The Royal Institute of Chartered Surveyors (RICS) is set to step up oversight of property appraisers after a report published today recommended sweeping changes to the rules.
The review, commissioned by the RICS Standards and Regulation Board (SRB), makes 13 recommendations (see box below) covering valuation practices that have been accepted by the committee.
The review – launched in response to concern that appraisers are not always independent in reporting on investment performance and not keeping pace with the market – calls for a more consistent separation between appraisal teams and of advice ; mandatory rotation of reviewers by clients, appointment of reviewer compliance officers by agents, guidance on expected reviewer behavior and more consultation with non-executive directors.
He recommends the use of discounted cash flows when evaluating real estate investment.
The RICS SRB immediately committed to launching a work program to implement the recommendations.
It will initially focus on three “overarching” changes; the introduction of an Assessment Compliance Officer role for RICS-regulated firms undertaking an assessment; the creation of a dedicated evaluation committee under the aegis of the CRU and additional guidance on the culture and behavior expected of evaluators.
The board will also consult with other regulators to define any necessary changes to its valuation standards and related regulatory framework.
Dame Janet Paraskeva, Chair of RICS SRB, said: “The changes recommended for stronger oversight will support future stability and market confidence in this large asset class – much of which is funded by repos and savings – and are therefore very largely in the public interest.
“These changes are essential to ensure that RICS-regulated professionals and firms operating in this sector remain relevant and trustworthy. The Board welcomes and accepts the 13 recommendations of the review.
The report follows unrelated news this week that the government plans to legislate to allow it to commission regular reviews of RICS governance.
See also>> Gove plans law to order regular reviews of RICS governance
See also>> The RICS governance crisis of 2021
1 – Commissioning and receipt of expert reports RICS should work with appropriate stakeholders to standardize governance arrangements for ordering and receiving valuation reports for high-risk and “regulated” valuations.
2 – Expertise and consultancy activities Valuators, with the support of RICS, should ensure that the separation between valuation and advisory activities within firms is applied consistently with regard to the use of data and valuation instructions .
3 – Rotate RICS should develop a mandatory, time-limited supply and rotation process for assessors.
4 – Compliance Role RICS should build on its existing obligation as an “accountable principal of RICS” by developing a valuation compliance officer role to specifically cover the process and conduct of valuation.
5 – Express your concerns RICS should ensure that it has clearly stated processes for its regulated members and other stakeholders to raise concerns about ethical conduct and to address, among other issues, inappropriate pressure placed on assessors.
6 – Quality assurance panel RICS should establish a dedicated, independently-led Regulatory Quality Assurance Committee for valuation, under the jurisdiction of the RICS Standards and Regulation Board.
7 – Valuation audit trail The Red Book should include additional standards regarding the conduct and recording of appraisal instructions and client-appraiser meetings.
8 – Analytical approaches
(I) Discounted cash flow The valuation profession should incorporate the use of discounted cash flows as the primary model applied in the preparation of real estate investment valuations.
(ii) Advanced Analytics RICS is expected to improve valuers’ knowledge and application of advanced analytical techniques.
9 – Global standards RICS should keep a record of the adoption and application of valuation standards in countries outside the UK where a significant number of its licensed appraisers operate, in order to inform the extension of regulatory requirements and support for evaluators.
ten – Standardized advice on real estate risks RICS should develop a framework to standardize property risk advice.
11 – Post-qualification and revalidation requirements RICS should review its post-qualification requirements for assessors and consider introducing mechanisms for regular revalidation of assessors.
12 – The diversity RICS should continue to build on its important work to ensure a diverse and inclusive valuation profession.
13 – Culture and behavior There is a need for further specific guidance from RICS to clarify RICS expectations regarding the culture and expected behaviors of RICS professionals in carrying out valuation activities.