Why Would a Caribbean Lender need a Valuation Report Reviewed?
The Challenge of Under-Qualified Valuation Advice in The Caribbean
One of the Key Challenges that the Users of Valuation Reports have in the Caribbean, Particularly for Banks, Lenders and Financiers, who will need to Rely on Property Valuations for informing their Lending Decisions, is their Access to Suitably Qualified, Competent and Experienced Valuation Advice.
In Canada and the USA there are Formal Licensing Systems for Appraisers of Real Estate, at the State, Province or Federal Level, with Requirements for Appraisers to sit exams, complete a minimum number of hours of educational classroom time & professional experience, before they can become Licensed and Qualified Appraisers. This is followed up and policed by the Licencing Boards using the Threat of Censure, Fines, or Removal of Licenses, to Maintain the Standards of Competence, Ethics and Professionalism expected of Appraisers.
In Europe and the UK, Reliance is Placed on a Valuer holding a Professional Qualification, such as those issued by the European Valuation Qualifications Board, or the RICS Registered Valuer scheme, with a Lender’s panel of Valuers typically having minimum qualification requirements for the respective jurisdiction. The threat of Litigation for Negligence, or Breach of Contract, is the Stick to keep the Professional Valuer “in-line”.
A professional Valuer’s Best Defence, and only real ‘Shield’ against such claims, is to ensure that their Professional Valuation Advice and Reporting Complies with either the RICS Valuation Standards, which incorporate the International Valuation Standards issued by the IVSC, or the European Valuation Standards (EVS) issued by TEGoVA, which are recognised by the relevant Courts in respective jurisdictions. If the Valuer has stepped outside of these frameworks, without prior written agreement or reason, then they may find they’ve invalidated their Professional Indemnity Insurance and be left Personally Liable to defend such legal claims.
The Regulatory Framework for lenders in the US is both complex and well developed, with Federal and State Laws, Rules & Regulations coming into play. The FDIC Interagency Appraisal and Evaluation Guidelines require that the Officer in the Bank who is making a Lending Decision based on an Appraisal Report is Responsible for ensuring that the report is prepared by a Suitably Qualified Appraiser, and that the report meets with the requirements of the USPAP Reporting Standards. If the Bank Officer does not consider themselves Suitably Qualified to review the Appraisal Reports, then the Lender may employ a Qualified Appraiser to review and assess the credibility of the report content and value opinion provided, within the USPAP framework for Appraisal Review (USPAP Standard 3 and Standard 4), or engage a Suitably Qualified and Experienced External Appraiser as a Reviewer.
What’s all this got to do with my Lending Decision in the Caribbean?
Caribbean Risk Managers and Lenders can be Unaware of the Increased Risk and Responsibility that is being transferred onto their shoulders, with regard to Loan Security and Credit Risk Assessment of Real Estate Backed Lending, with Ultimate Responsibility to Accept or Rely upon Valuation Advice falling Squarely on Them! Credit Risk Managers are being asked to decide what Level of Reliance to Place on the Valuation Advice Received, whether being from a Qualified Valuer or Not.
There are no licensing boards to set standards of qualification for Valuers, nor to Regulate or Manage the Licensing of Valuers, with many islands having no qualified RICS Registered Valuers, nor MAI Appraisers. There is an additional challenge in the Region: of Knowing whether the RICS Accredited Surveyor being asked to undertake a valuation is Suitably Qualified and Competent to instruct and complete the Valuation Engagement.
The RICS provides the ‘Is your surveyor qualified?’ search function on their website to Help Users Identify Whether their Surveyor is a Quantity Surveyor, who is specialised in quantifying and measuring building and construction costs and who’d typically be engaged by a Lender to monitor the drawdown of funds during a construction project -
or a Valuation Surveyor, who is Specialised in the Analysis and Measurement of Value for the Investment and Development of Property being used for Loan Security Assessment purposes, and whether they are a Registered Valuer under the RICS Valuer Registration Scheme.
Unfortunately this has become an unnecessarily complicated and frustrating exercise, as when the RICS Valuer Registration Scheme (VRS) was first being set up back in 2013, a large number of Quantity Surveyors, who had No Educational or Technical Knowledge in Valuation as a requirement for their accreditation as a Surveyor, were allowed to “Grandfather” into the VRS!
There was No Requirement made to prove or demonstrate that they had the Sufficient Level of Competency in Property Valuation, as has since been introduced for recently Qualified Surveyors who wish to become Registered Valuers.
The resultant Lack of Transparency, and Unreliability of the VRS, as a Way of Verifying an RICS Surveyor’s Relevant Valuation Competence to Undertake Property Valuations, has left Users of Valuation Reports in the Caribbean Confused and Exposed to an Unnecessary Risk of Receiving Substandard Advice. We will try to bring some Clarity to the Opaque RICS Valuer Registration Scheme in a subsequent article on the MV Journal, as there is a lot more to be explained and discussed.
To remain competitive within their Local Competitive Lending Market, Lenders are being asked to rely on Valuation Reports prepared by Locally Based, at-times Under-Qualified Advisors, with Limited or Unknown Technical Valuation Training, nor Capacity to Value in the Challenging, Low-Information and Opaque Real Estate Market Conditions of the Caribbean.
The same Expectations are being made of the Credit Sanctioners & Credit Managers; to Judge whether the Report being Presented Conforms with the Relevant Regulatory Framework, and the Valuation Opinions are Reasonable and In-Line with Sufficiently Provisioned of Market Evidence and Analysis.
The Bank’s Officers are expected to review the report, judge whether the content complies with the International Valuation Standards, or RICS Valuation Standards, and to decide whether the Valuation’s Analysis and Evidence is Credible and Supportive of the Stated Opinion of Market Value!
Ultimately the Borrower will both Indirectly be Placing Reliance on the Credibility and Professionalism of the Report being Presented in Support of their Loan or Credit Application. By Extension the Borrower may have a 3rd Party Liability when they Rely Upon the Report and It’s Content when Making a Purchase, Investment or Development Decision, where they’ve been Provided the Report by the Lender.
The Solution Offered by Matheson Valuation
matheson valuation Offers our Expert Valuation Report Review Service to assist Lenders, Business Owners, Investors and Auditors the Risk Mitigation that is Offered by a Professionally Accredited Review of the Valuation Reports instructed by our Clients. Undertaken by an MRICS Registered Valuation Surveyor, with an Intra-Regional Knowledge of the Caribbean Real Estate Markets.
Prior to our Reviewing a Report, matheson valuation will agree a Detailed Scope of Work, which will Dictate what is Required of the Review Assignment, being Driven by the Initial Purpose of the Report and Underlying Risk Profile of the Credit. The Scope of Work sets out which Sections, or the Whole Report, are being Reviewed, and whether the Client will require that the Reviewer Accept or Reject the Valuation Conclusions,
Offer Recommendations for their Modification, or Provide our Second Opinion of Value.
The Scope of Work follows an increasing level of intensity for the Review being required, with the Level of Fee Increasing in-line with the Scope.
Opinion formed on portion of a valuation report only (e.g. discounted cash flow analysis, or selection of comparable sales, or selection of competitive set in a hotel valuation)
Opinion formed about quality of an entire valuation report, ‘measure of its compliance with RICS Standards, with no opinion by the Reviewer about value.
Opinion formed about the quality and compliance of an entire valuation report with Reviewer’s own opinion of value, but based on data presented in the report under review (using a Special Assumption regarding the accuracy and reliance on this data).
Opinion formed about quality & compliance of an entire valuation report, desktop review with no re-inspection of subject property, and with the Reviewer’s own opinion of value and verification and analysis of that data.
Opinion formed about quality of an entire valuation report, physical re-inspection of subject property and potentially comparable evidence, with the Reviewer’s own opinion of value, verification and analysis of that data
Least intensive:
Most Intensive:
