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30 SEP 2020

The ethical obligation of transparency

In 30 years of valuation work and in my role as a regulator for RICS, I’ve examined tens of thousands of valuations. The most common failure I’ve encountered is the failure to provide transparent, clear, and unambiguous communication of the valuation process in valuation reports and their corresponding files. Rarely is this ever due to nefarious intent, but simple oversight. Professionals must be mindful that they have an obligation to fully articulate and document their work so that the record is crystal clear.

RICS valuation standards require more than simply a monetary figure be communicated as part of a valuation opinion. The valuation opinion must include the logic and steps the valuer took when reaching that opinion. This allows those who receive the report to understand the analysis and have confidence in the report.

The delivery of a simple valuation amount, backed by the valuer’s reputation, in lieu of a complex multi-page report would ease the valuation process considerably, lowering costs to the public and speeding up transaction times. Ipse dixit – “because I said so” – has been a valuation standard in the past and could be the valuation standard now, a standard in which the valuation figure could be written on the back of a cocktail napkin backed by trust in the valuer. Why isn’t that good enough?

Andrew Dorchester
Andrew Dorchester

Lack of transparency forms the perfect environment for fraud and incompetence to flourish but even if all parties are following ethical practices, providing detailed analysis provides the additional benefit of educating the end user of the report. A clearly written report sets out the inherent limitations of a valuer’s analysis, such as assumptions made, data that was available, or valuation approaches that were used. Lack of full documentation leaves a valuation opinion shrouded in mystery. Acceptance of such aopinion by a reader would have to be done on the basis of trust in the valuer – what other basis would there be? It is difficult to see how any public confidence would exist in such a system.  

To communicate less than the full valuation process and leave a remaining component wrapped in mystery doesn’t seem to solve the trust problem either. If blind faith in a valuer needs to be substituted for even one step in the understanding of the valuation process, the valuation is insufficient

A valuation user will either be given sufficient explanation to be able to understand how a valuation conclusion was reached or insufficient explanation where the basis for the conclusion is a mystery. A missing link in a chain is an incomplete chain.

Valuation reports that guide users through the valuation process, replicating the valuer’s analysis, do not guarantee users will agree with the opinion, but that they will have the understanding to vet the opinion. Valuation opinions are not to be communicated in a manner that merely maintains a record for the individual valuer or in a manner that other valuers are capable of understanding, but rather that the valuer has an obligation to explain him or herself clearly and unambiguously to the client and other users of the valuationCommunication with transparency means an ability for a client and other valuation users to understand completely how a valuation opinion was reached. RICS Valuation – Global Standards are nothing unique in this regard as IVS, USPAP, CUSPAP, and the standards of other professions also mandate this type of transparency.  

Though clarity is required, it is important to take into consideration who will be the end user of the report and to write with their needs in mind. The standards do not require that reports be produced with the content so that a non-intended user be able to necessarily understand it. However, because there are situations in which a third party may examine a valuation, a court of law as an example, situations in which the valuer may need to defend his or her work, transparency, clarity, and unambiguity are still obligations of the valuer. The file for the valuation becomes the repository for any additional documentation that would allow for complete understanding of the valuation process that is not contained within the report. RICS Valuation – Global Standards clearly lays out what those items are.  

RICS Valuation – Global Standards make it clear, a valuation report and its corresponding valuation file should fully document, with transparency, clarity, and unambiguity, the process that was undertaken to reach the valuation opinion. This documentation must stand on its own without the need of supplementation by the valuer’s memory or guesswork by a reader. There is no standard requirement that a reader of that work agree with the valuation opinion, but there is a requirement that the work be fully understandable. That understandability builds trust in the valuer and in the valuation process. 

About the author

Andrew Dorchester FRICS, CRE, has counseled clients in over $2 trillion of litigated claims related to valuation issues, has taught courses for the FBI on valuation fraud, and served as a forensic examiner of valuations. He is also an RICS Valuer Registration Reviewer.