH FLOW Growth explicit investment method of valuation - It is a form of income approach valuation A DCF seeks to dertermine value by examining its future net income or projected cash flow from the property and then dicounting cash flow to arrive at an estimntaed current value of the property Used where projected cash flows are explicitly estimated over a finite period short leasehold interest with income voids or compelx tenures phased development projects non-standard investments (say with 21 year rent review) Over rented properties or social housing The approach seperates out and explicitly identifes growth assumptions rather than incorporating them within an All Risks Yield RICS Practice Information: Dicounted Cash Flow valuations, Novemeber 2023 Explicit DCF valuation versus the implicit method of valuation The context for applying explicit DCF methods Differences between inputs for market value and investment method Simple Methodoligy to find Net Present Value (NPV) Internal Rate of Return (IRR) market Value The sume of the The rate of return at which all future cash flows must be 1) Estimate Cash flow discounted cash flows of discounted to producea NPV of zero (income less expenditure) the project The IRR is used to asses the total return from an investment for an agreed holding A NPV can be used to opportunity making some assumptions regarding rental period determine if an investment growth, re-letting and exit assumptions 2) Estimate exit value at the gives a postive return Use linear interpolaton to estimate IRR end of the holding period against a target rate of To calculate IRR: 3) Select the discount rate return 1) Input current market value as a negative cash flow 4) Discount the cash flow at When the NPV is positive, 2) Input projected rents over holding period as a positive value the discount rate the investment has 3) Input projected exit value at the end of the term assumes as 5) Value is the sum of the exceeded the target rate of a positive value completed discounted return 4) Discount rate (IRR) is the rate chosen which provides a NPV cash flow to provide the When the NPV is negative, of zero NPV it has not achieved the 5) If the NPV is more than zero, the target rate of return has target rate been met VALUATION LEVEL 2 PROFITS METHOD OF VALUATION Purpose: Used for valuations of trade related property, where tehre is a 'monopoly' position Used where the value of the property depends upon the profitability of its business and its trading potential Used for pubs, petrol stations, hotels, childresn nurseries, leisure and health care properties etc Basic principle is that the value of the property depends on the profit generated from the business, not the physcial building or location Must have accruate and audited 3 yrs accounts Use estimates/business plan for a new busienss, if needed Adjust for maturity of business and any unaccpetable or exceptional items of expenditure Simple methodology Annual turnover (income) less costs/purchases = GROSS PROFIT Less reasonable workign expenses = UADJUSTED NET PROFIT Less operators remuneration = Adjusted net profit, known as, FAIR MAINTAINABLE OPERATING PROFIT (FMOP) This can be expressed as EBITDA (earnings before interest, tax, depreciation and amortisation) Capitalised at an appropriate yield (YP multiplier) to achieve market value Cross check with comparable sales evidence if possible VALUATION LEVEL 2 RESIDUAL METHOD (& DEVELOPMENT APPRAISAL) Purpose: Tool to financially assess viability of a development scheme Can be used to establish a residual site value Can also be used to assess profitability of a proposed scheme and its sensitivity to changing inputs, or assessing the viability of different uses, rents yields or financial contributions, such as S.106 or CIL payment Development Appraisal Residual Site Valuation Calc or series of calcs to establish Most common purpose is for a specific valuation of a property value/viability/profitability/suitability of a proposed holding to find the market value of teh site based on inputs developement based on the clients inputs (at one monet in time, at the val. date, for a particular purpose) Can assume a site value or calculate a site value Form of development appraisal Provides guidance as to the viability of the proposed Based upon simple residual val or DCF method development All inputs taken at date of Val. Residual Site Valuation Methodology Gross Development Value (GDV) = capital val. of completed scheme Use plans if needed and measure on CAD Valued at current date assuming present values and market conditions Comparable method used to establish rents and yield All risks yield used Allowance for rent free period or tenants incentives and mareketing void is assumed Purchasers costs usually deducted for commercial property vals. 1) Estimate the GDV Calculate expected market value of the finished developement. Research comparables in the area considering specifcations of the proposed development 2) Deduct Development Costs Construction costs Professional fees (architects, engineers etc) Finance costs (interest on development loans) Marketing and sales costs Contingency allowance (typically percentage of constructions costs) 3) Subtract Profit Margin Determine reasonable profit margin - usually expressed as percentage of the GDV or as a fixed return on investment 4) Calculate Residual Land Value Residual Land Value = GDV - (Development Costs + Profit Margin) 5) Evaluate Results Compare residual land value to asking price of the land. If land value is higher than asking price, the project may be profitable. Otherwise, adjustments to costs, price expectations or purchase negotiations may be necessary CONSIDERATIONS Market Conditions - Always consider current and forecasted market conditions as they can impact the GDV and development costs Regulatory Environment - Be aware of local planning regs and restrictions that could impact feasibility and costs Sensitivity analysis - Conduct sensitivity anlaysis to undersatnd how chnages in key assumptions (such as costs or sales proces) impact the residual land value VALUATION LEVEL 2 CONTRACTORS METHOD (DEPRECIATED REPLACMENT COST (DRC)) Purpose: Used for owner occupied property For accounts purposes for specialised properties Also used for rating valuations of specialist properties Should only be used wjere direct market evidence is limited or unavailble for specialised properties Specialised properties could include: sewage works, lighthouses, oil refineries docks, schools etc Simple methodology 1) Value of land in its existing use (assume planning permission exists) 2) Add current cost of repalcing the building, plus fees, less a discount for depreciation and obsolescence/deterioration (Use BCIS and then judge level of obsolescence) Have to estimate amount of depreciation appropriate for physical functional and economic obsolescence Physical is the result of deteroration/wear and tear over the years Functional is where the design or spec no longer fulfills the function for what it was originally designed Economic is due to changing market conditions for the use of the asset RICS GUIDANCE NOTE: DEPRECIATED REPLACEMENT COST METHOD OF VALUATION FOR FINANCIAL REPORTING, 2018 VALUATION LEVEL 2 RICS VALUATION - GLOBAL STANDARDS 2021 ("RED BOOK GLOBAL") Effective 31st Jan 2022 Provides internationally recognized guidance for valuers. Ensures valuations are performed consistently and ethically. Part 1 - Introduction Part 2 - Glossary Part 3 - Professional Standards (PS) Part 4 - Valuation technique and performance standards (VPS) Part 5 - Valuation Applications (VPGA) Part 6 - The International Valuation Standards (IVS) Changes from previous version: Need for compliance with the RBG and adequate terms of reference to reflect this (PS1 and VPS1) Terms of reference must be clear in that valuations are either RBG compliant or not Sustainability and ESG factors Mandatory use for all vals except for the following FIVE exceptions to VPS 1-5 (YOU MUST KNOW THESE): 1) Advice is expressly provided in preperation for, or during course of negotiations or litigation 2) The valuer is performing a stautory function except for the provision of a valuation for inclusion in a statutory return to a tax authority 3) Valuation is provided for a client purely for internal purposes, without liability, and not communicated to any third party 4) The valuation is provided as part of agency and brokerage work in anticipation of receiving instructions to dispose of, or acquire, an asset, except when a purchase report is required which includes a valuation 5) The valuation advice is provided in anticipation of giving evidence as an expert witness Terms of Engagement (IVS 101) VPS 3 Valuation Reports (IVS 103 Reporting) 1) ID and status of valuer 1) ID and status of valuer 2) ID of client 2) ID of client / ID of any other intended user 3) ID of any other intended user 3) Purpose of valuation 4) Asset to be valued (or portfolio) 4) Asset to be valued (or portfolio) 5) Currency 5) Basis of Value 6) Purpose of Valuation 6) Valuation date 7) Basis of Value