Understanding the inherent risk in property valuation

Ben Elder FRICS

RICS Global Director of Valuation (RICS)

Risk is a word that is frequently used but less often well understood. Property valuation is an area of surveyors’ work where so much rests on the professional advice given to the client. We have updated our risk, liability and insurance in valuation work, guidance note.

high-rise-buildings_1_.jpg

The purpose of the update is to assist valuers and their clients to understand the inherent risk in property valuation. By better understanding the risk, valuers and their clients can manage it, make informed decisions relating to what the clients want to use the valuation for, the scope of the work required and the commercial pricing of the work.

Stakeholder concerns

A number of stakeholders, including, clients, insurers and firms undertaking valuation work identified concerns in the aftermath of the global financial crisis a decade ago. They suggested that in order to ensure the future sustainability of valuation as a professional service, improvement in the understanding of the risk inherent in valuation work was needed amongst valuers and also those procuring and relying upon the valuations themselves.

The first edition of RICS’ guidance note on Risk, liability and insurance in valuation work was published in 2013. This iteration brings the guidance note up to date on market practice and case law which have developed in the intervening years and provides greater focus on specific market sectors.

Key principles and issues

While this is at times a highly technical and legalistic subject, the guidance note summarises in straightforward terms the key principles and issues that need to be taken into account. In particular, the guidance note focuses upon providing a practical guide to the following:

  • The courts approach to valuers’ liabilities
  • The appropriate use of liability caps
  • Dealing with requests for additional parties other than the client to be able to rely upon the valuation
  • The terms of the valuation contract
  • Professional indemnity insurance (PII)
  • Dispute resolution

Recognising that some of the issues differ across market sectors, three completely new appendices have been included covering:

  • Residential valuations and building surveys
  • Valuations for commercial lending
  • Valuations for investment funds and public offerings

The availability of professional valuation services is central to the effective functioning of the economy.  Enabling valuers and clients alike to have proper regard to the risk entailed in valuation, will help to ensure the long-term provision of the service, backed by PII, and most importantly, that future problems are avoided.


Read the next page in this section