Valuer registration review team: how to comply with standards
Going for gold
9 November 2015
Graham Stockey explains the work of the valuer registration review team, and how firms can ensure they comply with the necessary standards
Since 2011, all UK practitioners carrying out Red Book valuations have been required to join RICS Valuer Registration (VR). For the VR review team at RICS Regulation, this means ensuring that members always meet and maintain the RICS global gold standard for valuation, the measure that sets RICS members apart. The initiative is now mandatory for members in 8 diverse countries across the world, from the Cayman Islands to Hong Kong, with 14,770 Registered Valuers and 2,923 sponsoring firms at last count.
Together, the twin arms of the Red Book and VR aim to raise confidence, and provide assurance to clients and recognised users alike that a valuation provided by an RICS qualified valuer anywhere in the world will be undertaken to the highest professional standards overall. Respectively, they are responsible for maintaining a global frameworkof standards and high level principles,and regulation, compliance, registration and monitoring.
Calling on 6 regulatory review surveyors, the VR review team has visited 950 firms worldwide, reviewed around 3,000 individual members’ work on site, inspecting more than 8,000 individual valuation case files. The broader regulation team has also carried out in excess of 2,000 desk-based reviews, while the review valuers have completed a further 200 off-site inspections.
The results over the 4-year active review programme has shown a process of continual improvement
The results over the 4-year active review programme have shown a process of continual improvement. In year 1, 15% of firms of firms fell below an acceptable standard, with 4% of those failing at a level where significant and critical issues were apparent. In year 2, the results improved dramatically, with only 5% of the firms visited unable to meet an acceptable level of compliance and 1% viewed as presenting significant or critical compliance concerns.
In years 1 and 2, the selection criteria for a review visit was somewhat random but in years 3 and 4 a more risk-based approach was adopted with better use of information and intelligence held by RICS to maximise the review team’s resources. Control group random visits were supplemented by visits to firms where a significant risk had been identified through intelligence or thematic monitoring.
The results remained encouraging, with the percentage of firms failing to reach an acceptable level of compliance sitting at around 11% and only 3% of firms inspected presenting failings where critical non-compliance was apparent.
A range of disciplinary outcomes has been applied over the period for those firms that presented significant and serious failings, from Consent Orders, attendance at a disciplinary workshop to attending a Disciplinary Panel with accompanying sanctions.
How to comply
The VR review team has sought to identify some simple measures that can help to ensure compliance with Red Book requirements. The key elements include:
- Create an audit trail in every file to support the valuation (see Figure 1).
- Create a key stage file checklist to ensure the content is complete.
- Ensure documents comply with Red Book mandatory content requirements.
- Create a suite of note templates for site inspection and the valuation process.
- Where possible employ an active peer review process.
- Proactive quality assurance – set standards, ensure they are maintained through an active audit programme with sanctions for non-compliance.
Figure 1: Demonstrating the audit trail
The valuer’s most fundamental requirement is to be able to demonstrate independence and qualification for task. Yet the review team still discovers evidence of inadequate processes to check for potential conflict of interest, and where the checks are carried out the failure to properly record the results.
It is rare for a valuer to take on work without the ability to demonstrate qualification for task, but we do encounter people who operate on the margins of their competence in terms of location or specialist skills. This places stakeholder and clients at risk and is of major concern to lenders and professional indemnity insurance (PII) underwriters.
Agreed terms of engagement, including the contract letter to accompany RICS standard terms of engagement for Homebuyer reports, should be the valuer’s first line of defence in the face of a claim. Too often, these documents are non-compliant, inadequate, non-case specific, or more worryingly missing from the file.
Failure to issue and agree compliant terms of engagement places the firm, client and stakeholders at risk, but bear in mind the 2 parties placed most at risk are the firm and one particular stakeholder – your PII underwriter.
Even in today’s litigious climate, where it is essential that your file demonstrates an audit trail of information to support your valuation, we still encounter case files where site and valuation notes are:
- missing from the file entirely
- illegible, unstructured, insufficient or impossible to follow
- do not meet the requirements for scope of inspection.
While it is rare to see no comparable evidence, it is not so uncommon for the valuation file to lack a structured comparable analysis, leading to a note of the key valuation inputs and principal supporting reasons – in effect your thought process, the valuation rationale. A few scribbled notes on a set of sales particulars or a comparable print out are not going to stand up in court.
One ongoing issue of significant concern is the treatment of information relied on to assess value. We regularly see files where there is no mention of the source, reliability and impact of the information relied on to formulate the valuation, or the consequences should it later prove inaccurate.
The correct approach is to agree what is to be relied on in the terms of engagement, document in the file what was used, where it came from and your view of reliability. Then clearly state all the information in the report and make clear to the client the impact on the valuation if the information is proved false.
If called on to defend a valuation, the first question the valuer will be asked is, 'is the report fit for purpose?' The overall standard of reviewed material has improved considerably since early 2011. However, even 4 years on we still see in some cases:
- a failure to comply with the required content stated in VPS 3.1 of Red Book
- an unclear or ambiguous purpose statement
- a failure to define extent, limitations and use of the report
- assumptions, special assumptions and scope of inspection not clearly explained
- poorly drafted, poorly written and difficult to understand report material.
The advice we give valuers is to protect yourself. Make sure your report is Red Book compliant and is fully supported by a demonstrable audit trail of information in the case file; anything that is in the report should be in the case file. To assist smaller firms, template frameworks are available.
A marked improvement in Red Book compliance has been demonstrated by members in the past 4 years in respect of:
- conflict checks and their recording on file
- the content of both terms of engagement and report documents
- improved site notes and valuation process recording
- providing a demonstrable audit trail.
A key element of the VR team’s role is providing training and technical guidance for the members: the team has delivered a programme of roadshows and workshops across the UK and in a range of other countries. In addition, numerous guidance articles have appeared in RICS publications and VR section of the RICS website. One of the most popular and successful tools has been the VR online module, which is now being adapted to provide usable guidance to the international membership.
As we move forward, we will develop content geared to more specialist task-specific training in a variety of delivery media.
To measure the success of valuer registration, we decided to conduct an end-to-end review. This comprehensive process includes workshops with staff from across RICS, the profession, lenders, insurers and panel managers.
The review is telling us that VR:
- is recognised as raising standards
- offers a positive member experience
- has had a positive stakeholder impact
- has helped us gain recognition and mitigated the risk of statutory intervention
- enhanced the reputation of valuers in light of financial crisis
- is capable of global deployment.
Areas identified for improvement are that our risk assessment capabilities can be more sophisticated, our regulatory toolkit more agile, and stakeholders want us to move to a deeper focus on quality. We are improving our ability to take a risk-based approach, and improving our communications and guidance.
It is our aim going forward to further raise stakeholder confidence through improved data sharing, better communications and increased visibility for the registered valuer.
Better identification of risks will result in ability to better target underperforming members and firms, with improved compliance rates in the longer term leading to enhanced stakeholder perception of registered valuers. All these measures will provide a clear platform for further improvement and development of what has clearly been a very successful regulatory initiative.
Graham Stockey FRICS is Principal Surveyor, Regulation, RICS
- Related competencies include Valuation
- This feature is taken from the RICS Property journal (November 2015)