The valuation file
The first article in this series on risk management for valuation work provided an overview and general guidance on the key stages of a typical valuation job.
This article looks in more detail at the mundane but vitally important role of the valuation file and how it is managed. When challenged to substantiate a valuation, even the best practitioners can find themselves in difficulties if the file does not provide adequate support.
The importance of practitioners maintaining a comprehensive file cannot be emphasised strongly enough as it can make a vital difference in defending a claim.
Setting up the file
A valuer’s mode of operation should specify the procedure for setting up, maintaining, referencing and storing information and data relevant to a valuation in some form of file.
Generally, a hard copy paper based file still forms the basis for most valuers' record keeping and filing systems. Where electronic and hard copy systems co-exist, it is vitally important that the hard copy information and electronic data be combined to form a comprehensive record.
With the increasing use of electronic data storage, there is a danger of vital information failing to be stored in either a hard or an electronic format.
Compiling a file can take a variety of forms. A separate file should be opened for each new valuation job and will probably be referenced by a property address.
On creating a new file always check to see whether an old property file exists – an old file could be a invaluable source of information but do not be tempted to reuse the property related information without physically re-inspecting the property.
If your practice utilises a formal Quality Management system, it is highly likely that the opening of a new file will be accompanied by the creation of “job control form” or similar document.
Even if you have not adopted a Quality Management System, it would be good practice to use some form of file checklist, which can be secured into the front of the file so that an operational methodology and audit trail can be established.
File management
The management of valuation files varies considerably. Some valuation practices compile and maintain valuation files, which have indexed sub sections relating to the various components of the valuation process, use different coloured papers and have pockets for related documents such as hard copy plans.
Whatever working practices are adopted, the valuation file is an essential reference document and its careful treatment can be one of your greatest risk management tools.
File checklist
The following items should be fully secured in a valuation file:
- Information relating to the basis of the instructions i.e. instruction letter, fax, e-mail etc
- The confirmation of instructions – see RICS Valuation Standards Practice Statement 2.1
- Legible property inspections notes and property related information such as planning inquiry advice, lease details, measurements, photographs, calculations, valuation workings/methodology and calculations together with comparable evidence used. In Barclays Bank v Kirby and Diamond 2004, the lack of file notes recording the planning inquiries which a surveyor was supposed to have made led the Judge to state that “There is no documentary evidence of such an enquiry, but this fact is consistent with Mr. Diamond’s failure to keep attendance notes generally. On the other hand I found Mr. Diamond an honest witness, though at times a careless one.” This led the judge to find against the surveyor in a claim for negligence.
- Draft and a final report. The retention of a draft report showing corrections and alterations can be used to demonstrate due diligence in the correction and consideration of a valuation report prior to despatch.
- Other relevant information such as a record of telephone conversations, follow up correspondence, side letters and e-mails etc.
If the property being valued is of an unusual type and or is being undertaken at a time of significant change in market conditions ensure that the file contains an amplification of the valuer’s research, thought process and discussions with other surveyors/colleagues etc.
In Field Palmer v Izzard 1999, a valuer was found to be negligent for not having given sufficient warning to a lender and property purchaser about the marketability or unsuitability for mortgage of a non traditionally built residential property. However, the quantum of damages was reduced on appeal when it was accepted that the valuer was not doing anything substantially different to other valuers at that time.
The lack of background information and research on the valuer’s file meant that the original trial judge fully accepted the expert evidence from the claimants surveyor, whereas the Court of Appeal decided this was an unreasonable course of action to have been taken.
In this particular case, some additional detailing on the file in respect of reports that were being published in professional publications at the time would have been of considerable assistance.
File review and storage
Prior to a paper file being stored, it is well worth reviewing its contents by way of a final sign off to ensure that it is capable of telling the full valuation story and irrelevant paper does not take up valuable storage space. Electronic files should also receive similar treatment and be archived accordingly.
Ideally, electronic files should be stored with a trusted third party depository. Under no circumstances should you retrospectively alter a file once it has become the subject of litigation.
Statute of Limitations
So, how long should closed files be kept for? This will be dictated to an extent by the amount of available space or the cost of storage but while the basic contractual limitation is six years, claims can be pursued in tort until 15 years after the work was done. The oldest valuation claim received by Travelers related to a valuation undertaken eleven years before the claim was actually made.
In conclusion, it might not be the most exciting aspect of a surveyor’s job but a well-researched valuation backed up by a comprehensive file record is often crucial in successfully refuting or defending negligence claims. The cost and time spent in getting this right from the outset is far outweighed by the benefits of being able to mount a robust defence to any allegations of negligence that follow in the years after the work was done.
Michael Mortimer MRICS is a Senior Risk Management consultant with Travelers Insurance Co Ltd - the official provider of risk management services to RICS members. For further information on risk management or professional indemnity insurance, please visit the Travelers website at http://www.travelers.co.uk/surveyors
