Valuer Registration is the regulatory initiative that monitors compliance with the RICS Valuation Standards (the Red Book). GRAHAM STOCKEY has the latest update.
We’ve taken many important steps forward with Valuer Registration since its formal launch in Ireland last year. Lenders, insurers, asset managers and other organisations in the financial community now recognise that this quality assurance initiative has helped to raise confidence in the delivery of valuation advice.
RICS Valuer Registration works by monitoring the application of valuation practices laid out in RICS Valuation Standards – commonly known as the ‘Red Book’. We provide advice and guidance as a core part of the regulatory process and most RICS Registered Valuers who have undergone review have found the approach helpful and informative, with feedback reports highlighting key risk issues for the firm.
The quality assurance process has been underpinned by a schedule of roadshow and seminar events throughout the UK and Ireland, with other events in European cities such as Paris, Athens and Warsaw. Regulatory review visits (RRVs) for Valuer Registration have taken place in Holland, France, Germany and the Czech Republic, with recent monitoring activity in Ireland. European firms have given us very positive feedback and see that Valuer Registration provides a commercial advantage – the Netherlands demanded the initiative and made it mandatory in October 2013. A forthcoming mandatory launch will take place in the UAE in March 2014.
Lessons learned – common pitfalls
I must stress that over the two years of operational review visits, we have seen significant improvements in Red Book compliance. While many firms incorporate elements of good practice, the same common pitfalls are apparent across the range of valuation standards. Very broadly, the key problem areas identified during RRVs in different locations are:
- lack of robust/any system to check ‘conflict of interest’ and, where one exists, a failure to record the result of checks;
- poor terms of engagement protocols, i.e., failure to obtain signed terms, non-compliant terms;
- no/poor linkage between comparables and valuation; and,
- non-compliant/inadequate report content.
More specifically, too often we see reports where the valuation purpose is unclear, and assumptions/special assumptions are not clearly defined or explained, or do not match those agreed in the Terms of Engagement.
A good file demonstrating minimum compliance should contain:
- clear, comprehensive and legible site notes;
- a record of investigations undertaken;
- a record of comparables and their analysis;
- a clear valuation rationale;
- a record of information relied on, its source and reliability;
- case file notes providing a clear audit trail of information to support the valuation; and,
- in relation to content, making sure the report is clearly written and provides unambiguous advice and avoids the use of technical jargon – always make sure a signed copy is held on file.
We will continue to work with RICS Registered Valuers to improve Red Book compliance levels, and the competence and quality of valuation advice provided to clients. The ongoing growth of this regulatory initiative is a welcome development and one that will continue to provide competitive advantage to all RICS Registered Valuers.
The Red Book – a quick overview
- The Red Book is a global standard incorporating the International Valuation Standards (IVS) and has been in use by members of the Society of Chartered Surveyors Ireland undertaking valuations for lending since 1996.
- The Central Bank of Ireland recognised the Red Book in its report ‘Valuation Processes in the Banking Crisis: Lessons Learned, Guiding the Future’ (December 2012).
- The Financial Stability Board (FSB) recognises the Red Book. Members of the FSB include international standard-setting organisations and central banks from 27 countries, including Germany, Australia, Brazil, Canada, China, Spain, Korea, Russia, Singapore, India, Japan, Mexico and the Netherlands.
- The forthcoming Directive on Residential Mortgage Credit Agreements requires, for the first time in EU legislation, that Member States ensure that reliable property valuation standards are developed and that valuers are professionally competent. The valuation standards should take into account existing international valuation standards such as RICS and IVS.