A shift in the banking sector is prompting the bar to be raised for increased rigour around the valuations demanded by lenders.
Western Australia valuations firm Herron Todd White has been building up its quality assurance team in the wake of a number of recent legal cases involving GFC valuations.
Other valuation firms that do not ramp up their quality assurance measures will struggle to compete with growing demands from banks for greater rigour – and if they fail to change, may find bank panels closed to them, the firm said.
HTW WA quality, training and development manager Stephen Miller – who until recently worked in risk management with Bankwest – warned increased litigation has meant it is more important to manage risk within valuation firms.
“Banks are requiring quality assurance of valuation reports and they are looking for greater internal risk management around valuations at the valuer’s end,” he said.
“The valuers who are managing risk and improving quality will survive and will continue to be appointed to large bank panels, but the valuers who don’t address that requirement will find their opportunities for bank panel appointment will be impacted and possibly diminish.”
With rising fees for professional indemnity insurance for valuers – and a recent spate of legal action against valuers in Australia and abroad – Miller said the lending and insurance sector were “acutely aware” of the risks of inaccuracy.
“It’s been a wake-up call and another driver for banks, lenders and valuation companies to understand the need for rigour around risk management control,” he said.
“It is a win-win situation for a valuation company protecting their own risk but also it is important for the banks that firms have really good risk management practices as it gives them a lot more comfort.”
The Australian Property Institute has reported professional indemnity insurance premium rises of 30 to 50% for valuers in recent years, with some valuers refused insurance by insurers even with claim-free histories.
Miller said he is one of a strong ex-banking team at HTW which has detailed understanding of the requirements for valuations for mortgage and security purposes.