Valuers bristle at being forced to assume loan risk

Property valuers have spoken out about new contracts they are being forced to sign with the major banks requiring them to give up legal protections in the event of a loan ending up in court. 

Valuers have traditionally entered into proportionate liability agreements, in which any losses as a result of a mortgage default are shared between the valuer and the lender. 

Valuers that do not sign the new agreements face removal from the bank’s panel of approved valuers.

Those that do accept the new terms face challenges in securing professional indemnity cover from insurers reluctant to insure valuation firms. 

“In my view, it is unfair for banks to expect valuers to accept 100% of the risk if a loss is suffered on a loan,” Greville Pabst, chief executive at WBP Property Group has told Property Observer. 

“There are many factors outside the control of the valuer that can contribute to a bank’s loss on a loan, including mistakes in credit scoring, extending finance beyond the financial capabilities of the borrower and anomalies in processing by brokers and/or applicants.” 

Pabst says the valuer is not the only responsible party when lending against real estate. 

“I believe a sensible resolution will result through discussion between the banks, [valuation platform] ValEx, the mortgage insurers and the Australian Property Institute in the coming weeks,” he says. 

Nick O'Brien from commercial valuers O’Briens Valuers and Property Consultants says he is concerned that what is happening in residential valuations may “spread further”. 

Another valuation firm acknowledges that banks are enforcing new agreements and undertaking “new bullying tactics”, but declined to make a public statement due to the fear of the possible “wrath” of one of the major banks.

The actions of the banks have been slammed by Philip Western, the National President of the Australian Property Institute, which represents valuers.

Western, who is also the NSW Valuer-General, says it is “time for the market to act in a fair and equitable manner before the livelihoods of many of the institute's members were destroyed”.

“There is a need for lending institutions, mortgage insurers and professional indemnity insurers to sit down with the profession and agree on a way forward before it is too late,” he says.

According to Western, very few underwriters are prepared to offer valuers professional indemnity insurance and those that are “continue to look to placing severely limiting clauses in such policies”.

“Small valuation firms are disappearing because they either cannot get cover or the cover includes these clauses which effectively makes the policy prohibitive,” he says. 

"Enough damage has already been done to the profession with very few seeming to care that small operators are losing their business", he says.

Western also took the opportunity to have a go at the way the banks run their mortgage businesses saying “fees and turnaround times continue to compromise professional standards”.