Valuer registration a step in right direction
It is clear that many of the causes of the property and financial crisis can be traced back to either a lack of regulation or an absence of adequate enforcement, writes SEAN McCORMACK
WHEN FRANK Daly, the chairman of Nama, spoke at the launch of the Society of Chartered Surveyors Ireland (SCSI) in April last year, he said the crisis the country found itself in had its source in a banking implosion which was driven ultimately by a property market bubble.
Mr Daly asked the audience whether property professionals, along with the accounting and auditing professions, could have been more vigilant in drawing attention to the enormous systematic risk which was being created.
These were fair questions and ones that have been on the mind of many professionals. Indeed, one of the driving forces for the establishment of the Society of Chartered Surveyors Ireland (SCSI) was to ensure higher standards of professionalism in the industry.
I think it’s fair to say that the very significant surge in property values during the boom and subsequent bust due to the global economic meltdown caught many people, companies and institutions across many continents by surprise, and property professionals in Ireland were no different.
It is clear that many of the causes of the property and financial crisis can be traced back to either a lack of regulation or an absence of adequate enforcement.
One of the key areas that needed to be addressed was asset valuations which are carried out for the purposes of bank lending.
The Central Bank report entitled Valuation Processes in the Banking Crisis – Lessons Learned – Guiding the Future published at the end of 2011 highlighted key failings in terms of the way valuations were requested, used and carried out during the boom, particularly in relation to the provision of valuation instructions which it found were a contributing factor to the level of property losses by banks.
It found that some valuers on the financial institutions valuer panels did not have the appropriate qualifications and professional indemnity cover. It also pointed to the lack of appreciation of the significance of the valuation document as independent evidence of risk mitigation effectiveness.
According to the report, many bankers did not fully regard the valuation report as a key document underpinning the basis on which they were acquiring the risk.
The Central Bank report did, however, recognise the valuation principles developed by the Royal Institution of Chartered Surveyors (RICS) – the global professional body which works in partnership with SCSI, in accordance with international valuation standards, also known as the Red Book.
The Central Bank recommended that lenders should seek Red Book valuations from suitably qualified valuers when considering applications for loans or reviewing existing loans.
The Red Book contains mandatory rules and guidance for valuers involved in valuations. It contains full procedures for preparing valuation reports including conflict of interest checks, terms of engagement, instructions and the provision of clear reasoning and use of relevant comparables.