New report commissioned by RICS suggests need for significant reform to the real estate valuation sector

27 January 2022

In a recent report published by the Standards and Regulation Board of the Royal Institution of Chartered Surveyors (“RICS”), a number of major reforms have been proposed to the UK property valuation sector.

The report proposes several recommendations aimed at bolstering the trust and confidence of the public in the competence and ethical conduct of the valuation profession, and includes proposals to: 

  1. create a dedicated independently led Valuation Regulatory Quality Assurance Panel, under the jurisdiction of the RICS Standards and Regulation Board;
  2. establish a formal Valuation Compliance Officer role within regulated valuation providers to ensure services are delivered appropriately, objectively and to the standards observed across today’s financial services industry; and
  3. develop further specific RICS guidance to clarify RICS’ expectations around the culture and behaviours expected of RICS professionals in the pursuance of valuation activities.

A number of other recommendations are made, but the ones above are suggested to provide the “overarching framework for a way forward”. They are also the ones that could lead to the most significant changes in the way property valuation companies operate.

Peter J. Pereira Gray, who wrote this report, identified a number of areas where property valuation companies are lacking in structure and regulation, particularly when it comes to the objectivity and independence of property valuers. In order to address these concerns, and attempt to reinvigorate the public trust in the profession, he looks at a number of areas where improvements could be made, such as compliance, conflicts of interest and valuer independence.

Compliance

Overall, the report identifies that concerns surrounding independence and objectivity could be addressed and resolved through stronger standards and regulations. Property valuers are regulated by RICS; yet the report suggests that few firms operating in the valuation sector have a dedicated Compliance Officer to ensure the rules and regulations of the profession are adhered to.

To improve compliance, and address many of the other areas of concern cited in the report, Pereira Gray recommends the creation of a designated Compliance Officer role within property valuation companies.

This role is present in many other UK regulated professions, such as the legal services sector for example, and this report calls for property valuation firms to be held to a similar level of accountability. In other sectors, the Compliance Officer’s role is to ensure that a firm and its employees remain compliant with their regulatory and legal obligations. This is what property valuation firms should be striving to achieve and it is recommended that the appointment be in a senior position to ensure that they have sufficient authority.

Conflicts of interest

This principle governs most professional areas in the UK and is a serious consideration which must be taken into account at every stage of a professional relationship.  As identified in the report, when there are interactions between different parties with specific interests in a transaction for example, this can inevitably lead to a conflict of interest.

Although clear steps are taken to prevent conflicts in many other professions, in the context of property valuations, a lack of clarity prevails. Although the RICS Red Book and the Conflicts of Interest Professional Statement clearly state that conflict of interests are unacceptable, the report suggests this does not reflect the day to day workings of the industry.

Property valuation companies are often contracted with the same client (whether firm or individual) for many years, thereby heightening the risk of potential conflict. According to the report, insufficient precautions exist to address this increasing risk, and ensure that over time a conflict of interest hasn’t arisen. A growing practice is also identified within the sector of “informed consent”, where a conflict is “acknowledged but accepted” without a uniform process in place across the sector in respect of how to manage the risk arising from this practice.

The report pushes for a need to show independence through more robust management practices around potential conflicts at the time of undertaking a valuation, particularly in cases of higher-risk valuations. It also reminds property valuers that a mere declaration of conflicts does not necessarily absolve them from the standards expected of them.

As a potential remedy, the report encourages RICS to develop new guidance and clearer standards around conflicts of interests for practitioners. Through these standards, the metrics in assessing whether there is a conflict or not should be viewed as absolute as opposed to negotiable. Furthermore, the conception of Valuation Compliance Officers as a standard requirement across the sector will ensure firms have a dedicated role in place that is responsible and accountable for any conflict decisions made.

Valuer independence

Finally, the report identifies a need to improve valuer independence, referring to the recently proposed reforms to the accountancy profession for firms to separate their audit and advisory practices as a “crucial precedent”.  Valuer independence is essential if confidence in valuations is to be restored and maintained.

In theory, valuations should only be undertaken by those who are entirely independent of any function or wider activities within the firm. However in practice, it is common for property valuation firms to be multidisciplinary and include advisory services alongside their valuation services.

The report queries whether property valuers should follow in the footsteps of the accountancy profession and separate valuation from advisory services. In determining this would be one step too far for the moment, it recommends the role of Valuation Compliance Officer would ensure that the separation of valuation from advisory activities within firms is consistent.

Diversity and culture

When considering the culture and behaviour expected of RICS professionals the report identifies that unfortunately the property valuation sector is still not as sufficiently diverse and balanced as it should be. Indeed this industry remains predominantly male and it is clear from the report that much still needs to be done to ensure greater diversity and inclusion across the profession.

In light of this, the report recommends that RICS takes strong steps to promote diversity, equity and inclusion, with a particular emphasis on attracting a diverse group of Registered Valuers to its membership.

Furthermore, in order to try and shed certain images of this profession, particularly with regard to conflicts of interest, and promote confidence, this report also recommends that RICS release a document detailing “the standards of behaviour that are expected of Registered Valuers in particular, and the profession as a whole”. This document would offer a way for Registered Valuers to address challenges encountered in their everyday working practice.

 

Concluding remarks

Overall, this report aims to strengthen public trust, oversight, and accountability in the valuation profession. Along with a suite of recommendations, some of which we have discussed above, the report endorses the creation of a bespoke regulatory quality assurance panel to help the RICS Standards and Regulations Board ensure regulatory quality, consistency, and assurance.

This report is likely to result in several reforms affecting the regulation of property valuation firms in the years to come. How significant these will be, how soon they will be consulted upon, and the subsequent impact they will have on the industry in the long-term, is yet to be determined.

Further information

If you have any questions regarding this blog, please contact our Regulatory team

 

About the authors 

Julie Matheson is a partner in the Regulatory Team. Her expertise lies in advising professionals and professional services firms, particularly in the accountancy and built environment sector, on regulatory compliance, investigations and enforcement proceedings.

Alice Trotter is a trainee solicitor at Kingsley Napley and is currently in her first seat in the Regulatory team, specialising in advising individuals and firms in the regulated sectors. Prior to commencing her training contract, Alice was a Paralegal in the Family Team, where she assisted partners and associates in with a range of cases.

 

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