The RICS has gone as far as it feels comfortable with the introduction of measures to bolster confidence in valuation procedures (p33). The trouble is, what feels comfortable today may feel less so tomorrow.
Tomorrow being the day a buyer claims £25m from an agent, alleging that an £180m portfolio was overvalued because the seller was a long-term client. Unlikely? Luxury goods and champagne maker LVHM filed a £63m claim against Morgan Stanley last Monday, alleging that analysts’ research was tipped in favour of rival Gucci – a client of the investment bank.
Doing what feels comfortable…
A champagne-versus-fashion spat is not a row over the motives of valuing a building. But the point is this: moral rectitude increases as economic activity decreases. Valuers can and do fall victim of clients seeking to lay blame for the falling value of their property. This time around will be no different.
Except this time the profession will be able to say: “Look here, we identified the moral hazards facing valuers while Enron was still trading. We commissioned a report from a man of unimpeachable authority (Sir Bryan Carsberg, the former head of the Office of Fair Trading). And this week we have responded with a series of measures that will enable our members to defend themselves should anyone choose to attack their probity. These measures are a good balance between stifling bureaucracy and doing nothing.”
The response to the Carsberg report was launched at the first RICS Valuation Faculty conference in London on Wednesday. The 288 delegates to this Estates Gazette-supported event at the QEII centre in Westminster generally welcomed the measures that tackle 14 of the 18 points made by Sir Bryan 12 months ago.
These measures cover only (for now) valuations used for regulatory purposes – such as company accounts. Valuers have until next May – when the fifth edition of the Red Book is published – before needing to comply. Here are just four of the changes: if a firm’s total income from the client is more than 5% of its income, that fact will have to be disclosed on the valuation certificate; a “paper trail” will need to be laid through the process to allow anyone sniffing for bad odours to follow the rationale; valuers will have to establish, and then abide by, a policy of rotating the person responsible for signing off a particular client’s valuation; and last but not least, a written conflict of interest policy must be drawn up.
…until the comfort zone changes
This last point at least half covers the conflict between giving both (well paid) transaction and (badly paid) valuation advice to the same client. So, seven out of ten for a genuine effort that falls somewhat short – but an effort that will do good by altering the moral climate before, rather than after, the bad news arrives. Perhaps afterwards the RICS will feel comfortable in going further.
