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In the Summer of 2020, the RICS Standards and Regulation Board appointed Peter J. Pereira Gray supported by an Expert Advisory Group to lead an independent review into real estate investment valuations and to provide evidence-backed recommendations.
The RICS’ aim in requisitioning the review was to ensure that these valuation services “remain relevant and trusted in this important and sensitive professional field” following concerns in some quarters over performance and the independence of valuers.
The Valuation Review has now been published  (December 2021), along with the response of the RICS Standards and Regulation Board (the SRB) dated 13 January 2022 . In short, the SRB has “unequivocally accepted” all 13 recommendations in the Review – our summary and analysis are set out below.
Mr Pereira Gray’s clearly stated view was that implementing only some of the 13 recommendations would not work - describing them as “a package” which, “if taken as a whole and adopted robustly…. will go a long way to improving and securing society’s trust in property investment valuations”.
Mr Pereira Gray highlighted the three that he considered “overarch all of the others”. These are recommendations 4, 6 and 13 above, relating to the quality assurance panel, the new Valuation Compliance Officer role and culture/behaviour in valuation activities.
The SRB’s response has been positive and clear in its support for the Review outcomes, stating that they are “of vital importance to the profession’s credibility and future standing” and committing “to act with energy and purpose” in their implementation.
There is an understandable acknowledgement that the time and resources that are needed to effect these changes means that the recommendations cannot be implemented overnight but the SRB has pledged to “achieve lasting change as quickly as possible”, with input from the profession and stakeholders.
In its response to the Review, the SRB noted that the Review did not find any “systemic issues that lead to questions regarding the overall credibility or accuracy of valuations”. Further, recognising that the recommendations may have relevance beyond real estate investment valuations, the SRG will consider the possibility of broader application.
The Review identified these areas as the “two major ‘elephants in the room’” uncovered in the investigation underpinning the Review. Accordingly, one of the key issues faced was whether to require the separation of valuation and advisory services.
In this context, Mr Pereira Gray stated:
“No one coming into this Review…… failed to recognise that the decision of the UK accountancy profession’s regulator, the Financial Reporting Council (FRC), to request the separation of audit from advisory services by 2024 creates a crucial precedent for our own deliberations”.
The deliberation was also guided by the requirements of the UK Takeover Panel in association with the Takeover Code. Mr Pereira Gray‘s view is that the RICS should develop standards based upon and around the same principles.
There will be widespread relief amongst RICS professionals that the outcome of this consideration was that, on balance, no mandatory separation between valuation and advisory services was required on the basis that the current status quo “results in potentially better outputs for the client and hence society”.
There is a multi-pronged “but” however in the recommendations, including the following key changes:
Most of the changes will take time to flow through to substantive practice – the RICS has a huge project ahead to plan and resource the delivery of the Review’s recommendations.
The requirement for mandatory rotation and the use of the discounted cash flow model are likely to be amongst the most contentious of the recommendations but the RICS has committed to deliver all 13. Change is uncomfortable and can lead to steep learning curves and bumps along the way. However, if the RICS delivers on its commitment to implement the recommendations from the Review, that would lead to much stricter policing of valuation work, which, in terms of minimising risks, is likely to be to the ultimate advantage of firms and those that insure them.