The effects and aftermath of the COVID-19 health crisis may impact the work carried out by RICS regulated members in a variety of ways. For example, there could be challenges around inspection or limited evidence in certain markets.
COVID-19 was declared as a “Global Pandemic” by the World Health Organisation in March 2020. Further “waves” of the pandemic have escalated and dissipated at different times and degrees of severity. Much has been learnt about the way the crisis has affected markets since the unprecedented and unknown initial impacts. It is essential valuers follow government advice, regulation, and market practice relevant to their jurisdiction.
In addition to following the directions of government authorities, regulated members should act in a transparent and professional manner. Where there are changes to the way RICS regulated members normally proceed with instructions, this must be agreed with the client and any agreed changes must be recorded. RICS regulated members should make detailed file notes to support the rationale that underpinned the changes.
Any restriction of information and/or the ability to inspect and investigate must be agreed in terms of engagement and made clear in reporting. These requirements also apply to any valuation assumptions. If the regulated member considers that it is not possible to provide a valuation on a restricted basis, the instruction should be declined.
Where a valuation refers to rental or other income, a considered assessment of that income in light of COVID-19 and its aftermath may be required. Valuers are advised to make sure they are acting upon the latest, accurate rental and other income details. The valuer may need to reflect upon structural and behavioural effects on markets, either caused or heightened by COVID-19.
Individual markets may react differently to COVID-19 and its aftermath
The following wording can be used as an explanatory note to consider market conditions where COVID-19 is still a relevant issue but the property market is properly functioning:
Market conditions explanatory note: Novel Coronavirus (COVID-19)
The COVID-19 pandemic and measures to tackle it continue to affect economies and real estate markets globally. Nevertheless, as at the valuation date property markets are mostly functioning, with transaction volumes and other relevant evidence at levels where enough market evidence exists upon which to base opinions of value. Accordingly - and for the avoidance of doubt, our valuation is not reported as being subject to ‘material valuation uncertainty’ as defined by VPS 3 and VPGA 10 of the RICS Valuation – Global Standards.
This explanatory note has been included to ensure transparency and to provide further insight as to the market context under which the valuation opinion was prepared. In recognition of the potential for market conditions to move rapidly in response to changes in the control or future spread of COVID-19 we highlight the importance of the valuation date.
Material valuation uncertainty
Though available valuation evidence in many markets globally has improved, in certain markets and circumstances material valuation uncertainty can remain. RICS regulated members will consider the circumstances in which a material uncertainty declaration is appropriate. RICS regulated members should be fully aware of VPGA 10 and VPS 3 within RICS Global Red Book in the decision-making process. It’s worth noting that VPGA 10 refers to ‘relatively unique’ market factors and, for example, ‘an unprecedented set of circumstances on which to base a judgment’. This may be of note when considering the current impact of COVID-19 or its aftermath, compared to the initial outbreak.
Whether material uncertainty exists remains the decision of the RICS regulated member. They should include a sound rationale to explain the decision-making process and this should be recorded for future reference.
Where material uncertainty is declared, the valuer is reminded that this should be explicitly stated. Where appropriate, the valuer may also want to reference the terms and output of the RICS Material Valuation Uncertainty Leaders Forum (UK), or another forum relevant to their jurisdiction.
Valuers may wish to use the following wording to reflect material valuation uncertainty further to COVID-19:
Material valuation uncertainty
In respect of (x sector(s)), as at the valuation date we continue to be faced with an unprecedented set of circumstances caused by COVID-19 and an absence of relevant/sufficient market evidence on which to base our judgements. Our valuation of (x property(ies)) is therefore reported as being subject to ‘material valuation uncertainty’ as set out in VPS 3 and VPGA 10 of the RICS Valuation – Global Standards. Consequently, in respect of these valuations less certainty – and a higher degree of caution – should be attached to our valuation than would normally be the case.
This declaration does not mean that the valuation(s) cannot be relied upon. It has been included to ensure transparency and to provide further insight as to the market context under which the valuation opinion was prepared. In recognition of the potential for market conditions to move rapidly in response to changes in the control or future spread of COVID-19 we highlight the importance of the valuation date.
The material valuation uncertainty declaration can also be used in combination with the market conditions explanatory note. Please refer to the practice alert supplement for further guidance.
The guidance can be downloaded here