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Surveyors eye controversial Brexit clause on property valuations

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The Royal Institution of Chartered Surveyors has put forward a Brexit clause for members to use in their valuation reports that gives leeway when gauging house prices.

The organisation has suggested surveyors should reflect uncertainty in the housing market following the Brexit vote and has provided suggested wording to be used in valuation reports.

In a statement on its website, RICS says: “As the process for exiting the EU is a long one, markets may remain uncertain for a protracted period of time, in which case valuers must continue to sound a cautionary note about the potential for longer term outcome uncertainty.

“At this point it’s important to give thought to wording that might be appropriate for your reports in this immediate post-referendum period.”

The trade body says until more data about the after-effects of Brexit is known, firms should use the following clause:

“Following the EU referendum held on 23 June 2016 concerning the UK’s membership of the EU, a decision was taken to exit.  We are now in a period of uncertainty in relation to many factors that impact the property investment and letting markets.

“Since the referendum date it has not been possible to gauge the effect of this decision by reference to transactions in the marketplace.

“The probability of our opinion of value exactly coinciding with the price achieved, were there to be a sale, has reduced.

“We would, therefore, recommend that the valuation is kept under regular review and that specific market advice is obtained should you wish to effect a disposal.”

The professional body’s website now says the markets appear to be more stable than was feared at the time of the EU referendum, and that valuers “will wish to consider if the use of a clause highlighting uncertainty is any longer necessary or appropriate”.

In an interview,RICS UK valuation director Fiona Haggett says the professional body does not endorse the clause itself but is leaving it up to its members to decide.

She says: “We don’t spoon-feed our valuers. It is your job as a valuer to make that professional judgement. We just said ‘this is a standard paragraph being used by some of the big London valuation houses, which you may choose to use, but it is your own judgement’.

“We don’t want to be imposing that clause on all valuation reports and effectively stopping lending. It’s in nobody’s interest for us to cause the market to crash because lenders are frightened to lend because valuers are putting in a clause because the RICS says they must do it.”

Haggett adds that lenders are not happy with the clause.

She says: “The feedback I had from the lenders was they did not like this. I can see why. I had one lender say ‘I can’t sue a valuer on this’.

“It isn’t valuers trying to watch their backs and not be sued, it’s them taking responsibility and saying ‘I am still going to hang my hat on my valuation’.”

The website adds: “Where a clause is used, the strength of the wording should be reviewed and must reflect the current market situation. In making this decision, valuers should not only take into account their market knowledge, but the requirements and needs of their clients.”

But the clause has divided opinion in the surveyor market.

An anonymous surveyor says: “This is not helpful. I know some valuers are adopting this, but we aren’t. We are here to advise lenders, not speculate that there could be a fall in house prices. This could increase uncertainty in the property market.”

A Colleys spokeswoman says the firm has not yet brought in the clause but is constantly assessing the possibility.

She says: “Valuers should continue to report in accordance with our requirements and RICS professional standards.

“However, valuers should remember they are under obligation as a professional requirement to keep very close to the local property markets and to use up to date, and properly analysed, evidence in support of valuation figures.”

Other RICS members support the new clause, saying Brexit has introduced a new level of uncertainty to the property market which valuers need to acknowledge.

Sherwood’s Chartered Surveyors surveyor Tom Littler says: “I’m not a fan of ‘covering my back’, but I have no control over Brexit, nor the consequences that stem from it.

“If the courts allow a margin of error [in valuations], why include this paragraph? But these are exceptional circumstances. In these circumstances the public has been built up to a frenzy by both sides.”

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  • Chris Gregory 23rd August 2016 at 2:45 pm

    I don’t concur with SB re FRICS political motivation I do however support the sentiment – caveats such as this is unhelpful and results in disarray. It brings in to question the validity of a RICS valuation – lawyers, financial advisers, accountants all make judgment calls when advising – caveats like this kills professional advice.
    Perhaps RICS may reconsider their position and focus on supporting their members with a robust process that includes an up to date database of comps and analysis to help with valuations or just concentrate on professional surveying services?
    Surely surveyors are in the main wholly capable of forming opinion based on the evidence the market provides at that time – his opinion may be swayed by market conditions which may include external economic factors. A value is a value! Perhaps a hybrid AVM is the solution – RICS i’m not sure how your members would feel about losing all that mortgage valuation work!

  • Chris Hulme 23rd August 2016 at 11:25 am

    Interesting one but it doesn’t really need a statement of the obvious in a professional report does it? None of us have a crystal ball for the future. Doesn’t the Red Book say that valuations on property are based on willing seller, willing buyer, arms length, etc but specifically “on the day of the valuation”? After all, valuers have refused to consider future market trends in their valuations for years!

  • Michael White 22nd August 2016 at 8:21 pm

    There is already a 10% ‘error’ margin… This sort of nonsense can create the very uncertainty it has been ‘designed’ to mitigate. I would now ask a valuer if he intends using this errant wording? If he says yes then use another who considers himself sufficiently competent to undertake the work he is meant to be qualified to complete….

  • Steven Balmer 22nd August 2016 at 4:37 pm

    This is just some upper management at RICS being unhappy with the exit vote. There was no rushed additional caveats improvised immediately after the Credit Crunch in 2007/8 which created far more uncertainty. RICS is becoming a shambles under it’s current direction and management and should do it’s best to appreciate it’s remit and keep individuals political opinions out of RICS national policies.