RICS vs. ECO In Real Estate Consultancy – What Is The Difference?

RICS vs ECO en Consultoría Inmobiliaria
One of the most common dilemmas that we face as a real estate consultancy firm is the use of the RICS and ECO standards, since both are widely used. What are the differences between an ECO valuation and a RICS valuation?

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One of the most common dilemmas that we face as a real estate consultancy firm is the use of the RICS and ECO standards, since both are widely used. What are the differences between an ECO valuation and a RICS valuation?  It is important, first of all, to highlight that both the international RICS standard and the Spanish rule included in ECO 805/2003 Order are the most widely used valuation methodologies in Spain, although each serves a different purpose.  Before going into the differences between the two valuation systems, it is worth explaining how the system is organised at a global level. The International Valuation Standards Council (IVSC) lays down the International Valuation Standards (IVS), which serve as a general framework for the other rules and standards. In actual fact, the RICS Red Book, which includes the IVS, provides specific recommendations for its members. At a domestic level, Ministerial Order ECO/805/2003 regulates valuations guidelines. 

What is the RICS standard and what is it used for?

The RICS Valuation Standards—also known as the Red Book—is an international property valuation standard created by the UK’s Royal Institution of Chartered Surveyors. It is considered to be a premium quality label worldwide, marked by ethical principles.  However, RICS valuations can only be prepared by RICS members (MRICS) who are duly registered as Registered Valuers (REV) upon passing a strict examination before an interview panel. They must satisfy the interview panel year after year by providing examples to support their professional ethics. There are over 130,000 MRICS worldwide and around 600 accredited professionals are based in Spain. 

What is a RICS valuation for?

The RICS standard is particularly recommended for income-producing assets or assets linked to economic activities, regardless of the type of property—be it a residential, commercial or industrial property or office premises. It is recommended for cases where a client requires a reliable and objective report, often in the context of financial institutions, international funds and investors, and REITs. However, it is available to any client seeking accuracy and robustness in the valuation of their asset, regardless of the purpose. 

What does a RICS valuation provide? 

A RICS report stands out for its transparency and independence, with mutual international recognition. It is prepared by professionals maintaining high standards of ethics and professionalism, and capable of responding to the challenges of an ever-evolving sector.

What is an ECO 805 Order Valuation? 

The ECO Order 805 Valuation is a property valuation prepared by an independent professional, under the regulations laid down by Ministerial Order ECO 805/2003, and reviewed by a valuation company authorised by the Bank of Spain. Technicians preparing such valuations have specific training in valuations and are subject to a system of incompatibilities that ensures their impartiality and fairness. The report is valid for six months. 

What is the purpose of the ECO 805 Order Valuation? 

Valuations prepared pursuant to the ECO 805 Order are mandatory in a number of cases such as: 
  • To secure credits or mortgage loans. 
  • To support the technical provisions of insurance companies. 
  • To calculate the assets of property collective investment undertakings and pension funds. 
  • To value properties owned by financial institutions or as real estate collateral. 
  They are also used for other purposes, such as providing advice on sales, inheritances, auctions, divorces, land registry reviews or reverse mortgages for the elderly. 

What does the ECO 805 Order Valuation provide? 

These valuations provide a reliable and standardised reference value for many legal and financial uses. In addition, they are supported by regulations that ensure the transparency, objectivity and independence of the process. As they are prepared by authorised professionals and under official standards, they allow stakeholders to have a reliable and regulatory-compliant report that is required for important transactions and decisions in the property industry. 

When to use RICS or ECO 

The use of a RICS valuation is recommended for international valuations, special assets and the provision of advice to industry stakeholders. For its part, ECO regulations apply to valuations with specific purposes in Spain, such as mortgage-backed funding or national insurance companies. However, the RICS methodology is usually preferred when it comes to international sales or accounting records.    In short, the RICS methodology is used for valuations of international scope, special assets and expert advice to stakeholders in the property industry. Valuations that do not comply with the purposes defined in the ECO Order are excluded, although in certain cases the RICS standards are used for guarantee purposes. In addition, undertakings, financial institutions and funds may require RICS valuations when they decide to record the properties in their balance sheets for accounting purposes.    To better understand these notions, it helps to provide practical cases. For example, to provide mortgage-backed funding or to establish the fair value of a national insurance company, ECO regulations apply. However, to determine the fair value at the accounting level of a multinational firm or for international sales transactions, the RICS methodology is preferred.   

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