One of the most common complaints I have heard from real property valuers over the past twenty years or so is that THEY are insufficiently valued, in other words fees are too low for the expertise and risk involved. While changes in technology and procurement have created undoubted challenges for the profession, rather than complain that a product that they used to produce can no longer make a decent return, too few valuers pay sufficient attention to what they could be doing to put value back into valuation.
The most obvious starting point is to make sure that the “product” is valued by the client. Unless you are producing something that the client perceives as being of value to them, it will always be an uphill battle to persuade them to pay a fee that reflects the cost of production. The consequences of a business failing to adapt its products to reflect the needs of its customers should be obvious to those with even a modicum of economic knowledge, which I sincerely hope includes all valuers. However, I still see too many reports that are the valuation equivalent of the Austin Allegro, or if the valuer is keen to show that they are up to date, perhaps an Austin Allegro with a few bolt on trendy accessories such as a DAB radio instead of an 8-track cartridge player!
Time and time again I see reports with overlong factual narratives about things the client most likely knows already, such as the whereabouts of the nearest railway station, readouts of the nearest signpost to London or some other major city and building descriptions that would make an estate agent blush. These are all wrapped in a protective cover of negative caveats, many of which are bewildering to the client or of no obvious relevance to the property. I understand the need for scene setting, but the client normally knows what the property is and where it is. They resent paying a fee to be told what they already know or could ascertain for nothing from Google Maps. What they are happier paying for is knowledge and intelligent analysis of the market and expert advice on the risks and opportunities that run with the interest being valued.
The lesson is surely that valuers need to focus their reports more on the “why” and less on the “what” if they want to move their product from something a client sees as a necessity they begrudge into something they actually want because it tells them things they do not already know. Furthermore, the “why” needs to be focussed on analysis of economic data and how this affects value. A generation ago just about the only way a client could get information on recent deals was by paying a valuer. The internet has changed all that, so valuers no longer get paid a decent fee for merely being the gatekeepers to transaction data. To survive they must develop skills to analyse and interpret the data and use this to add value to the knowledge imparted to their clients.
Enhanced analytical skills should also reduce the historic paranoia about advising clients on future trends in value. The idea that a valuer could or should get involved in predictions will still be seen as radical by some. In the early 1990s RICS was even promoting the nonsensical idea that a market value could only be backwards looking, a position that showed scant understanding of how market participants make decisions in a transaction. It also excluded projections from the scope of the Red Book. By 2003 its thinking had advanced to the stage where a projected value came within scope of its standards, although as recently as 2013 the anomaly that the valuation date could only be the date of the report or earlier still remained. The current Red Book now acknowledges that projected values may be provided, with some specific disclosures and caveats required when they are.
I am not advocating that valuers start offering predictions of future value as a matter of course. It is difficult to see what market there might be for fixed estimates especially as, by definition, they would be highly conditional. I have raised the issue to illustrate the need for property valuers to think more radically about the service they offer and the potential benefits of breaking away from the tired reporting formula that is rooted in historic conventions of declining relevance. While fixed estimates of future value may remain an esoteric topic for most, the capacity to provide expert and intelligent commentary on the trends in the market and the impact of future events is where the greatest potential lies.
And what about the risk? There is no logical reason why valuers should feel constrained from providing a forecast if this is appropriate for the purpose for which the valuation is required. Like any other professional opinion, a forecast that is based on properly researched data and consistent with a reasonable body of expert opinion at the time it is made cannot be said to be made negligently just because subsequent events show it to be incorrect. Care is required to make sure that the hypothesis on which any forecast is made is clearly explained and its limitations understood but this applies equally to any other type of valuation advice.
The greater risk lies in valuers not adapting their service and products to how the market for their services is evolving, unless they really do want to become fully paid up members of the Austin Allegro appreciation society!
This article first appeared in the July 2018 Edition of Pi Magazine published by Howden, insurance broker specialising in professional risks.