RICS and BBA recently signed a Memorandum of Understanding (MoU) outlining their commitment to work together to maintain high standards in commercial property valuation and ensure a sustainable supply of valuation services.
This landmark document outlines their joint intent to future proof the profession through joint working on maximizing consistency in standards of practice, supporting risk based regulation and tools for valuers and lenders to manage risk and liability in valuation.
RICS promotes and supports high standards in valuation delivery worldwide, and this public commitment by both lenders and valuers to work together to maintain standards and safeguard the future of the valuation industry for the public good is very welcome.
The MoU will reinforce professional standards and raise consumer confidence in the delivery of valuation advice to the highest professional standard - a key component underpinning most economic activity. It will deliver lasting improvements in working relationships, with a view to safeguarding the future of the commercial secured lending sector.
We welcome this joint Memorandum. Valuations are a crucial part of the lending processes and this agreement will help support consistent and transparent high standards that will ultimately benefit customers and enhance their confidence in this service.
During the process, all parties acknowledged that sustainable and well-regulated valuations which support commercial secured lending are vital to the health of the UK economy. Taking action now will ensure a healthy future for the valuation profession and continue the high standards that inspire public confidence.
For this to happen there is a consensus that several key areas need to be addressed:
- The balance of risk and reward in valuation services - ensuring that any liability that is assumed is reflected in the pricing of valuation services
- A programme of education on issues around liability and risk for lenders and valuers
- Clarification of the standards expected in the sector - particularly on independence and competence
Risk and liability in valuations
As a key step RICS will shortly publish revised guidance on risk, liability and insurance in valuation which will guide both lenders and valuers in ensuring risk and liability is clearly defined and appropriately priced in contractual terms
This will help the market to address serious challenges that surfaced following the global financial crisis of 2008 and 2009. The real costs of handling alleged negligence claims continue to have a serious impact on the cost of obtaining professional indemnity insurance cover for the provision of valuation.
During economic events, such as the recession, and increasingly in the current politically uncertain climate, valuers are at risk from rising costs and availability of professional indemnity insurance (PII) for secured lending in the UK. If valuation for secured lending became an uninsurable activity, this could have major implications for the supply of mortgages and levels of public protection.
As a result of the report, Balancing Risk and Reward: Recommendations for a Sustainable Valuation Profession in the UK by Dr Oonagh McDonald CBE, RICS has been working closely with the BBA and the wider industry to deliver lasting improvements to the commercial secured lending sector to reduce any threat to the sector and the wider economy.
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