RICS Red Book
Definition
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. When a lender needs an independent, defensible view of intangible collateral, a RICS Red Book valuation gives the credit team assurance that the valuer is competent, independent and working to a recognised standard. The guidance is explicit about the lending context. Appendix A on valuations supporting IP debt financing directs the valuer to adopt an orderly-liquidation or forced-sale premise for collateral, because the lender needs to know what the IP would realise if the business could not continue, not what it is worth as a going concern. It also warns against letting a single most-likely figure obscure downside outcomes, requiring sensitivity analysis and value ranges. Conservative inputs follow from this: a low-end royalty rate, a discount rate carrying a risk premium, a finite economic life rather than a perpetuity, and cautious or absent terminal value. A UK example: a bank commissions a RICS-regulated valuer to value a trade mark and associated brand IP under VPGA 6 for a secured facility. The valuer reports a range on a forced-sale premise, applies a conservative royalty rate, and models how the collateral value moves under adverse assumptions. For borrowers, a Red Book valuation is often the precondition a high-street lender sets before it will consider IP as security; for advisers, it is the mark of a valuation a credit committee will trust, because it is prepared by a regulated professional to a standard built for lending rather than accounting.
Complementary Terms
Concepts that frequently appear alongside RICS Red Book in practice.
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.
IVS 210 is the International Valuation Standards asset standard that governs how intangible assets are valued, and it is the framework a credible IP valuation for lending must follow. When a lender advances against patents, trade marks or other intangibles, it relies on a valuation prepared to a recognised standard so that the figure supporting the loan-to-value can withstand credit scrutiny, and IVS 210 intangible assets is that standard.
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.
Premise of value is the assumption about the circumstances in which an asset is exchanged - in particular whether it is sold as part of a continuing business or realised on its own, and how much time the seller has. Where the basis of value fixes which question the valuer answers, the premise of value fixes the conditions under which the exchange is assumed to occur, and the two together determine whether a figure is appropriate for lending.
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.
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.
The process of determining the fair value of assets pledged as security for a loan, specifically adapted for the requirements of lending rather than accounting or tax purposes. Collateral valuation for intangible assets differs from standard intangible asset valuation in several important ways: it emphasises liquidation value rather than value-in-use, it considers the transferability of the asset to a hypothetical buyer in a forced-sale scenario, and it applies conservative assumptions reflecting the lender's need for downside protection.
Related FAQ
What valuation standard does a lender need, IVS or RICS?
Both. Lenders expect a valuation prepared under IVS 210 for intangible assets and delivered to the RICS Red Book, whose VPGA 6 and Appendix A set out how to value IP for debt financing.
Read full answer →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.
Read full answer →Put this knowledge to work
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