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    Responding to feedback and rapidly changing market dynamics, the RICS Standards and Regulation Board (SRB) commissioned the Valuation Review in the public interest to futureproof practices in the valuation of real estate assets for investment purposes. The SRB accepted all recommendations from the review put forward by the review chair Peter Pereira Gray.

    RICS has worked with a Valuation Review Expert Working Group to develop specific reforms through feedback from public consultations. All final changes for RICS standards and regulation will be approved by SRB.

    Read more about our progress against each recommendation.

    Discounted Cash Flow (DCF) practice information and web hub launched

    To ensure valuers’ confidence in using the discounted cash flow (DCF) method, RICS has published a practice information paper and a web hub with useful resources. This support is essential for enhancing valuers’ understanding and proper application of the DCF method.

    Additional tools are forthcoming to assist RICS members further advance valuation practices in the public interest. It’s important to note that valuers have the discretion to choose their preferred valuation approach, method and model, as DCF usage is not mandatory.

     

    Global economic and investment environments do not stand still, and this drives the need for the appropriate consideration of valuation measures and methods.

    Over the last few decades, there has been a succession of standards from IVSC, RICS and other international and national valuation standard setters concerning the discounted cash flow (DCF) method of valuation. The new practice information paper replaces the previous RICS UK guidance note Discounted cash flow for commercial property investments, published in 2010.

    This new practice information is timely in light of the recommendations Peter Pereira Gray made in the Valuation Review.

    The recommendations related to DCF were primarily in three parts:

    • Recommendation 8 – Analytical Approaches (i) Discounted Cash Flow

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

    • Recommendation 8 – Analytical Approaches (ii) Advanced Analytics

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

    • Recommendation 10 – Standardised Property Risk Advice

    RICS should develop a framework to standardise property risk advice.

    Peter Pereira Gray believed several misconceptions and misunderstandings were present in the evidence presented to him concerning what is meant by a DCF valuation. The practice information paper addresses a range of questions surrounding what DCF encompasses and how it fits into the regulatory and advisory framework. It is hoped that this practice information will clarify many of these issues and add to the advancement of knowledge within real estate valuation practice globally.

    During the consultation for this practice information, concerns were expressed from across the valuation industry against the prescription of explicit DCF over the more implicit, income capitalisation methods, traditional to some markets. Peter Pereira Gray discussed the circumstances where explicit DCF may not be the appropriate principal model and nothing in this practice statement disturbs the individual valuers’ responsibility for deciding the appropriate model to use in any valuation.

    Updated Red Book UK Supplement published, including new mandatory rotation rules

    RICS has published new standards to improve the governance of valuations for regulated purposes in the UK and ensure valuations that investors rely on remain relevant and trusted.

    Changes to the Red Book UK Supplement introduce a compulsory rotation cycle for valuation firms and responsible valuers valuing an asset for regulated purposes. The rotation policy prevents valuation firms valuing an asset for regulated purposes for more ths and includes a maximum period of five years before the rotation of an individual responsible valuer. You can read the full rotation requirements here.

    These updates were developed by the Valuation Review Implementation Committee, Expert Working Group and the Knowledge and Practice Committee as part of a three-year valuation review project which included public consultation with those commissioning, undertaking, auditing, and regulating valuations.

    The changes to the Red Book UK Supplement are intended to reduce the risks of conflicts of interest in the commissioning of valuation reports, in the public interest. They have been approved by the RICS Standards and Regulation Board. They come into effect on 1 May 2024 with a transition period for the rotation requirements to allow clients and valuers to implement them.

    Following feedback from an industry consultation, we recognise a tailored approach is needed for valuer procurement governance and rotation in respect of valuations undertaken for financial reporting purposes of public sector related investment properties. RICS will commission a workstream to review these standards and work closely with key public sector stakeholders to deliver a practical and public interest-oriented approach.

     

    Consultation on changes to valuation regulation

    We have launched a consultation on proposed changes to the RICS regulatory schemes for registration of valuers and regulated firms. Our aim is to implement the valuation review recommendations and strengthen the assurance regime for the valuation to future-proof practices in the public interest.

    This consultation is part of the RICS Standards and Regulation Board (SRB) policy development process to ensure that any professional policy changes are properly assessed, and stakeholders are consulted.

    The proposals in this consultation include the introduction of a Valuation Compliance Officer role within valuation firms and the creation of a register of regulated valuation firms. The document also provides information about a new Valuation Assurance Committee.

    Our regulatory regime needs to be proportionate and achieve the best outcomes in the public interest. Therefore, feedback and evidence from stakeholders, including valuers, valuation firms, valuation clients, and others who rely on valuations are important to inform the final scheme changes and guidance.

    Any changes to the regulatory policy following feedback from this consultation will be considered by the SRB, who will decide which changes to approve. Share your views before the consultation closes on 12 December.

    Contribute now

    Upcoming implementation milestones

    Following public consultation on the updates to the UK Supplement of the Red Book, and the use of Discounted Cash Flow practice information paper and other outputs, we have been reviewing the feedback received and aim to launch both in Q4 2023.

    Use of Discounted Cash Flow in real estate investment valuation consultation

    Ensuring there is more clarity and transparency in the use of valuation methods was an important conclusion of the valuation review, so we are consulting on a series of proposed outputs to encourage and support valuers to use the discounted cash flow method more confidently and consistently, where appropriate.  

    Supporting a better understanding and appropriate application of the discounted cash flow method by valuers is part of a package of reforms being implemented to future proof practices in the valuation of real estate assets for investment purposes, in the public interest.  

    DCF is an important modelling tool, widely used in modern professional services.

    The creation of additional tools to support better understanding and application of DCF by surveyors will assist RICS members across many areas of practice, not just valuation.

    Feedback from this public consultation on the proposals – which include proposed changes to the Red Book and its UK supplement, a transition web-hub hosting supporting tools, initiatives to upskill the valuation profession and a new DCF practice information document – will be considered to inform subsequent decisions on next steps towards implementation through a staged approach.  

    Share your feedback to the consultation here before 12 April.

    Implementation of Valuation Review recommendations update  

    The Valuation Review Implementation Committee and the RICS programme board continue to implement the review recommendations this year, with some key upcoming milestones expected in the next two quarters.  

    The input of the profession and its stakeholders has shaped this review since 2020, and consultation with the market will continue to develop specific reforms from the review and ensure the best possible outcomes in the public interest.

    Upcoming implementation milestones include:  

    • Valuation Assurance Committee Chair recruitment
    • Discounted Cash Flow in valuations of investment property – consultation   
    • Consultation on changes to regulation of valuers and valuation firms
    • Red Book – UK Supplement publication  
    • Global Red Book consultation

    All changes to standards or regulatory policy recommended by the Committee will be considered by the SRB, who will decide which changes to approve.  

    If you want to stay informed on key launches and would like to be contacted about opportunities to help inform the implementation express your interest.

    Public consultation launched on proposed changes to UK regulated purpose valuation practice 

    To progress recommendations from the valuation review we have launched a public consultation on the RICS Red Book UK Supplement. The consultation seeks feedback on proposals for a time-limited, mandatory rotation cycle for regulated purpose valuations, proposals to ensure an orderly transition to the policy, and proposals to standardise governance and prevent conflicts of interest in the commissioning and receiving of valuation reports. Feedback should be submitted before the consultation closes on 30 December 2022.

    An orderly transition to any new regulatory arrangements and standards is essential so the proposed transition policy, which is subject to this consultation, seeks to provide clients with a reasonable timescale to transition, with changes proposed to come into effect and be mandatory by 1 October 2023.

    It is intended that once feedback from this consultation has been received and carefully reviewed, the wording of any changes will be finalised and approval of the terms will be sought from the RICS Standards and Regulation Board.

    Share your views

    To give clarity on the programme and the process for implementation of the recommendations from the valuation review report, we have prepared a Roadmap.

    Download review implementation roadmap

    The input of the profession and its stakeholders has shaped this review since 2020, and consultation with the market will continue to develop specific reforms from the review and ensure the best possible outcomes in the public interest.  

    If you want to be involved and would like to be contacted about opportunities to help inform the implementation express your interest

    All changes to standards or regulatory policy recommended by the Committee will be considered by the SRB, who will decide which changes to approve.

    RICS is taking action to future-proof practices in the valuation of real estate assets for investment purposes in the public interest.

    A dedicated sub-committee of the independently led Standards and Regulation Board (SRB) will oversee the development of specific reforms to implement all recommendations from the Valuation Review in a staged approach over the next 18 months.  The committee will be chaired by Richard Waterhouse, FRICS, a senior chartered surveyor, and member of the SRB. The initial focus for the implementation programme is on standards and practice issues and we are seeking views on proposals to introduce mandatory rotation of valuation firms and the introduction of new governance arrangements for the commissioning and receiving of valuation reports to inform an update to the UK supplement of the Red Book.

    The input of the profession and its stakeholders has shaped this review since 2020 and we will continue to seek feedback from the widest possible audience through implementation to ensure the best possible outcomes in the public interest.

    To canvas industry stakeholder opinion on what currently works within the UK supplement of the Red Book and what may need to be updated or removed in light of the recommendations, RICS ran a ‘Call for views’ from 11 April to 20 May.

    RICS will now be forming Expert Working Groups to assist in updating the different sections of the UK Supplement. If you would like to express an interest in joining a group, please email standards@rics.org. RICS aims to formally consult on the updates in Autumn 2022.

    Frequently asked questions

    About the Valuation Review

    The Valuation Review was commissioned to future-proof practices in the valuation of real estate assets for investment purposes, as a result of feedback and rapidly changing market dynamics. There are structural shifts in investor and occupier demand for real estate – many accelerated by the impact of the pandemic. The RICS Standards and Regulation Board asked the Review Chair to examine the way valuation of real estate assets for investment purposes are conducted and make recommendations to ensure valuations remain relevant and trusted.

    The Valuation Review has been largely UK-focused, where RICS is the principal professional body and regulator of property valuation. However, it has also addressed global standards and assurance issues where appropriate, reflecting RICS’ role in upholding compliance with its standards by members around the world.

    The initial evidence gathering for the Valuation Review looked at all aspects of valuations of property assets for investment purposes, but the Valuation Review has primarily focused on valuations of real estate assets for performance measurement and decision-making purposes, upon which third parties place reliance. These are principally valuations for:

    • financial reporting
    • inclusion in prospectuses and circulars, and takeovers and mergers
    • collective investment schemes
    • unregulated property unit trusts
    • commercial investment property financing.

    You are advised to read the full Review report findings to provide a clear understanding of the recommendations. The Executive Summary provides an overview.

    The SRB hope that members, regulated firms and stakeholders alike, will welcome the findings in the Valuation Review.

    About the recommendations implementation

    RICS is grateful for the efforts of the Valuation Review Implementation Committee whose expertise steered the initial implementation programme.

    The valuation review recommendations are being implemented with support of the Valuation Review Expert Working Group by developing specific reforms.

    Plans are being drawn up to ensure the work carried out is thorough and establishes future-proof practices in the valuation of real estate assets for investment purposes that are in the public interest. All final changes for RICS standards and regulation will be approved by the Standards and Regulation Board.

    The Valuation Review report recognises and endorses the role of RICS and its Standards and Regulation Board in regulating valuation with independent oversight. It acknowledges the progress that the profession has made by introducing Valuer Registration and embedding it over the past ten years. To drive the highest possible quality of professional practice, the Valuation Review report suggests that, for the highest public interest valuation purposes, assurance should be further enhanced and strengthened. This points to changes, not just in the standards but also in the approach RICS takes to monitoring and assurance delivered through the Valuer Registration scheme and through our firm based regulatory assurance.

    The Standards and Regulation Board has indicated in their response that resultant changes to the RICS standards and regulation framework will be implemented over an appropriate timeframe with regular engagement with stakeholders on progress.

    Ensuring there is more clarity and transparency in the use of valuation methods was an important conclusion of the valuation review and remains a key objective of our work to future proof practices and ensure confidence remains in real estate investment valuations.

    In achieving clarity and transparency, the Red Book directs that the valuer should use their professional judgment when considering the appropriate valuation method(s) in undertaking valuations.  In determining that method, it is recommended within the Review that when undertaking property investment valuations, valuers appropriately consider the use of the Discounted Cash Flow (DCF) method. 

    We received feedback from those who contributed to the review, that strengthening the guidance around discounted cash flow (DCF) will be beneficial. Therefore, RICS will develop this to provide greater transparency and support valuers to be more explicit in their assumptions. We will also develop training on the appropriate use of DCF and update the RICS Valuation – Global Standards “Red Book”.

    To progress implementation of the recommendation specific to DCF, RICS consulted on a series of proposed outputs to encourage and support the use of the method in March 2023. The feedback is now being reviewed and a DCF practice information paper along with a new transition web-hub hosting supporting tools will be published later this year.

    The Valuation Review has primarily focused on valuations of real estate assets for performance measurement and decision-making purposes, upon which third parties place reliance. Where this affects small and medium-sized firms, the Standards and Regulation Board will take a proportionate approach to ensure that SMEs are not subject to inappropriate regulatory burden, adopting a right-touch approach commensurate with risk.

    In his review, Peter Pereira Gray highlighted the negative impact of a hard PII market on the valuation sector. Making reference to the ongoing review of PII requirements in the UK, he encouraged RICS to continue to work with partners and external stakeholders to address these risks and ensure that firms are not squeezed out of the market by a lack of available PII and high premiums. PII continues to be a core area of focus for RICS. As part of the PII review, we recently published a call for views (20 January to 24 February 2022) which analysed the issues currently affecting the PII market for surveyors and seeks views on a series of proposals and recommendations to improve the availability of adequate, appropriate and affordable PII. We encouraged submissions from valuers and valuation practices who are impacted by the difficult PII landscape or concerned that they may be impacted in future. We will continue to work with insurers, lenders and other stakeholders to ensure that they can have confidence in valuations undertaken by RICS members.

    These FAQs are being reviewed following publication of the Red Book UK Supplement and will be updated periodically.

    All question responses are a general response in summary form only – the full standards and any relevant regulation and/or legislation should be read and understood fully before application. The content below does not replace any of the standards or guidance and should not be read as such.  

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    Standards and Regulation Board

    The Interim Standards and Regulation Board has exclusive responsibility for exercising RICS' regulatory functions, including strategy, governance, structure, policy and operational oversight in the public interest.

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    About the Valuation Review

    Responding to feedback and rapidly changing market dynamics, the RICS Standards and Regulation Board commissioned the Valuation Review in the public interest to future-proof practices in the valuation of real estate assets for investment purposes.

    The Valuation Review was led by Peter Pereira Gray, supported by an expert advisory group, and gathered insights through a public call for evidence and engagement with a broad range of stakeholders.

    Peter Pereira Gray, BSc (Hons) DipPropInvest FRICS, FRSA

    Peter has developed an extensive understanding of valuation practice after being involved in commissioning and receiving such services over the last thirty-five years in his role in the property investment sector.

    Currently acting as the Managing Partner and Chief Executive Officer of the Investment Division of the Wellcome Trust, Peter also sits on Wellcome’s Valuation Committee. Alongside this he is the co-chair of the Institutional Investors Roundtable, a body representing approximately $14 trillion in assets across the globe.

    Prior to joining the Wellcome Trust, Peter was Deputy Life Fund Manager and a Director in the property fund management division of Prupim, at the time one of the UK’s largest institutional property owners (1988 to 2001).

    “I commend the RICS Standards and Regulation Board for commissioning this objective and transparent review and for accepting all of the recommendations. It is my belief that implementing these recommendations as a package will lead to a greater and more enduring trust in the work of RICS Registered Valuers”

    Peter Pereira Gray, BSc (Hons) DipPropInvest FRICS, FRSA

    Chair of the Review

    The Review was supported by a panel reflecting a range of expertise from different sectors, selected by the Reviewer.

    Expert advisory group members

    Michael is the Chairman of the UK Advisory business of CBRE and joined CBRE’s investment team in 1981, running the Valuation department between 1999 and 2018.

    He has had a wide range of Non-Executive roles including the Policy Committee of the British Property Federation and the Bank of England’s Commercial Property Forum, IPD (now part of MSCI).

    David is a Chartered Accountant with over 17 years’ experience working in commercial, operational, audit and advisory functions in the corporate and not-for-profit sectors. He is currently a Director at the Institute of Chartered Accountants in England and Wales. Prior to this role, David was a valuations specialist at a Big 4 firm.

    Sarah has over 35 years’ experience in the City and in the investment management industry, including roles as Chief Investment Risk Officer at RBS Asset Management (and formerly at Coutts) and, most recently, Head of Risk at The Wellcome Trust, where her role spanned investment and operational risks.

    Paul is the Head of Strategy and a Portfolio Manager for European Real Estate at JP Morgan Asset Management. He serves as a voting member of the European Investment Committee and a member of the group’s senior leadership team.

    Currently the Executive Chairman and CIO of PineBridge Benson Elliot, Marc Mogull is also a Senior Fellow in Land Economy at the University of Cambridge and the Chair of the Bank of England Commercial Property Forum. Previously he has held executive/investment roles with Doughty Hanson Real Estate, Goldman Sachs, the EBRD and JMB Realty. He is also a member of the MHCLG/BPF and RICS Commercial Property Forums, and is the co-creator of the Honor Chapman Memorial Lecture Series.

    Timothy is a planning, environmental and public law specialist. He has over 30 years’ experience of practice in the field of compulsory purchase, land compensation and rating. Prior to taking silk in 2006, he was standing junior counsel to the Inland Revenue on rating and valuation.

    Isobel O’Regan FRICS FSCSI has been in practise for 35 years and is currently with Savills based in Ireland.  The majority of Isobel’s professional career has been in the area of professional services. Isobel is also currently a member of RICS Governing Council and holds the strategy seat for Valuations and Capital Markets.

    Michael Prew is as senior Equity Research Analyst at Jefferies LLC based in London heading the Pan-European Real Estate and covering 30 UK REITs with 30 years' sell-side experience. He holds an honors degree from Imperial College in Mechanical Engineering and a master’s degree from its Business School.

    Sandra is Chief Investment Officer, Chief Executive Officer, and sits on the Board of Oxford University Endowment Management Ltd (OUem). As Chief Investment Officer, Sandra has discretion for all investment decisions and as Chief Executive Officer, she is responsible for overall strategy of the business and ensuring the success of the company.

    Becky is Chief Financial Officer at Canary Wharf Group. Becky qualified as a chartered accountant with PriceWaterhouseCoopers and has over 20 years of experience in finance with extensive knowledge of the real estate market.

    FAQs

    Peter Pereira Gray was appointed by the RICS Standards and Regulation Board to lead the Valuation Review. The Review was supported by an Expert Advisory Group (EAG), which reflected a diverse range of expertise from different sectors, chosen by Peter Pereira Gray. The skills of those on the on the EAG included valuation, real estate, regulation, financial services, investment analysis and academia.

    The independently-led RICS Standards and Regulation Board (SRB) provides oversight of RICS’ core public interest functions such as standard setting, entry to the profession and regulatory processes. The SRB commissioned the Valuation Review and asked the Chair of the Review to deliver recommendations to ensure valuation of real estate assets for investment purposes remain relevant and trusted. The SRB has received the final report and accepted all the recommendations for the Valuation Review and will now implement necessary programmes of work, with input from the profession and its stakeholders, to plan the implementation of the Review’s recommendations.

    A dedicated RICS staff team provided project coordination and secretarial support to the Valuation Review. The recommendations and the report resulting from the Valuation Review are solely the opinions of the Chair, supported by advice from his Expert Advisory Group and the evidence gathered.

    Over 180 responses were received to the Call for Evidence from a range of stakeholders. Some of the individual responses represented large multidisciplinary firms that employ hundreds of valuers. Responses were also received from smaller organisations and sole traders. The majority of responses were from valuers, with lenders, professional bodies, and regulators also submitting responses.  More detail on the respondents is published from page 56 of the report, including a list of firm names.

    Download the report executive summary in another language

    Executive Summary - French  SRB Response - French
    Executive Summary - German SRB Response - German
    Executive Summary - Simplified Chinese SRB Response - Simplified Chinese
    Executive Summary - Spanish SRB Response - Spanish