When is a valuer negligent? A recipe for disaster?

Summary

The frenzy of lending activity from 2004 to 2007 has led the courts to consider multiple cases of alleged valuers' negligence in the aftermath. One recent case (Web Resolutions Limited -v- Eserve Limited) 2012 confirms some interesting guidelines:

  • For a standard residential property an acceptable margin of valuation error might be as low as plus or minus 5%; for a one-off property 10% and if the property had exceptional features, it could be 15% or higher;
  • In this case the valuer was negligent because he had not inspected the property and completed a report without making this clear;
  • The valuer had failed to follow RICS guidelines in compiling a list of comparable properties rather than relying on information provided by the developer's sales team;
  • The valuer failed to take account of obvious adverse factors affecting the property;
  • The valuer should have found a way around the logistics of the limited tick-boxes for answers so as to give proper advice.

Can the Bank also be to blame?:

  • Lending large sums on a self-certified lender income basis, regardless of intermediaries, and placing complete faith in computerised tick-box forms, was described by the Court as a potential recipe for disaster. But, as such lending was common in 2004 - 2007, it was not possible to show that the lender had acted irrationally, illogically or negligently;
  • However, there was no supporting evidence of income and the loan to value rate was 95% so the lender was contributorily negligent in lending in these circumstances;
  • In this case, in respect of one of the valuations at least, the liability of the valuer was reduced by 50% because of the contributory negligence.

Comment

  • Valuers need to be careful to stay within the RICS valuation guidelines and good practice;
  • The common belief that there is an acceptable margin of error of 15% is not always the case;
  • The client may not be liable for contributory negligence if the client's actions were rational and logical;
  • If a question is put to a valuer in such a way that a short answer is required (for example a tick-box) then the valuer must add further words or produce a covering letter to address issues properly.

 

June 2013


 
For further information please contact Andrew Tugwell on 020 7465 4361 or atugwell@phb.co.uk.



10 New Square, Lincoln's Inn, London WC2A 3QG

DX 40 London/Chancery Lane
Tel: 020 7465 4300 Fax: 020 7465 4400 www.phb.co.uk 

This publication is not intended to provide a comprehensive statement of the law and does not constitute legal advice and should not be considered as such. It is intended to highlight some issues current at the date of its preparation. Specific advice should always be taken in order to take account of individual circumstances and no person reading this article is regarded as a client of this firm in respect of any of its contents.

The firm is authorised and regulated by the Solicitors Regulation Authority: SRA Number 00059098

© 2013 Payne Hicks Beach