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October 2014 Valuations – you get what you pay for!

In a recent professional negligence case, Paratus AMC Ltd & RMAC 2005 NS1 PLC v Countrywide Surveyors Ltd (2011), the claim against the valuer was dismissed but the case raised some interesting issues in terms of judicial thinking, particularly in relation to the level of the valuation fee.

Countrywide were instructed by Paratus to value a property that was the subject of a remortgage application by the borrower. Countrywide inspected the property (a modern flat in York) and advised Paratus its Market Value was £185,000.

Paratus provided an advance of £166,500, a 90% loan-to-value ratio and it later sold the beneficial interest in the mortgage to RMAC. After this securitisation, the borrower fell into arrears and Paratus and RMAC (the Claimants) sold the property, obtaining net proceeds of just £118,103.

The Claimants pursued Countrywide for their losses, alleging they valued the property negligently and that it was only worth £154,000 at the time. Countywide denied the claim, relying on expert evidence that the market value had been £175,000 and arguing that their valuation of £185,000 fell within an acceptable margin of error.

The High Court dismissed the claim after finding the true value of the property to be £175,000 and the acceptable margin of error 8%, which is higher than the usually accepted 5% for standard residential property.

In reaching its conclusions the Court had to consider the correct approach to the valuation. There was some discussion of the scope of the enquiries which the valuer should have made. It was suggested by the Claimants that the valuer should have sought details of the floor areas of the comparable properties, and confirmation whether any incentives were given by the developers. In considering this issue, the Court had regard to the valuer’s level of remuneration and decided that such enquiries would have been onerous. The Judge was unequivocal on this point, saying that where the surveyor is paid a low fee then “the fee sets some parameters to what is reasonably to be expected.”

The implication from this statement is that the scope of a valuer’s duty of care can be diminished by the cost of the retainer. It could also suggest that the party instructing must accept a higher margin of error when paying a low fee for a valuation.

At Johnson Tucker we pride ourselves on the quality of our valuation reports and depth of our market research. We are regularly instructed by solicitors and other professional advisers to provide independent advise in connection with valuation disputes and litigation. We do not cut corners and as a result may not be the cheapest – but we aim the provide a personal service which is comparable (or better than) than that provided by the large national firms (whose fees will undoubtedly be higher).