UK: Valuers Under Scrutiny

Last Updated: 6 August 2004
Article by Jo Whyld

The RICS’ programme of monitoring of Regulated Purpose Valuations, which commenced in January this year, is a further manifestation of the drive for high levels of transparency and public confidence in valuers which underpinned last year’s changes to the Red Book, arising from the Carsberg Report. Regulated Purpose Valuations are defined in the Red Book and include valuations for certain financial statements, pension funds, unit trusts and insurance company assets.

Since January, valuers who prepare, or are responsible for, Regulated Purpose Valuations may be required to make their valuation file available for inspection by RICS and demonstrate that the valuation report was prepared in compliance with the relevant Red Book requirements (e.g. that the percentage fee income from, and nature and duration of the surveyor firm’s relationship with, the client are disclosed in the report itself). The potential consequences of non-compliance vary and, whilst a minor breach of the Red Book will result in a request to the Member to revise his practices, serious breaches will be referred to the RICS Conduct Section and may result in a caution and/or a fine and, for the more serious cases, a hearing before the Professional Conduct Panel or Disciplinary Board.

In the light of this increased monitoring, it is worth highlighting some risk management points which are particularly pertinent as a result of the changes to the Red Book, in particular the changes which relate to client communication and record keeping, since these are potentially the most susceptible to being overlooked or not complied with fully (especially where there are time constraints on the valuer).

Valuers should adhere to the following:

  • Keep proper file notes of discussions with clients on draft reports or valuations (the Red Book prescribes the information to be included);
  • Consider sending the note of the discussions to the client so there can be no scope for confusion or misunderstanding as to what took place (particularly if the discussions resulted in a change from the initial valuation);
  • Consider carefully who your "client" is (e.g. the instructions may have been received from, and discussions may have taken place with, someone other than the person or body within the organisation who will ultimately "rely" upon the valuation) and ensure that communication takes place at the appropriate levels within the client organisation;
  • Any restrictions on a valuation (e.g. because of limited information), and the potential implications thereof, must be confirmed to the client in writing at the outset and specifically referred to in the report;
  • Ensure that client fee income information included in the report is current and bear in mind that there may have been a significant increase in fee income received between the end of the preceding financial year and the date of the report. 

In summary, there is more of an emphasis than ever on careful recording of instructions from clients, and adherence to these requirements will go towards minimising the potential likelihood of claims. The absence of such documentary evidence in the context of a claim against a valuer could well be fatal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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