RICS Red Book Update – New Rotation Policy Changes

The most recent update to The Red Book published by the RICS in October 2023 includes specific new standards brought in as part of the Valuation Review implementation process. They apply to regulated purpose valuations (e.g., fund valuations for financial reports).

The update addresses some of recommendations proposed by Peter Pereira Gray’s Valuation Review (the full list of 13 recommendations can be found below) but focuses on one of the most significant changes –new governance for the rotation of valuation firms to ensure valuers remain objective with their advice.

Clients have a maximum of two years from 1 May 2024 to transition valuers. The policy is retrospective so it considers the period for which a valuer and valuation firm have valued the asset(s) which may extend back prior to 1 May 2024.

JLL really welcomes the Valuation Review - we see it as a once in a generation reform and a really positive step to boost confidence in the valuation profession. It addresses the G in ESG.

The below is a summary only, please refer to the full standards here

• The ‘anchor’ for rotation will be the asset (as opposed to, for example, the client company)

• A maximum period of five years before the rotation of an individual ‘responsible’ valuer

• A maximum period of ten years before the rotation of a valuation firm

• A minimum three-year break after rotating off an engagement

• A two-year transition policy from 1 May 2024 to 30 April 2026

• Where there are truly exceptional circumstances, a carefully controlled option to deviate from the requirements with notification to RICS Regulation

• The policy excludes all public sector valuations

Terms of Engagement UK VPS 3.4

A mandatory requirement for valuers to ask about the involvement of independent parties in the client’s valuation instructions such as

• A non-executive director

• An independent chair of their audit committee or equivalent

• A corporate compliance officer or equivalent.

• Mandatory recording by the valuer of preliminary advice, draft reporting, and client discussions (UK VPS 3.5)

The Independent Review of Real Estate Investment Valuations, chaired by then-Wellcome Trust chief executive Peter Pereira Gray, was published in January 2022.

The Review published 13 recommendations to ensure that valuations would be trusted and relevant in the future.

RICS should work with appropriate stakeholders in standardising governance arrangements for commissioning and receiving valuation reports for high-risk and ‘regulated’ valuations.

Valuers, with the support of RICS, should ensure that the separation of valuation from advisory activities within firms is consistently applied in respect of the use of valuation data and instructions.

RICS should develop a time-specific, mandatory procurement and rotation process for valuers.

RICS should build on its existing ‘RICS responsible principal’ obligation by developing a Valuation Compliance Officer role to specifically cover valuation process and conduct.

RICS should ensure it has clearly signposted processes for its regulated members and other stakeholders to raise concerns about ethical conduct and address, amongst other issues, improper pressure placed on valuers.

RICS should create a dedicated, independently led valuation regulatory quality assurance panel, under the jurisdiction of the RICS Standards and Regulation Board.

The Red Book should include further standards around the conduct and recording of valuation instructions and meetings between client and valuer.

The valuation profession should incorporate the use of discounted cash flow as the principal model applied in preparing property investment valuations.

RICS should improve the knowledge and application of valuers in respect of advanced analytical techniques.

RICS should maintain a record of valuation standards adoption and application in countries outside the UK where significant numbers of its Registered Valuers operate, in order to inform the extension of regulatory requirements and support to valuers.

RICS should develop a framework to standardise property risk advice.

RICS should review its post-qualification requirements for valuers and consider introducing mechanisms for regular revalidation of valuers.

RICS should continue to build on its important work to ensure a diverse and inclusive valuation profession.

There is a need for further specific RICS guidance to clarify RICS’ expectations around the culture and behaviours expected of RICS professionals in the pursuance of valuation activities.

To find out more and speak to JLL's Value and Risk Advisory team click here.