A report commissioned by the Royal Institute of Chartered Surveyors on the sustainability of the UK valuation profession has been published. The report makes a number of recommendations and CMS were able to assist the report’s author during her review. RICS has invited submissions on the report from stakeholders by the end of February.
Dr Oonagh McDonald CBE, Chair of the independent commission considering the sustainability of the UK valuation profession, released her report and recommendations on 24 January 2014. Dr McDonald was commissioned by the RICS to undertake a public inquiry into the operation of the valuation market in July 2013, following the previous consultation with the profession, finalised in October 2012, which had concluded that steps had to be taken to ensure the sustainability of the profession.
This was a direct consequence of the plague of claims against valuers following the economic downturn as lenders sought to claw back their losses (aided by legal service funding arrangements such as success fees and ATE insurance). The concern was that this had led to professional indemnity premiums rising and many surveyors finding it difficult to continue to provide services in circumstances where the risks frequently outweighed the rewards (the pricing of valuation services being a key issue).
Dr McDonald studied written and oral evidence submitted by representatives from across the insurance sector, banking community and property industry to address the balance of risk and reward. She concluded by stating that the market at present is “dysfunctional and will remain so unless urgent action is taken”.
As a result the report makes a series of twelve recommendations designed to assist the development of a well functioning market:
- Surveyors on Valuer Registration should be obliged to report to RICS immediately on receiving a formal notification of a negligence claim. This will hopefully result in RICS setting up an Alternative Dispute Resolution Scheme to deal with at least some of the claims received, thereby encouraging the substantiation of claims;
- Lenders should instruct their solicitors to withdraw notifications of ‘confetti letters’. In the majority of these cases, no action has been taken since the original notification. Despite this, insurers have to regard these claims as being open and therefore must reserve for them. If the original notifications are withdrawn, valuers would find it easier to obtain insurance at a reasonable price and return to the market as residential valuers;
- Insurance products such as Valuation Specific Professional Indemnity Insurance (“VSPII”) or Valuation Risk Management (“VRM”) should be carefully assessed and introduced. This is the method of providing cover for each individual valuation carried out by a surveyor “pay per click PI insurance”;
- The requirement for property inspection data to be recorded electronically on portable devices would offer an additional layer of protection. This is already a requirement under VSPI;
- Valuers must assess their contracts for the valuation more carefully and seek to limit their third party liability;
- RICS should retain a register of all the panel management companies and a list of staff surveyors employed by the companies and a list of staff surveyors employed on an annual basis;
- Panel management companies under the support of RICS should set up a working group to develop a Code of Best Practice for panel management;
- All residential surveyors should develop their understanding of Automated Valuation Models (“AVMs”). RICS should implement training to ensure residential surveyors understand AVMs;
- The professional standards in the Red Books should be amended to include a requirement for the valuation to be retained in a durable medium, one copy to be retained by the creditor and another by the surveyor for a period of at least six years;
- Consider introducing the Home Report in England and Wales. It is a legislative requirement in Scotland for a seller to obtain a Home Report. Scottish Home Reports were introduced with three policy objectives: (1) to improve information about property conditions; (2) to address the problem of multiple valuations and surveys being instructed for one property; and (3) to address the problems created by the practice of setting artificially low asking prices. The effectiveness of its operation is under review and will be completed in December 2014;
- The lender should pay for the valuation report; and
- Marketing and communication of the valuation profession as a career choice needs to be supported by RICS, Higher Education Institutes and professionals within the industry.
Inevitably commercial considerations will make it difficult to establish true equality between valuers and lenders. Nevertheless, it is clear that pro-active steps have to be taken in response to the flood of claims that has been suffered by the profession, in order to avoid history repeating itself. In particular, valuers will no doubt welcome the intention to force claimants to substantiate claims. All too often claims have been brought based on skeleton retrospective valuations (included in repossession reports) in the knowledge that commercial considerations (especially legal costs) will encourage the early settlement of claims, which may, ultimately, have little merit.
Whether or not these recommendations are implemented remains to be seen. RICS has invited comment from stakeholders with submissions in response due by the end of February 2014.