Common pitfalls when valuing property

For some firms, being awarded an instruction to value a property or portfolio of real estate assets is often not given sufficient regard, says TC Chetty, country manager for South Africa for the Royal Institution of Chartered Surveyors (RICS).

“While new business is always welcome, new business is not necessarily ‘good’ business if insufficient attention is paid to actual qualification and competence, and this puts any valuer in a potentially risky situation.

“When cash flow is tight, there may be pressure to accept any valuation instruction, which may lead to firms accepting instructions where they are unable to demonstrate detailed sector knowledge or where they don’t have the correct specialist skills.”

In South Africa, all practicing valuers must be registered with the South African Council for the Property Valuers Profession.

Graham Stockey, principal assurance surveyor, Regulation for RICS, explains further: “This includes a range of scenarios such as practitioners from a non-valuation discipline carrying out valuation instructions without the necessary training or experience, a valuer accepting instructions in a country or location where they do not possess the required detailed knowledge of the local market, or where a valuer who only has experience of valuing residential property is asked to provide a valuation report on a huge property portfolio which spans many locations and includes hotels and commercial and industrial property.

“If you were a client in the latter instance, you would not be happy to know that your valuer didn’t have much experience on mixed use and commercial property.”

Stockey says when undertaking a valuation the Terms of Engagement document between client and valuer is the most important in a case file. This document details the responsibilities and the scope of work required.

“Practitioners can often leave out essential basics which we categorise as ‘who am I’? This includes qualifications, competence and status. Who is my client and other intended users, and why do they want the valuation? After that, really poor terms of reference may fail to include the four key pillars, namely address/ type of property/ user/interest to be valued, the valuation date, basis of value and special assumptions.

“When large sums of money are involved, it is critically important that valuers set out limitations of their due diligence. This is particularly important for the purposes of professional indemnity insurance and relates to limitations to inspections and investigations, assumptions and the source of all information and reliability.”
He says a good Terms of Engagement document should also include general declarations about publication and sharing, third party reliability, compliance with International Valuation Standards (IVS) or ‘Red Book’ and any other regulation or legislation. It should also include a complaints handling procedure statement confirming that the valuation report has been produced in accordance with IVS and RICS Valuation Professional Standards, and the fee or how the fee will be calculated.”
Avoid conflict of interest

Stockey also points out that a conflict of interest may arise and is anything that impedes or might be perceived to impede an individual's or firm's ability to act impartially and in the best interest of a client. A conflict of interest can cast doubt on a valuer’s integrity and can also have a damaging effect on his or her firm and the profession as a whole.

“RICS requires valuers to act independently and objectively and without conflicts of interest.
“Valuers must make a file note of all checks carried out into previous involvement with any aspect of the valuation instruction, including all parties to the property transaction, the property itself and any cross-discipline connection they may have with parties involved in the transaction.”

He says acting when a clear conflict of interest exists - and not declaring it to clients is unacceptable for a valuer and does not comply with RICS Rules of Conduct or Red Book requirements. Where a conflict, or potential conflict is identified, not giving due consideration as to whether the instruction should be accepted or declined is also not acceptable.

“Results of any conflict of interest check should always be recorded as this is the valuer’s only way to demonstrate having confirmed his or her independence prior to commencing with the task. Failure to clearly define and record steps taken to manage a potential conflict in the case file, Terms of Engagement and the report is where valuers can fall down.

“Equally, if not more important for a valuer is to maintain a record of any discussions, e-mails, or letters relating to the management of any potential conflict of interest. Otherwise, how can you later prove you informed your client if that person chooses to challenge you?” concludes Stockey.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 17 Nov 2017
      FWJK has announced the launch of its latest residential brand, the Lil’ Apple, which will be launched simultaneously in two developments in Cape Town and Umhlanga totaling 600 apartments. The Lil’ Apple is set to be a brand of FWJK’s New York style apartments which will be rolled out nationally.
    • 17 Nov 2017
      It’s been a tumultuous year on many fronts, with socio-political uncertainty setting the tone for much of South Africa’s economic activity yet despite this and seemingly counter-intuitively, the residential property market has held up well.
    • 17 Nov 2017
      The EAAB (the Estate Agency Affairs Board) recently claimed that around 50,000 illegal estate agents could currently be operating illegally.
    • 16 Nov 2017
      Penthouses are synonymous with New York – characterised by high-rise living that is decidedly luxurious and spacious. While exclusivity comes at a price, you can still create a “penthouse” look and feel in your existing apartment or even the upstairs bedroom of a double storey house with some clever design changes and styling touches.
    • 16 Nov 2017
      The area has long been popular with kite surfers and, with escalating property prices in Cape Town itself, is increasingly in demand with home owners who work in town, but are looking to invest in more affordable properties.
    • 16 Nov 2017
      Cape Town’s popularity as a world-class tourist destination has resulted in a spike in the number of homes available for holiday lets and fuelled investor demand for sectional title units with short term rental potential.
    • 15 Nov 2017
      Sappi, one of South Africa’s oldest global companies and a leading global supplier of sustainable woodfibre products, has moved its global and regional headquarters to a new site on the corner of Oxford and 14th Avenue in Rosebank.
    • 15 Nov 2017
      There’s an old saying in real estate that you should seek to make a profit when you buy, not only when you sell – and a large part of succeeding at that endeavour is buying a home in an area with desirable features that will enhance the resale value of your property.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us