Valuers' Liability: the impact of torts reform in Queensland

Historically there has been a correlation between the economic cycles and litigation in the area of professional negligence relating to valuers. Negligence actions have principally been instigated by financiers for valuations prepared during more buoyant economic times but where there has been a subsequent loss due to a reduction in property value. More specifically during periods of economic downturn such as 1982 to 1983 and 1990 to 1998 there has been an increased focus by academic writers on professional negligence as it relates to property valuers. Based on historical trends it is anticipated that the end of an extended period of economic prosperity such as has been experienced in Australia, will once again be marked by an increase in litigation against valuers for professional negligence. However, the context of valuers liability has become increasingly complex as a result of statutory reforms introduced in response to the Review of the Law of Negligence Final Report 2002 (“the IPP Report”), in particular the introduction of Civil Liability Acts introducing proportionate liability provisions. This paper looks at valuers’ liability for professional negligence in the context of statutory reforms in Queensland and recent case law to determine the most significant impacts of recent statutory reform on property valuers

Integrating automated valuation models (AVMs) with valuation services to meet the needs of UK borrowers, lenders and valuers

Lenders traditionally instruct a valuer to conduct a property valuation to support property secured loan decisions. However AVM use for UK residential loan valuations has recently grown rapidly (CML, 2007) raising questions about how the UK valuers’ professional body, the RICS, should respond. The paper reports research funded by the RICS Education Trust and Residential Professional Group, commencing with interviews and a survey examining valuers’ changing roles in residential loan valuation in the UK, including the use of AVMs. Subsequent interviews with lenders and AVM companies explored choices between different valuation and survey levels, including AVMs, and development of AVM tools designed to support valuers. The paper analyses possible approaches to advice, guidance and regulation of AVM use by the UK professional body, drawing on the survey, interviews and a review of other countries’ professional body responses to AVMs. It is the first systematic study of valuers’ current and likely future involvement with automated valuation and their perceptions of it

Commercial property loan valuations in the UK : implications of current trends in practice and liability

This paper is the second of two papers which aim to examine the major legal liability implications of changes to the commercial property loan valuation process caused by the recession in the UK property market and to make recommendations to valuers and their professional institutions to improve the quality of the process and the result. The objectives of this paper are to address a number of the practical implications of changes to the loan valuation process within the context of legal liability. The results of an interview survey of lenders and valuers are reported and analysed. The survey examined the loan valuation process including the selection and instruction of valuers, bases of valuation and valuation reporting. In the selection and instruction process, the findings of the survey reveal two potential problems within the valuer/lender relationship. First, valuers still occasionally accept instructions from borrowers and this could lead to a conflict of interest as lenders may rely on the survey. Second, the occasional lack of formal instructions prior to the delivery of reports casts doubt on the valuer’s ability to correctly identify the needs of clients. Regarding the basis of valuation, it was found that valuers are providing valuations on bases which they do not think are appropriate. Valuers may be legally liable if they do not inform clients of their reservations and this situation must be urgently addressed. The survey also confirms previous research that valuation reports are considered to be light on contextual information concerning markets. The paper concludes by making a number of specific recommendations concerning possible improvements to the commercial property loan valuation process

Commercial property loan valuations in the UK : the changing landscape of practice and liability

This paper is the first of two which aim to examine the major legal liability implications of changes to the commercial property loan valuation process caused by the recession in the UK property market and to make recommendations to valuers and their professional institutions to improve the quality of the process and the result. This paper identifies the market background to commercial property lending and discusses the implications of the falls in value for lenders and valuers. These include two major strands; first, the outcome of discussions between the representative bodies of these two groups and, second, the increasing litigation caused by lenders suing valuers for professional negligence. The discussions between representative groups have driven a debate on the valuation process leading to a number of reports and guidance notes. This paper discusses the outcomes paying particular attention to the basis of valuation for loan purposes and the provision of additional information in valuation reports. This paper also reviews the legal framework which influences the relationship between the lenders and valuers and discusses the duty of care. The role of instructions in the valuation process, the significance of the identity of the person to be advised and the possibility of a conflict of interest arising are all considered. The paper also addresses the issue of the standards required of a commercial loan valuer, including how this is interpreted by the courts and the legal status of professional guidance notes. The paper concludes by identifying potential areas for dispute within the loan valuation process and raising a number of research questions concerning the operation of this process which are addressed in a following paper

An investigation to establish whether property maintenance can diminish the number of empty commercial buildings in Sheffield and Leeds

Property maintenance has long been considered an undesirable and overlooked area amongst the construction and property industries; however, a large proportion of construction output comes from such maintenance works. Empty commercial property is an emotive and challenging area, which has been made more topical due to the implementation of the Rating (Empty Property) Act 2007 placing further financial liability on owners with the aim of „incentivising‟ them either to develop, re-let or sell their vacant buildings. As such, the level of property maintenance is important to allow the building to be at a lettable or saleable standard, which in turn should allow the number of unused commercial buildings in the United Kingdom (UK) to reduce. A mixture of primary and secondary sources were utilised to fulfil this research to determine whether incentives exist or can exist to increase the level of property maintenance to diminish the number of vacant commercial buildings in Leeds and Sheffield. The primary data was based on six case studies, four example cases in point and two interviews. Ratings were assigned according to factors and incentives to analyse the data to assist in the findings of this research. This change in Government policy is causing outrage amongst UK businesses and professional bodies of the property industry, in extreme cases leading to the demolition of the building to avoid liability and other detrimental consequences, such as staff reductions to make up for the liability. It has come also alongside the worst recession of recent times

An investigation of development appraisal methods employed by valuers and appraisers in small and medium sized practices in Brazil

Purpose – Whilst the real estate development appraisal practices of large national and international real estate companies are well understood, relatively little is known about how development appraisals are conducted by indigenous appraisers and valuers in developing countries. The purpose of this paper is to investigate how development appraisal is conducted in Brazil, compared to the UK, focusing primarily on the methods employed by small- and medium-sized real estate practices and their appraisers to appraise the viability of commercial real estate developments in the State of Sao Paulo. Design/methodology/approach – The study employs a two phase Delphi Method to capture and analyse empirical data from small- and medium-sized real estate appraisers in Brazil. Using the long established and relatively transparent UK Residual Method of development appraisal as a template against which to compare Brazilian appraisal methods, guidance and practice. To understand how indigenous development appraisers operate the Brazilian development appraisal methods, the research was conducted in Portuguese by a bi-lingual real estate expert who was familiar with both UK and Brazilian practice. Findings – The research establishes that appraisers working for small- and medium -sized real estate practices in Brazil rarely use the Residual Method. Instead, they employ a range of methods, the choice of which is heavily influenced by the availability of comparable market data, with Direct Comparison of market data and the Capitalisation of Income being the methods of choice when sufficient comparable evidence is available. Appraisers rarely employ the Residual Method as the principal development appraisal technique, using instead the Comparative Method and Discounted Cash Flow (DCF) analysis. Land prices are usually agreed or already known and developer’s profit is usually determined using DCF analysis and is highly sensitive to fluctuations in construction costs. Research limitations/implications – The research engaged with a small number of appraisers and valuers in small- and medium-sized practices in the State of Sao Paulo using a two-phase Delphi Method. The long established UK Residual Method of development appraisal was used as a template against which to compare practice in Sao Paulo State. There is potential therefore to replicate the research in other Brazilian States and transfer the methodology to other developing countries. Practical implications – In Brazil, when development land in urban areas is acquired on the basis of plot exchange, land is often sold at less than market value and the original landowner retains an equity stake in the development and shares in the development overage. The practice of “permuta física”, giving landowners the freehold of part of the development, or “permuta financeira”, whereby the landowner receives an enhanced land price, indexed against development value, is of potential relevance to the UK and other developed countries that need help in urban unlocking land markets

The accuracy of valuations: expectation and reality

The relationship between valuations and the subsequent sale price continues to be a matter of both theoretical and practical interest. This paper reports the analysis of over 700 property sales made during the 1974/90 period. Initial results imply an average under-valuation of 7% and a standard error of 18% across the sample. A number of techniques are applied to the data set using other variables such as the region, the type of property and the return from the market to explain the difference between the valuation and the subsequent sale price. The analysis reduces the unexplained error; the bias is fully accounted for and the standard error is reduced to 15.3%. This model finds that about 6% of valuations over-estimated the sale price by more than 20% and about 9% of the valuations under-estimated the sale prices by more than 20%. The results suggest that valuations are marginally more accurate than might be expected, both from consideration of theoretical considerations and from comparison with the equivalent valuation in equity markets