Valuation: Does it have a Future?
One of the major challenges that the IVSC continues to face in gaining global acceptance of its standards is the reluctance of much of the organised profession to use them instead of their traditional home grown version. It is only natural when anyone is invited to embrace something apparently unfamiliar for them to be sceptical of the benefit of doing so. However, during the fifteen years or so that I spent travelling the planet promoting the benefits of international standards for valuation I encountered not just scepticism but active hostility to the idea that valuers in another place or specialising in valuing different things could have anything in common, or anything to learn from each other.
I suggest the root cause of such attitudes is that historically valuers have defined themselves by what they valued, and in many cases, where they did it. Rather like the city based guilds in medieval Europe, associations of valuers evolved from a desire to define the skills required to undertake valuations in a particular location and market. As a result, where once there may have been the Guild of Master Shoemakers of Neverland, you could now have the Neverland Association of Valuers of Stuff. And just like the historic guilds, they often hold a monopoly over valuing Stuff in Neverland.
Some argue that the guilds contributed to the development of the crafts necessary for successful economic activity through their structured apprenticeships and concentration of expertise. While this may have been true at a time when society and economies were very localised, the guilds started to decline during the 18th century with the advent of the industrial revolution, and also increasing political and economic criticism of their role. Critics argued that the guilds regulated trade for their own benefit, were monopolies, fixed prices, restricted entrance into the guild, and that their conservatism reduced the rate of innovation. And those critics included prominent figures from both ends of the political spectrum. Adam Smith argued that the guilds restrained competition; Karl Marx saw them as perpetuating the social rank of oppressor and oppressed. Whether one, the other or both were right is of little importance. Today these centuries old guilds have no economic relevance, and where they do still exist, their role is largely ceremonial.
So are there lessons here for the modern valuation and appraisal professional societies? Less than a generation ago it was possible for a valuer to make a living simply because they specialised in the relevant market and had a monopoly of knowledge about the deals in that market. The disintermediation effect of the internet has significantly eroded the exclusivity of access to market data, just as it has in many other areas of business. Information on deals and prices is readily available, whether freely or by subscription, for most major assets, whether it be shares, bonds or real estate, and not just locally but anywhere in the world. Furthermore, this data is increasingly linked to tools for analysing and formatting it in every which way. Unless the valuation profession adapts to this new world order and embraces innovation in the way it provides its services, the impact of the internet age could be similar to that of the industrial revolution on the world of the old craft guilds.
While it remains essential that any professional valuer has deep knowledge of the market in which they operate, clients no longer need to pay a decent fee just to get access to market information. While the skill required to analyse and interpret the market and deliver the resulting advice in the appropriate context should always have been part of the professional valuer’s armoury, these qualities are now very much at the forefront of what anyone relying on a valuation needs and expects. From my discussions with very different organisations, valuing very different things in different parts of the world this trend is commonly recognised. If everyone is facing similar challenges it surely makes sense to collaborate in the development of common solutions. And an additional benefit of mutually learning how best to survive is that it demonstrates to the profession’s customers that it is moving forward and embracing change by adapting its services and the way they are delivered.
As with the guilds, it is fair to say that in bygone times there were benefits to the wider public of professionals of a particular specialism coming together in tightly controlled, exclusive societies. However, in the modern age, these positives risk being outweighed by the negatives of protectionism, lack of innovation and anti-competitiveness that can come to the fore when a body reacts to change by becoming defensive and introverted. Unless the disparate parts of the valuation profession can show that they are able to embrace ideas outside of their immediate geographic and specialist domains it will suffer a bleak future.
In advocating the need for greater international collaboration in the profession, I am not arguing that national or local societies of valuation experts are no longer needed. On the contrary, such centres of excellence are needed to channel the application of generally accepted knowledge and principles into specialised markets. However, the tight rope between ensuring proper examination of professional competence and creating anti-competitive barriers to entry is one that is becoming ever harder to tread, given the trend of increasing anti-trust and consumer protection regulation around the world. Demonstrating that your particular organisation actively subscribes to globally recognised principles is a first line of defence against accusations that you have developed rules purely in your members’ own interests.
The challenge for professional organisations is to ensure their members’ services remain relevant in the face of the rapid developments in the global economy. Success in meeting this challenge is more likely if it is recognised that valuers operating in very different environments face similar issues. Cooperation will lead to more robust solutions, and implementing those solutions consistently should bring the added benefit of increasing the recognition and status of the profession everywhere. However, those who only look inwards run the very real risk of a similar fate to that of the historic guilds.