Commercial Property Valuation Explained: What a Red Book Valuation Is and When You Need One

Most owners have a number in their head for what their building is worth. It usually comes from what they paid, what the unit next door sold for, or what an agent said over coffee. That number is fine until somebody else has to rely on it. The moment a lender, an auditor, HMRC or a court is involved, you need a valuation that follows a published standard and carries a regulated valuer's signature. In the UK that means a Red Book valuation.

What a Red Book valuation is

The RICS Valuation Global Standards, known as the Red Book, set out how RICS members must carry out and report written valuations. They adopt the International Valuation Standards, and the UK national supplement adds requirements specific to this country.

In practice the standard forces discipline. The valuer must agree written terms of engagement before starting, confirm they have no conflict of interest, inspect the property to the extent agreed, state the basis of value and the valuation date, record every assumption, and explain how the figure was reached. That is what lets a bank or an auditor rely on the report without having seen the building.

Who can carry one out

Not every chartered surveyor. Red Book valuations must be carried out by valuers on the RICS Valuer Registration scheme, which RICS monitors. Registration tells you the person is permitted to value. It does not tell you they know your kind of building.

That second point matters more than most people expect. Valuing a multi-let office block, a distribution warehouse and a hotel are three different jobs. The Red Book itself requires the valuer to have the knowledge and experience for the asset in question, so ask what they have valued recently in your sector and size bracket. Our guide to choosing a commercial surveyor covers the questions worth asking.

The bases of value

A valuation without a stated basis is meaningless, because the same building has different values for different purposes. The main ones are:

• Market Value: the estimated amount the property should exchange for between a willing buyer and a willing seller, at arm’s length, after proper marketing. This is the basis for most lending, sale and tax work.
• Market Rent: the equivalent for a letting, used at rent review and lease renewal.
• Fair Value: the basis used in company accounts under accounting standards.
• Investment Value: the worth of the property to one particular owner, given their own circumstances.

Reports also record assumptions, such as good title, and any special assumptions, such as vacant possession or planning permission being granted. Read these carefully. They are where two valuations of the same building part company.

When you need one

Borrowing. A lender taking the property as security will want a valuation addressed to it. Our guide to valuations for secured lending explains why the bank usually chooses the valuer.

Buying or selling. A valuation tells you whether the price stacks up before you commit, and gives boards, trustees and partners something to sign off against.

Company accounts. Investment property is generally carried at fair value, and auditors expect an external valuation to support it on material assets.

Tax and probate. Capital gains on gifts and transfers between connected parties are assessed on market value as defined in section 272 of the Taxation of Chargeable Gains Act 1992. Inheritance tax uses the equivalent test in section 160 of the Inheritance Tax Act 1984. HMRC refers property figures to the Valuation Office Agency, and an unsupported number invites a challenge.

Leases and disputes. Rent reviews, lease renewals, shareholder exits, divorce and litigation all turn on a defensible figure, often from a valuer acting as an expert witness.

What a valuation is not

It is not an agent’s appraisal. An agent pitching for an instruction is telling you what they would ask, which is a marketing view. It is not a building survey either: the valuer notes obvious defects and reflects them in the figure, but does not investigate condition in depth. Our comparison of a building survey and a valuation sets out the difference.

And it is not the insurance rebuild figure or the rateable value. Those are separate numbers for separate purposes, covered in market value versus reinstatement cost.

What happens, step by step

You agree the purpose, basis and fee in writing. The valuer inspects and measures the property and asks for the documents: title, leases, the tenancy schedule, service charge information, planning history, the EPC and any recent survey. They analyse comparable sales and lettings, choose the appropriate valuation method, and issue a signed report. For a straightforward property that takes one to two weeks. Larger, multi-let buildings take longer, mostly because of the leases.

Getting a valuation

ComSurv matches owners, investors and occupiers with RICS Registered Valuers who have experience in the relevant sector and area, from single units to large multi-let buildings and portfolios. Tell us about the property and what the commercial valuation is for, and compare no-obligation quotes.

Sources & further reading

• RICS Valuation Global Standards (Red Book) — the mandatory standard for written valuations by RICS members
• RICS Red Book UK national supplement — UK-specific requirements, including financial reporting and lending
• RICS Valuer Registration — who is permitted to carry out Red Book valuations
• Taxation of Chargeable Gains Act 1992, section 272 — the statutory definition of market value for capital gains
• Inheritance Tax Act 1984, section 160 — market value for inheritance tax

External links open in a new tab. ComSurv is a matching service, not a firm of surveyors, and is not affiliated with these organisations. This article is general information, not legal, surveying or valuation advice; take advice on your specific situation.