On 1 February 2020, the property industry was probably breathing a sigh of relief – the General Election was concluded and Brexit done. Surely the uncertainty and confusion in the market was over? Just seven weeks later, the UK was in lockdown. The situation relating to Covid-19 is fluid, with government, regulatory and market requirements constantly evolving. RICS members have a professional duty of care to keep up with the latest obligations in the scope of their work and should be familiar with the RICS Valuation Practice Alert – Coronavirus issued on 19 May.
Instructions
It is worth considering three options:
1. Since May, inspections are on the table but limitations on the nature and extent of access should be specified. These should be explicitly agreed in the terms of business and explained in the report.
2. In some circumstances, and depending on access arrangements, valuers are opting to provide valuations subject to a deferred inspection, but retaining the original date of valuation. Again, this is subject to the agreement of the client.
3. It may be concluded that a valuer is unable to form an opinion of value from the information available. In this case the instruction should be declined.
Inspections
Inspections are the cornerstone of surveying, whether it is for loan security valuations, building surveying, agency or management, and sometimes there is only one chance to “get it right”. Although lack of an inspection may be a divergence from standard practice, in the current environment it is not a departure in terms of RICS Valuation – Global Standards.
Inspections and investigations may take various forms:
1. Full internal inspection. Care needs to be taken where inspecting premises: the wellbeing and safety of the occupants and valuer is of the upmost importance and precautionary measures should be taken to adhere to government guidelines on:
- Transport to and from the property;
- Who will provide access and be present on site. If anyone has experienced within the past 14 days or is experiencing any Covid-19 symptoms, or has been in contact with anyone experiencing symptoms in the past 14 days, the visit should be postponed. The valuer should postpone if the intended staff member displays symptoms. If anyone in the household is clinically extremely vulnerable as identified by the NHS, additional precautions should be taken.
- Availability of appropriate PPE.
- Before and during the inspection: keep windows and internal doors open wherever possible; wipe down “touch points” before and after the visit; ensure only members of the household are present; 1m (or more) social distancing.
2. Internal inspection with restriction on access or a “drive-by”. Where an inspection cannot be undertaken or is limited, an increased focus may be placed on information from third parties.
3. A “desktop” opinion. Some valuers are choosing not to internally inspect any occupied property. In the absence of an on-site inspection, the valuer may have access to enough information to proceed with the valuation. Information from clients and third parties can assist. This could include floor plans, previous reports and measurements, photographs and particulars. Video tours are being accepted. Where a valuation using restricted information is to be undertaken, this must be agreed with the client in the terms of engagement, with details set out in the valuation report. Reasonable due diligence should be undertaken to corroborate information. Valuers should procure, review and verify information that will support the accuracy of valuation.
The practice alert makes clear that “inspecting property may be difficult either through firms’ own internal procedures, government-imposed restrictions or unwillingness of occupants to grant access”. Valuers should consider their liability under any instruction, including whether this is impacted by any limitations, restrictions or assumptions. Valuers are limiting their liability where they are providing restricted advice.
If, for reasons relating to Covid-19, an inspection cannot be made in circumstances where it otherwise would be, the valuer must:
- Be satisfied that continuing with the instruction is appropriate;
- Ensure that the nature of the restriction is clearly specified in the terms of engagement and in the report;
- Retain a proper record of the rationale for dispensing with an inspection.
Material valuation uncertainty
Current circumstances are leading some RICS-regulated members to include “material valuation uncertainty” declarations in their reporting and advice. Red Book Global Standards defines material uncertainty as “where the degree of uncertainty in a valuation falls outside any parameters that might normally be expected and accepted”. This does not mean those members are unable to value – valuation under these circumstances provides a key function to support markets.
RICS has provided a suggested form of words (see box) to report material valuation uncertainty, although the requirement for this has now been removed with certain use classes. In considering the degree of uncertainty at a specified valuation date, regard should be made to the level of activity in the relevant market and the existence and degree of reliability of recent or contemporary evidence.
RICS’s suggested wording
- The outbreak of the Novel Coronavirus (Covid-19), declared by the World Health Organisation as a global pandemic on 11 March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries.
- Market activity is being impacted in many sectors. As at the valuation date, we consider we can attach less weight to previous market evidence for comparison purposes, to inform opinions of value. The response to Covid-19 means that we are faced with an unprecedented set of circumstances on which to base a judgment.
- Our valuation(s) is/are therefore reported on the basis of “material valuation uncertainty” as per VPS 3 and VPGA 10 of the RICS Red Book Global. Consequently, less certainty, and a higher degree of caution, should be attached to our valuation than would normally be the case. Given the unknown future impact Covid-19 might have on real estate, we recommend that you keep the valuation of [this property] under frequent review.
Sebastian Deckker is a director, valuation at Savills
