In my experience, too many valuers see their ToE as a purely defensive, boring necessity - many valuers even seem embarrassed by the need to send them. A consequence of treating the ToE as just a painful distraction from getting the job done is that matters essential to the service the valuer intends to provide are sometimes either overlooked, forgotten or simply misunderstood by the client. This can lead to a mismatch between the expectations of valuer and client, which is a sure recipe for dissatisfaction and dispute.
It does not have to be this way. Why not use your ToE as another tool for marketing your services by presenting them as positively as possible? Describing the service you will provide in simple, user friendly terms will surely help, rather than hinder client relations. Not only does it help the client feel good about the service they will be receiving, but the scope for misunderstanding is reduced. Yes, there is some essential stuff that is inherently negative, for example, what happens if fees are not paid on time or if the parties fall out. However, this is no reason to obscure your terms behind a fog of legalistic prose in millimetre high print.
No more misunderstandings
There are fourteen matters which both the IVS and RICS valuation standards require be included in the ToE. These combine requirements to describe why the valuation is required and how it is to be conducted with those governing the legal relationship between the parties. However, it is not required that these matters be contained in a single document, which often helps separate them. This is especially true where many of the matters governing the relationship and rights of the parties may be just as applicable to work other than valuation and, therefore, common across a firm’s service lines.
Those matters relating to the “why” and “how” of the valuation set the specification for what will be delivered. If these are hidden away in a generalised list of caveats and legal conditions, the client will often struggle to understand the relevance or significance the various provisos to their instruction. The best examples I have seen describe the investigations, information sources, limitations and assumptions which the valuer will make in a separate document to the “relationship” terms. This allows them to explain in plain language what is required to provide a valuation fit for the client’s purpose. They set out what they will do, what they will not do and what they will assume, unless they discover something to the contrary. Making sure the client properly understands this at the outset is not just good for positively promoting your valuation “product”, but significantly reduces the risk of later misunderstandings. Undertaking a critical review of their ToE to make sure they are not only legally watertight, but clearly explain their valuation service, or services, in a client-friendly format would be of benefit to many firms.
The next failing I see is where reports do not follow through from the ToE. Confusion often arises because the list of matters the standards require be included in a valuation report is very similar to the ToE list. While appending the ToE documents to the report is generally good practice, this is insufficient. The report needs to explain the outcome of the investigations set out in the ToE, and highlight where the facts found mean any assumption the valuer said they would make is no longer appropriate or needs modification. Very few reports that I see do this adequately, let alone well. All too often, the report just needlessly recites limitations in the ToE without any useful information on what the valuer did discover, or worse, introduces limitations or caveats inconsistent with those in the ToE.
As a general principle, a valuer cannot be criticised for limiting their investigations and making assumptions where facts cannot be verified - providing these are clearly stated in the ToE. However, this is subject to those limitations and assumptions being reasonable. This involves consideration of the purpose of the valuation and those who may rely on it, but above all takes into account facts that were, or should have been, ascertained during the any investigations. If a potential problem is discovered but a limitation in the ToE precludes the more detailed investigation required to assess its impact on value, this needs to be highlighted. Likewise, any assumption in the ToE may be clearly rendered unrealistic by the valuer’s investigations. Pressing ahead and relying on predetermined limitations and assumptions regardless of the facts found is an open invitation to trouble. Make sure it’s an invitation you do not send.