In this article, we delve into the topic of “red book valuations” – what they mean, who provides them and how to go about organising one.
We’ll also explain the context in which a service like this may be necessary – as opposed to a simpler estate agent / auctioneer property appraisal – and how this type of valuation applies to legal and accountancy-related property matters.
What is a Red Book Valuation?
If you require a formal, legally sound property valuation, an online estimate is often insufficient.
A Red Book Valuation is a type of survey undertaken by a qualified surveyor.
This professional must be registered as a member (associate member or fellow of RICS (the Royal Institute of Chartered Surveyors) – the leading body that oversees surveying / valuation practices and certification in the UK. The surveyor must also be a member of the Valuation Registrations Scheme.
According to the RICS website itself, Red Book Global Standards contain: “mandatory rules, best practice guidance and related commentary for all members undertaking asset valuations”.
The process received the moniker “red book valuation” thanks to the red binders in which RICS surveyors once presented their results.
Updated every 2-3 years, the manner in which the red book valuation process takes place must conform with the body’s rigorous standards.
Red Book Valuation vs Market Value
Red Book Valuations are exceptionally accurate and unbias.
The surveyor must undertake a diligent and thorough inspection, investigation and analysis to ensure that the resulting figures can be considered “red book compliant”. They must then produce clearly defined, expertly justified and effectively presented valuation results.
This contrasts with “market value” estimations given by estate agents, which are often based on speculation and winning business.
It also explains the huge discrepancies that can often occur when comparing professional surveyor and estate agent valuation estimates.
The Red Book Valuation Process
In order to determine the current market value of a property, a RICS certified surveyor must:
- Confirm the “terms of engagement” by way of an official letter.;
- Check for any conflict of interest regarding the valuation, as well as the sale or purchase of the property in question;
- Check title and lease documents;
- Inspect the property’s condition;
- Confirm size and property valuation
- Inspect three “comparable” properties from the same or a similar area. These need to have been sold in the 6 months prior to the valuation;
- Check current and historic planning consents for the property (and for properties / buildings / land sites in the vicinity)
- Undertake further research including rights of way (easements), restrictive covenants, flood risks, chancel repair liability, land contamination and other mortgageability factors;
- Check the efficiency of utility services;
- Calculate a suitable valuation and present these findings in an official report.
Of course, RICS official guidance breaks down each step into much greater detail. This means that only trained and qualified professionals – who understand the property industry extremely well – may undertake a red book valuation.
How Much Does a Red Book Valuation Cost in the UK?
Despite the exacting standards and in-depth processes involved in a red book valuation, it is possible to arrange one for as little as £150.
However, the price is determined according to a property’s value, location and size. In some cases, surveys of this kind can cost as much as £800 (or more).
It is worth noting that red book valuations are only valid for three months. They must be renewed for a further three once lapsed if up-to-date figures are still required (within the first two weeks of the initial expiry date).
Red Book Valuation vs Market Value
Surveyors do not take factors such as supply and demand and the impact of the wider market directly into account during a red book valuation.
Of course, these matters will still impact a RICS surveyor’s findings to some degree – particularly when looking into the sale prices of comparable properties.
Market value, however, is as the name suggests. It is based strongly on the current behaviours of the property market and does not comply with RICS standards.
How to Arrange a Red Book Valuation
Arranging a red book valuation is a very straightforward process. All you need to do is to get in touch with a RICS certified chartered surveyor and explain your requirements. They will be able to inform you of how much the process will cost and what will be involved.
When Do You Not Need a Red Book Valuation?
When the law requires formal valuation figures, the red book process is vital.
This is most commonly the case with legal or accountancy-related processes:
- Probate or other inheritance-related requirements
- Divorce proceedings
- The calculation of Capital Gains Tax (CGT) or Inheritance Tax (IHT)
- The valuation of bank, mortgage and lending institutional securities
- Properties sold by not-for-profit organisations and charities
- Pension-related proceedings – such as transferring property assets into a Self-Invested Personal Pension (SIPP)
- Property disputes
- Partnerships and other asset-backed company dissolutions
- Compulsory Purchase Orders (CPOs)
- Shared ownership and social housing (Registered Provider) purchases
However, not every part of a red book valuation is mandatory. In particular, you do not need a formal valuation in order to sell or buy a property. Instead, you can use an estate agent’s value appraisal.
After all, a seller and buyer may undertake a property transaction using their own preferred figures. Of course, it’s worth noting that if one sells a property for below market value, the remainder constitutes a “gift” – and comes with its own legal implications.
If you’re selling and want to know your home’s valuation, get in touch with Property Solvers today. We can provide you with a free house valuation report and provide you with any assistance and advice you may require.