Valuation firms have to add value to remain in play

26 July 2010

here has been more optimism in the residential property valuations industry of late.

After a slow start to 2010 activity has risen steadily month on month. In June we conducted 20% more valuations than in May, and 16% more than in June last year.

But there are other things to consider. The macroeconomic climate remains a challenge and we are still waiting for the impact of the government’s austerity measures to hit home.

Meanwhile, funding and mortgage availability remain strictly constrained. And despite some recent improvement, transactions are still down on historic levels, with the number in Q1 2010 50% lower than in Q1 2007.

Unsurprisingly, as we have navigated choppy waters in the housing and financial markets the dynamics of the valuations industry have changed.
During the downturn, small and medium-sized valuation firms folded, leaving many lenders without adequate professional indemnity run-off insurance.

That’s why lenders have been increasingly looking to work with businesses that are financially robust. They now want to use valuation providers with strong balance sheets, stable ownership and sustainable business models.

While we’ve all had to adapt to continue to deliver a quality yet profitable service, lenders are now focussed on quality providers that have the strength of covenant to ensure they can deliver reliable service, now and in the future.

Companies must have a robust covenant so they can deliver quality service on a sustainable basis

Of course, underpinning this is PI insurance. But securing robust insurance cover is a challenge, especially for smaller firms.

To compound the problem, only a few insurance firms are now seeking to operate in the PI insurance market, and where cover is offered its cost has risen significantly. Even if a valuations provider has a good reputation and demonstrable expertise an insurer may not offer adequate insurance.

One of the positive outcomes of the recession and the tighter regulatory environment is an increased emphasis on risk mitigation and fraud prevention on the part of lenders. Valuation providers are central to this.

In addition to delivering advice that is important for lending decisions through chartered surveyors, we are also providing manual and automated activities to help clients mitigate risk and ensure their lending exposure is consistent with their requirements.

And alongside our risk mitigation services, fraud prevention activity is another important function for us.

The role of valuation services providers in this regard varies according to their credentials as well as the appetite of lenders and other clients to work in partnership to combat such crime.

With increasing numbers of lenders and other financial services firms appointing outsourced valuation service providers we must show that our businesses embrace Treating Customers Fairly and that clients can rely on us to support them.

The valuations market has seen a considerable amount of change and providers will be tested further in future. But being able to adapt to support the needs of lenders is one thing - possessing a robust covenant to ensure the delivery of sustainable quality service in the longer term is another.

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