Premise of Value

Basis of value is the fundamental assumption about the transaction and parties that a valuation measures - in effect, the precise question the valuer is answering. Under the International Valuation Standards the basis of value is a formal statement (renumbered to IVS 102 in the 2025 edition, previously IVS 104) that must be selected and disclosed before any figure is produced, because the same intangible asset can carry very different values depending on which basis is chosen.

A liquidation premise is the valuation assumption that an asset is sold on its own, over a defined timescale, rather than valued within a continuing and profitable business. It is the premise of value that the RICS Red Book and VPGA 6 direct valuers to adopt when an intangible asset is being appraised as loan collateral, because it mirrors the situation a lender actually faces on enforcement: the borrower has failed and the IP must be realised separately from the enterprise it once supported.

Forced sale value is the estimated proceeds from selling an asset under compulsion and time pressure, where the seller cannot wait for a proper marketing period. It is the most conservative of the common realisation bases, sitting below both market value and orderly liquidation value, and it reflects the discount a buyer extracts when they know the sale must happen quickly.

VPGA 6 is the RICS Red Book Valuation Practice Guidance Application that governs the valuation of intellectual property rights, including the specialist scenario of intangible assets pledged as loan collateral. It sits within the RICS Valuation - Global Standards (Red Book) and works alongside the RICS professional standard "Valuation of intellectual property rights" (2020) and the International Valuation Standards, so that vpga 6 intangible assets work is delivered to a consistent, auditable credit standard rather than an informal estimate.

The RICS Red Book is the professional framework, formally the RICS Valuation – Global Standards, that governs how RICS-regulated valuers carry out and report valuations. It sits alongside the International Valuation Standards and adds mandatory professional requirements, and for IP-backed lending its Valuation Practice Guidance Application 6 (VPGA 6) and the accompanying guidance on the valuation of intellectual property rights are the reference points.

IVS 106 is the International Valuation Standards reporting standard that governs how a valuation is documented and communicated. It sets out what a valuation report must contain so that its user, in IP-backed lending the lender's credit team, can understand the basis of value, the premise, the approach and the assumptions behind the figure and rely on it.

Residual value insurance is a policy that guarantees a minimum future or realisable value for an asset, protecting a lender against the risk that the collateral is worth less than expected when it must be sold. Applied to intellectual property, residual value insurance underpins the downside of an appraised IP value, so that if the asset has to be realised on default the lender recovers at least an insured floor.

Saleability is how readily an intangible asset could be sold or licensed to realise cash, particularly on a default when a lender must dispose of security within a constrained timeframe. Where separability asks whether an asset can be detached from the business at all, the saleability of an intangible asset asks the harder market question: is there an identifiable pool of buyers, a functioning secondary market, and a realistic prospect of achieving value within an orderly-disposal window rather than a distressed fire sale.

What royalty rate is used to value IP for lending?

There is no single fixed rate. Valuers derive it from comparable market licences for similar IP, and for lending they deliberately use a low-end, conservative rate to avoid overstating collateral value.

Why do lenders use a forced-sale premise for IP?

Because on default a lender must realise the IP quickly, not sell it at leisure. A forced-sale or orderly-liquidation premise estimates what the asset would fetch under time pressure, giving a prudent basis for setting how much to lend.

What loan-to-value ratio do lenders offer on intellectual property?

Indicatively, IP loan-to-value runs from around 20-40% in the broader market up to roughly 50% for registered, insurance-backed rights, against an orderly-disposal rather than going-concern value.

How often is IP revalued during a loan?

Typically annually. Lenders such as NatWest revalue the appraised IP each year through an independent valuer while the facility is outstanding, so the loan-to-value stays anchored to current collateral worth.