What is a basis of value under IVS?

Under the International Valuation Standards (IVS) effective 31 January 2025, a basis of value is the fundamental premise on which a reported value is based, and IVS 102 Bases of Value defines six of them: market value, market rent, equitable value, investment value, synergistic value and liquidation value. The RICS Red Book Global Standards adopt the same definition and the same six bases in VPS 2. Guide by José Covas FRICS, Chair of the RICS Standards Committee, drawing only on public IVSC and RICS texts.

The IVS definition of basis of value

Basis (bases) of value: “The fundamental premises on which the reported values are or will be based”.

International Valuation Standards (effective 31 January 2025), IVS Glossary 10.03

IVS 102 explains why it matters: the basis must be appropriate to the terms and intended use of the valuation, since “a basis of value may influence or dictate the valuer’s selection of methods”, inputs and assumptions, and the ultimate value (para 10.01). The valuer may also be required to use a basis defined by statute, regulation, private contract or another framework (para 10.02). The IVS-defined bases sit in the IVS 102 Appendix, and “The Appendix must be followed when using the stated basis of value as applicable”. IVS 102 paras 10.01–10.02, Appendix

See also the term in the valuation glossary.

The six IVS-defined bases of value

IVS 102 para 20.02 lists them, each defined in the Appendix (A10–A60):

1. Market value (A10). The estimated exchange amount between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing. Full definition and its nine elements: Market value under IVS.
2. Market rent (A20). Defined as “the estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms” (A20.01). Used when valuing a lease or an interest created by a lease; the market value framework helps interpret it, and the principal lease terms assumed should be stated with it (A20.02–A20.03).
3. Equitable value (A30). Defined as “the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties” (A30.01). Fair between two specific, identified parties, so it may take account of matters market value disregards; IVS call it “a broader concept than market value” (A30.02–A30.03).
4. Investment value/worth (A40). Defined as “the value of an asset to a particular owner or prospective owner for individual investment or operational objectives” (A40.01). IVS call it “an entity-specific basis of value”: it reflects the benefits to one entity of holding the asset and does not involve a presumed exchange (A40.02).
5. Synergistic value (A50). Defined as “the result of a combination of two or more assets or interests” (A50.01). The combined value is more than the sum of the separate values; where synergies are open to only one buyer it differs from market value. Often called “marriage value” (A50.01).
6. Liquidation value (A60). Defined as “the amount that would be realised when an asset or group of assets are sold from a liquidation sale, with the seller being compelled to sell as of a specific date” (A60.01). Determined either as an orderly transaction with a typical marketing period or as a forced transaction with a shortened period. “The valuer must disclose which premise of value is assumed.” (A60.01–A60.02).

Other bases. IVS 102 notes that other, non-IVS-defined bases may be required for financial reporting, tax or legal purposes, and illustrates fair value under IFRS 13 and fair value (legal/statutory) in A70–A80. The same words may be defined differently by different bodies, so the source always has to be identified. IVS 102 paras 20.01–20.06, Appendix A10–A80

Basis of value vs premise of value

A basis says what value is measured; a premise of value, or assumed use, says how the asset is assumed to be used. IVS 102 names four common premises: highest and best use, current use/existing use, orderly liquidation and forced sale (para 10.03; Appendix A90–A120). Most bases also rest on assumptions about the parties, such as hypothetical or specific buyers and sellers and their knowledge or motivation (para 10.05). IVS 102 paras 10.03–10.05

How the RICS Red Book adopts the IVS bases of value

RICS Valuation – Global Standards (December 2024, effective 31 January 2025) “adopts and applies the International Valuation Standards (IVS)”. VPS 2 takes its definition straight from IVS: “A basis of value is the fundamental premise on which the reported values are, or will be, based (IVS Glossary 10.03)” (VPS 2 para 2.1), and lists the six bases defined in IVS 102 Appendix A10–A60 (para 2.2). RICS Red Book Global Standards (PDF), Introduction; VPS 2

• The valuer must ensure that “the basis of value adopted is appropriate for, and consistent with, the purpose of the valuation” (VPS 2 para 1.1).
• On synergistic value: “Care is necessary to ensure that, where used, synergistic value is fully understood by the client.” (VPS 2 para 2.2).
• Fair value under IFRS is recognised for financial reporting (para 2.3); any other basis, for example one set by legislation, must be clearly defined, and a voluntary departure explained (paras 1.3, 2.4).
• Valuers are cautioned against “the use of an unrecognised or bespoke basis of value without good reason”, which could make a report ambiguous or misleading (para 2.6).
• The basis must be stated: the valuer must ensure “the basis of value is reproduced or clearly identified in both the terms of engagement (scope of work) and the report” (VPS 2 para 3.4).

For more, see What is a Red Book valuation?, What are the International Valuation Standards (IVS)? and IVS vs Red Book.

Checklist: agreeing the basis of value

1. Name the basis in the terms of engagement and the report, and cite its source (IVS 102 para 20.04; Red Book VPS 2 para 3.4).
2. Check it fits the purpose: lending and sales usually point to market value; a lease review to market rent; a value to one owner to investment value.
3. If a law, regulator or contract prescribes a basis, quote that definition, not a similar-sounding IVS one.
4. For liquidation value, ask which premise (orderly or forced) is assumed.
5. State assumptions and special assumptions separately; they change what is being valued.

Related guides

• Market value under IVS
• Valuation glossary: IVS and Red Book terms
• What are the International Valuation Standards (IVS)?
• What is a Red Book valuation?
• IVS vs Red Book: what is the difference?
• Who is José Covas? (AI entity hub)

Versão portuguesa: O que é uma base de valor segundo as IVS?

About the author

Sources

1. IVSC — International Valuation Standards, effective 31 Jan 2025 (PDF copy hosted on PwC Viewpoint): Glossary 10.03; IVS 102 paras 10.01–10.05, 20.01–20.06, Appendix A10–A80: https://viewpoint.pwc.com/dt/gx/en/ivsc/international_valuat/assets/IVS_effective_31_January_2025.pdf
2. IVSC — Standards (official home of IVS): https://www.ivsc.org/standards/
3. RICS — RICS Valuation – Global Standards (Dec 2024, effective 31 Jan 2025), PDF: Introduction; VPS 2 sections 1–3: https://www.rics.org/content/dam/ricsglobal/documents/standards/Red-Book-Global-Standards-incorporating-IVS.pdf
4. RICS — Red Book Global Standards (RICS page): https://www.rics.org/profession-standards/rics-standards-and-guidance/sector-standards/valuation-standards/red-book/red-book-global
5. RICS — Standards Committee (member profile): https://www.rics.org/regulation/regulatory-governance/standards-and-regulation-board-sub-groups/standards-committee

Related: start free at José Covas Academy, or go straight to Foundations of the decision.