Protecting Surveyors Bulletin 2: Valuing in an uncertain world

In the latest in our series looking at the issues affecting the surveying profession (see our earlier bulletin here), we take a look at the position in undertaking valuations now that the market is opening up in the wake of COVID-19.

It is clear that it will take some time for matters to return to normality. Surveyors, therefore, face a very real challenge in providing valuation services in circumstances where social distancing, market activity and the financial landscape is resulting in a scarcity of transactional evidence upon which to base valuations. As those who recall the avalanche of claims which hit the profession in the wake of the 2008/9 global financial crisis, the use of evidence in a valuation is a critical element to the defence of any claim.

To assist, the RICS has recently published a guidance note, Beyond Covid-19: Valuation approaches and evidence during the COVID-19 health crisis in order to provide support to surveyors and refresh the principal issues to consider when carrying out valuations of property in situations where there is limited market information.

The key points to note are:

• Comparable evidence remains the backbone of valuations, however it is recognised that evidence will be harder to come by in current circumstances with there being a lack of up to date evidence, less transparency in the market and an increase in special purchases.
• Notwithstanding this position, the RICS considers that the hierarchy of evidence (Category A to Category C) is still relevant, although a surveyor should still use its professional judgment to assess the importance of particular evidence on a case-by-case basis.
• Where ordinarily asking prices do not provide reliable evidence of value, in times of market upheaval, asking prices can be a useful indication of current market trends when interpreted carefully by a surveyor along with information on the level of demand and offers received.
• Surveyors are reminded of RICS Red Book Global Standards VPGA 10 and VPS 3 if they are considering declaring material uncertainty.
• Given the uncertainty surrounding market trends, surveyors should be alive to the fact that transactional information may reflect the needs of a special purchaser, rather than the true market value of an asset.
• Surveyors should be mindful that the COVID-19 pandemic is influencing national, regional and local economies in different ways.
• The COVID-19 pandemic has created uncertainty around the suitability of the use of the income approach to valuation. The RICS guidance is that the income approach should only be used in circumstances where the surveyor is experienced enough to do so. Any surveyor who is not familiar with the approach when it appears to be the principle approach relevant to the market for the asset being valued, should consider their suitability to carry out the valuation.

Whilst the above can be seen as an affirmation of existing principles, in circumstances where the prevailing approach of the Courts is to embrace conventional valuation methodologies, the above will be a welcome reminder in times of uncertainty. Following the recent updates to the Minimum Terms and ongoing practice notices issued by the RICS, surveyors will want to keep up to date with the guidance to ensure they remain on top of current best practice in a changing world.