In the specialist property sectors in which we work (minerals, waste, energy, heavy industrial), we are often presented with the general client request that ‘we need a valuation’. A competent valuer and Chartered Mineral Surveyor will always follow up that initial request with a check as to ‘what do you need the valuation for and how are you wanting to use it?’ And that is because not all valuations are the same in form or function.
Minerals and waste valuations are always dictated by their end purpose, as the purpose will drive the valuation basis, the valuation methodology and whether the valuation is governed by more formal reporting standards. The first two factors will dictate how a valuer approaches and calculates the value of a property and will always affect the reported figure. It is for this reason that valuers who approach every property and valuation purpose the same way, will often end up mis-reporting value and causing headaches (or worse) for their instructing clients. It is essential that the purpose of the valuation is clear to, and agreed by, all parties from the outset.
All valuations undertaken by Chartered Surveyors need to be undertaken having first checked whether they fall within the RICS Valuation Standards, commonly referred to as ‘The Red Book’. These mandatory standards set out the key steps, bases and considerations that valuers must take account of and capture a wide range of regulated valuations. These include valuations for secured lending, valuations for financial statements or capital gains and inheritance taxation amongst others. These standards set out stringent requirements on how a valuer approaches every stage of their report from the taking of instructions, through site inspections, record keeping, methodology, considering value and reporting their findings. Many of these requirements should be followed whether or not the valuation is a regulated valuation.
Some valuations can be identified as “exceptions” and fall outside the strict application of the RICS standards (including, for example, valuations for internal discussion purposes to inform business strategy, valuations for negotiation purposes or to work up compensation claims) and can be more flexible in their approach and methodology. Whilst some of the Red Book standards may still apply, a valuer providing advice in such exceptional cases can depart to some degree from methodologies, perhaps providing a range of values, or values that fit ‘what if?’ scenarios. It is essential however that the valuer makes clear that the valuation is an exception to the full Red Book regulations and explains why in their report. It should also be clear that the valuation should not be used for any other than the stated purpose. A key reason for this is that changing the approach and methodology can, and does, change reported value. A client that has not been informed of this at the outset and uses a valuation falling within the exceptional criteria for a formal, regulated, purpose will be asking for trouble. Likewise, a competent valuer will not allow a valuation to be used for the wrong purpose and should never simply be ‘signing off’ an exceptional approach as a formal valuation.
Over the years the RICS have taken great care to improve and strengthen their standards for property valuation but sadly we still see a number of negligence claims on which we are asked to provide Expert Valuation advice where Valuers have adopted the ‘one size fits all’ approach, resulting in their clients incurring losses. Sadly, despite the standards it is clear that some valuers are not following them!
At Matthews & Son LLP, as an RICS Regulated Firm we take our valuation responsibilities extremely seriously. All our valuation reports are prepared by RICS Registered Valuers with many years’ experience with these specialist properties and are always peer reviewed by another valuer before issue. The Standards may seem overwhelming and, to some, a ‘nuisance’, but explaining to clients WHY we follow them is a key part of the valuation process. Valuations are not all created equal!