Surveyors eye controversial Brexit clause on property valuations

Real-Estate-Agent-House-For-Sale-London-700.jpg

The Royal Institution of Chartered Surveyors has put forward a Brexit clause for members to use in their valuation reports that gives leeway when gauging house prices.

The organisation has suggested surveyors should reflect uncertainty in the housing market following the Brexit vote and has provided suggested wording to be used in valuation reports.

In a statement on its website, RICS says: “As the process for exiting the EU is a long one, markets may remain uncertain for a protracted period of time, in which case valuers must continue to sound a cautionary note about the potential for longer term outcome uncertainty.

“At this point it’s important to give thought to wording that might be appropriate for your reports in this immediate post-referendum period.”

The trade body says until more data about the after-effects of Brexit is known, firms should use the following clause:

“Following the EU referendum held on 23 June 2016 concerning the UK’s membership of the EU, a decision was taken to exit.  We are now in a period of uncertainty in relation to many factors that impact the property investment and letting markets.

“Since the referendum date it has not been possible to gauge the effect of this decision by reference to transactions in the marketplace.

“The probability of our opinion of value exactly coinciding with the price achieved, were there to be a sale, has reduced.

“We would, therefore, recommend that the valuation is kept under regular review and that specific market advice is obtained should you wish to effect a disposal.”

The professional body’s website now says the markets appear to be more stable than was feared at the time of the EU referendum, and that valuers “will wish to consider if the use of a clause highlighting uncertainty is any longer necessary or appropriate”.

In an interview with Money Marketing‘s sister title Mortgage Strategy,RICS UK valuation director Fiona Haggett says the professional body does not endorse the clause itself but is leaving it up to its members to decide.

She says: “We don’t spoon-feed our valuers. It is your job as a valuer to make that professional judgement. We just said ‘this is a standard paragraph being used by some of the big London valuation houses, which you may choose to use, but it is your own judgement’.

“We don’t want to be imposing that clause on all valuation reports and effectively stopping lending. It’s in nobody’s interest for us to cause the market to crash because lenders are frightened to lend because valuers are putting in a clause because the RICS says they must do it.”

Haggett adds that lenders are not happy with the clause.

She says: “The feedback I had from the lenders was they did not like this. I can see why. I had one lender say ‘I can’t sue a valuer on this’.

“It isn’t valuers trying to watch their backs and not be sued, it’s them taking responsibility and saying ‘I am still going to hang my hat on my valuation’.”

The website adds: “Where a clause is used, the strength of the wording should be reviewed and must reflect the current market situation. In making this decision, valuers should not only take into account their market knowledge, but the requirements and needs of their clients.”

But the clause has divided opinion in the surveyor market.

An anonymous surveyor says: “This is not helpful. I know some valuers are adopting this, but we aren’t. We are here to advise lenders, not speculate that there could be a fall in house prices. This could increase uncertainty in the property market.”

A Colleys spokeswoman says the firm has not yet brought in the clause but is constantly assessing the possibility.

She says: “Valuers should continue to report in accordance with our requirements and RICS professional standards.

“However, valuers should remember they are under obligation as a professional requirement to keep very close to the local property markets and to use up to date, and properly analysed, evidence in support of valuation figures.”

Other RICS members support the new clause, saying Brexit has introduced a new level of uncertainty to the property market which valuers need to acknowledge.

Sherwood’s Chartered Surveyors surveyor Tom Littler says: “I’m not a fan of ‘covering my back’, but I have no control over Brexit, nor the consequences that stem from it.

“If the courts allow a margin of error [in valuations], why include this paragraph? But these are exceptional circumstances. In these circumstances the public has been built up to a frenzy by both sides.”