The basis of value comes before the number

Ask for a valuation and you will get a number. Ask first what kind of value it is, and you will know whether that number answers your question. In Market Value is not price I argued that a price is evidence of value, not the value itself. This piece goes one step earlier. Before any figure, there is a basis of value.

What a basis of value is

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

IVS Glossary 10.03 (IVS effective 31 January 2025)

The International Valuation Standards (IVS) explain why this matters. The basis must be appropriate to the terms and intended use of the valuation, because “a basis of value may influence or dictate the valuer’s selection of methods, inputs and assumptions, and the ultimate value” (IVS 102, para 10.01). The basis is not a label added at the end. It shapes the work from the start.

One asset, more than one answer

IVS 102 defines six bases of value: market value, market rent, equitable value, investment value, synergistic value and liquidation value. Take one office building. A lender will usually need its market value. A rent review needs its market rent. The owner may want its investment value, “the value of an asset to a particular owner or prospective owner for individual investment or operational objectives” (A40.01). In an insolvency, the question may be liquidation value, the amount realised “with the seller being compelled to sell as of a specific date” (A60.01).

Each figure can be correct. They answer different questions. The Red Book adds that “bases of value are not necessarily mutually exclusive” (VPS 2, para 3.2): worth to one owner may match market value. When two figures coincide, that is a finding of the valuation, not an assumption made before it. The six bases are set out in Basis of value under IVS, and the market value definition element by element in Market value under IVS.

Agreed at the outset, not after

The order is written into the standards. The Red Book requires that “the basis of value adopted is appropriate for, and consistent with, the purpose of the valuation” (VPS 2, para 1.1). It adds: “It is important that the basis to be adopted is discussed and confirmed with the client at the outset in any case where the position is not straightforward” (VPS 2, para 3.1).

IVS 102 says the same in its own terms: “the basis of value must be appropriate for the intended use and the source of the definition of any basis of value used must be cited or the basis explained” (para 20.04). And the Red Book requires that “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). Purpose first, then basis, then the number.

When the basis comes from somewhere else

Not every basis is an IVS one. A valuer may be required to use a basis defined by statute, regulation, private contract or another framework (IVS 102, para 10.02). Fair value for financial reporting is the most common example. IVS 102 warns that, depending on who sets the basis, “the same words may be defined differently or require different valuation approaches” (para 20.03). A similar-sounding term is not the same basis. Quote the definition that actually applies.

The Red Book also cautions against “the use of an unrecognised or bespoke basis of value without good reason”, which could leave a report ambiguous or misleading (VPS 2, para 2.6).

One framework, read together

On bases of value, IVS and the Red Book are aligned. RICS Valuation – Global Standards “adopts and applies the International Valuation Standards (IVS)” (Introduction, para 3). 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)” (para 2.1), and lists the six bases defined in IVS 102 (para 2.2). The Red Book then adds practice requirements on purpose, client confirmation and reporting. A valuer working to the Red Book is working with the IVS bases of value.

Five questions before you read the number

Which basis of value, and whose definition? IVS, the Red Book, a law, a regulator or a contract.
Does it fit the purpose? Lending, sale, rent review, financial reporting and insolvency ask different questions.
Which premise of value? For example highest and best use, current use, orderly liquidation or forced sale (IVS 102, para 10.03).
Which assumptions and special assumptions? They change what is being valued and should be stated separately.
Is the basis stated in both the terms of engagement and the report?

If those answers are clear, the number can be read for what it is. If they are not, the number has not yet said anything.

My position has been the same across practice, teaching and standards work: value is not a number but a judgement. The basis of value is where that judgement begins.

References

IVS Glossary 10.03; IVS 102 Bases of Value, paras 10.01–10.03, 20.02–20.04, Appendix A40.01, A60.01 (IVS effective 31 January 2025): IVS PDF (public copy) · IVSC Standards
RICS Valuation – Global Standards (Red Book), Introduction para 3; VPS 2 paras 1.1, 2.1, 2.2, 2.6, 3.1, 3.2, 3.4: Red Book Global Standards (PDF)
Guides: Basis of value under IVS · Market value under IVS