The Royal Institution of Chartered Surveyors (RICS) has launched a consultation regarding the use of discounted cash flow (DCF) within valuations.
RICS said the consultation, which started today, was part of its review into UK valuation practice ‘aimed at safeguarding market confidence and trust in investment property valuation’.
The use of DCF by valuers was a component of an independent valuation review commissioned by SRB and published in 2022, which made three key recommendations related to DCF. Two recommendations covered analytical approaches and their application within DCF valuations, with the third recommendation relating to standardised property risk advice.
With the recent economic uncertainty creating price fluctuations in property markets RICS said ‘being more explicit regarding the assumptions contained within valuations will help those relying upon them have greater confidence in their accuracy’.
The consultation will ask respondents to assess the current Red Book, its content and proposals for change.
Richard Waterhouse, chair of the valuation review implementation committee RICS, said: “As part of its commitment to lead the profession globally, RICS is developing a suite of updates to its professional standards, practice information and training material. Fundamental changes in valuation across the industry have led to greater usage of DCF, and so we feel that these updates should focus on this.
“We are reaching out to our global membership of over 130,000, along with our key partners in the industry, to gain their crucial insights into this critical update. This is a time of enormous changes for investment real estate and the valuation profession that provides the services that support it, and it is of fundamental importance that the standards we produce ensures regulated members consistently deliver to high standards to maintain public trust.
“The consultation is part of the implementation of the Pereira Gray Review of real estate investment valuations, commissioned by the RICS Standards and Regulation Board (SRB) considering the complex and swiftly changing marketplace in which valuers do their work. We invite the profession to take an active part in shaping the sector and future-proofing it for the many changes and challenges to come.”
The DCF consultation closes on Wednesday 12 April.
