Valuation is a core or optional technical competency for a wide variety of APC pathways, including Commercial Real Estate, Corporate Real Estate, Planning and Development, Property Finance and Investment, Residential, Rural and Valuation.
The APC competency guide confirms that valuation is ‘about the preparation and provision of properly researched valuation advice, made in accordance with the appropriate valuation standards, to enable clients to make informed decisions’.
In this article, we will look at the underlying process behind a valuation instruction. This will take candidates from start to finish, including common difficulties you may encounter, and finally our tips for ensuring a high standard of professional service is maintained in valuation work.
There are four key stages to undertaking a valuation instruction, each of which we will consider in turn.
Preliminary questions
There are eight key preliminary questions that a valuer should ask before accepting a valuation instruction. Some of these can be covered in an initial telephone call or meeting with the client.
- Ask the client what the purpose of the valuation is.
- Establish if the request is for a written valuation to be provided, which will require compliance in part or full with RICS Valuation – Global Standards (Red Book Global, 2020).
- Assess whether the valuer is suitably qualified, experienced and knowledgeable to provide advice, for example, are they familiar with the type of property, valuation purpose and location.
- Check for conflicts of interest in line with the RICS professional statement; if any are identified then they need to either be managed or the instruction declined.
- Establish if there any specific national or other overriding requirements, such as taxation legislation or the UK National Supplement, for example.
- Check if any third parties or the public will have an interest in the valuation, as this may require additional disclosures, if for instance they are being published in financial statements.
- Check if the valuation is one of the five excepted purposes, which do not have to comply with Valuation Technical and Performance Standards (VPS) 1-5 of the Red Book Global, although Professional Standards (PS) 1-2 remain of mandatory application.
- Check if the valuer’s firm holds sufficient professional indemnity insurance to cover the potential liability stemming from the instruction. A liability cap may need to be considered to limit risk in certain circumstances.
Terms of engagement
The next key stage is for the valuer to agree written terms of engagement with the client. If the valuation is to comply with the Red Book Global, then these should include the minimum requirements set out by VPS 1, e.g. name of the client, property address and valuation date.
The valuer should ensure that a copy of the signed terms of engagement are held on file to create a clear audit trail. It is also sensible to liaise with the client to ensure that they understand and are happy with the agreed terms.
Valuation preparation
VPS 2 of the Red Book Global provides guidance on the valuation process, including inspection, due diligence and verification of information
- Desktop due diligence, for example looking at location maps, historic file records, lease, Land Registry title plan and register, flood risk, coal mining, as well as identifying any health and safety concerns through a risk assessment.
- Making access arrangements.
- Inspections, including dynamic health and safety risk assessment on site, e.g. being aware of your surroundings and unexpected hazards encountered on site. The inspection will cover the surrounding, external and internal areas, noting any factors that may impact upon value. Full notes and photographs should be taken to create a clear audit trail on file.
- Measurement on site.
- Collating due diligence, inspection and measurement notes to start preparing a VPS 3 compliant valuation report, recognising any limitations or requirements of the agreed terms of engagement.
- Comparable evidence research, including verification of any transactions with the parties involved. Sources of evidence could include online databases, discussions with active agents and past experience. Net effective rates should be calculated and the hierarchy of evidence applied to the valuer’s analysis of the available evidence.
- Clear file notes should be kept, including the valuer’s justification and thought process in arriving at the final valuation figure.
- Valuation calculation, using one of the five valuation methods and potentially cross-checking using another method, if appropriate. For example, cross checking a residual valuation with a comparable method approach.
Reporting
Finally, the valuer will need to complete a VPS 3-compliant valuation report. This will include the minimum requirements such as the client, purpose of the report, interest, basis of value (VPS 4) and valuation date.
The valuer also needs to step back to review the valuation figure and context of the instruction as a whole. This is because valuation is both an art and a science.
Peer reviewing at this stage is extremely helpful to identify potential errors or areas of concern, where additional research or consideration is required.
The valuation report should then be issued in final form to the client. Ideally this will be in hard copy or PDF format, which cannot be amended by the client or any third party. A Red Book valuation report should be signed off by a RICS-registered valuer, providing the client with assurance that it meets the highest standards and thus promoting trust in the profession.
A follow-up telephone call is also helpful to answer any queries the client may have and to seek feedback on the service provided. This can be accompanied by the valuer’s fee invoice for payment by the client within defined payment terms.
The final responsibility of the valuer is to ensure that the valuation file is complete and coherent. This provides clear justification for the valuer’s final valuation figure and report, ensuring a clear audit trail in the event that a complaint or future negligence claim is received.
Top five tips for success
APC candidates will be required to provide examples of valuations they have been involved with (level 2) or undertaken from start to finish (level 3, which is likely to be under supervision of a registered valuer). This requires a robust understanding of the logical and methodical process of carrying out a valuation from start to finish.
- Ensure that you carry out your pre-instruction checks diligently each time a new valuation instruction is received. This will include reviewing and issuing new terms of engagement for each instruction to existing clients.
- Ensure that your due diligence is comprehensive to identify any key factors that may affect value.
- Uphold high standards of health and safety when inspecting, including risk assessment, safe lone working and taking personal protective equipment. Desktop due diligence can help to identify hazards that you may encounter on site.
- Ensure that you fully investigate the relevant comparable evidence, with all details verified by the parties involved to ensure accuracy and reliability of your valuation advice.
- Ensure that your file notes are well-organised, legible and professionally presented – this creates a clear audit trail in the event of a complaint or claim.
Jen Lemen BSc (Hons) FRICS is a partner at Property Elite, providing training and support to RICS APC and AssocRICS candidates jen@property-elite.co.uk
Related competencies include: Valuation