Uncertainty about property valuations during the COVID-19 pandemic has led the Royal Institution of Chartered Surveyors (RICS) to reissue its valuation guidance to firms. Originally issued as a ‘valuation practice alert’ at the start of the pandemic, RICS has now published a supplement with a revised ‘market conditions explanatory note’ and ‘material uncertainty declaration’ wording.
Surveyors face the risk that their valuations may be challenged in the future if property values fall due to the pandemic. This could lead to an increase in the number of valuation claims for professional indemnity insurers to handle (see Brunel News).
The RICS guidance provides a template for firms to use to alert their clients to the ongoing uncertainty of current market conditions. It suggests that firms should also consider including a ‘material valuation uncertainty’ clause, in accordance with requirements set out in RICS Valuation Global Standards – known as the Red Book.
RICS continues to advise its members to make it clear to clients about any changes in the way they are undertaking valuations and to record this in writing. It also recommends that members keep detailed file notes on their rationale for making the changes.
RICS’ guidance does not suggest that valuations cannot be relied on, but says that clients should be aware of the market conditions prevailing at the time of the valuation – highlighting the importance of the valuation date. However, law firm DAC Beachcroft has reported that some lenders have interpreted the material valuation uncertainty clause as akin to a ‘no sue’ clause and questions whether clients may refuse to allow surveyors to incorporate the caveat in their work.
James Burgoyne, Director – Claims & Technical, Brunel Professions says that firms should follow RICS guidance and take great care to record the basis of their valuations to protect themselves against the risk of future claims. “We saw a large number of property valuation claims from lenders following the global financial crisis of 2007-2008 and the global pandemic has the potential to lead to further valuation claims if property prices cause issues for lenders,” he said.
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