Matthew Taylor and Patrick Foote
A few years back, the Valuers Executive of LPMS put out an article pertaining to a Valuers Client Engagement Contract Letter (CEC) for any potential valuation job to be undertaken.
Back then, based on numerous claims made to LPMS and its respective insurer, it became evident that a number of valuation firms had been slow to adopt a written/legal document in the form of CEC letter, as a binding contract between the parties.
Having spoken to a number of valuation members under LPMS, it would appear that many (but I would hope all) valuation companies now have a standard CEC letter for any potential job. It goes without saying in that having a written contract is essential, as it provides protection to the parties if there is a potential claim. Not having a CEC letter opens a whole range of potential problems and may also compromise the Valuers own professional indemnity cover.
Now we are facing further unprecedented circumstances due to the COVID 19 virus and the restrictions placed on valuers whilst New Zealand is currently under Alert Level 3. Valuation companies have had to provide their clients with a new Health and Safety Policy document. Valuers can also refer to the Property Institute of New Zealand website and the letter dated 25 March 2020 regarding property inspections. Refer to link:
By 11 May 2020, we potentially could be at Alert Level 2, however there is still a risk that we could revert back to the status quo.
Below is as an example a CEC letter that can be adopted (and modified by the valuer for each job) whilst we are at Alert Level 3. This can be in the form of an emailed letter, which sets out the Scope of Works, COVID 19 inspection requirements and a disclosure statement, fee quoted and works program and acceptance. Along with the email, we also attach Conditions of Engagement (LPMS has provided this to its members in the past).
A further attachment is a Health & Safety Inspection Questionnaire detailing guidelines for valuers when engaging with the client and entering a property. Pertinent questions relate to whether the client/owner requires the valuer to wear Personal Protection Equipment (PPE); advice to the client that valuer practices safe hygiene measures including washing hands, use of hand sanitiser etc: social distancing, and questions relating to whether the owner, staff, tenant etc has been sick over the past 14 days or recently returned from overseas. Based upon the reply the valuer will know whether it is safe to conduct the inspection and how they should act when doing so, i.e. wear PPE or not.
Client Engagement Letter Example:
RE: CLIENT ENGAGEMENT CONTRACT LETTER
Below is our Scope of Work, with attached Conditions of Engagement.
Would you confirm by email that the Scope of Work (i.e. Services) and Conditions of Engagement are acceptable, prior to us undertaking the valuation.
Scope of Work (i.e. Services)
Thank you for your email / letter / phone call of Date requesting that we provide our opinion as to the market value / valuation type of (property address) for mortgage security purposes / purpose.
Covid-19 Level 3 Inspection Requirements
As part of keeping you, your family, tenants, colleagues, and wider community safe during a Level 3 property inspection, we have formulated a Health and Safety Policy (attached), including a Questionnaire.
The Questionnaire will need to be filled out and returned, or alternatively an email response will also suffice.
Covid-19 Disclosure Statement
As at the valuation date, we consider that we can attach less weight to previous market evidence (i.e. pre-COVID-19) for comparison purposes, to inform opinions of value. Indeed, the current response to COVID-19 means that we are faced with an unprecedented set of circumstances on which to base a value judgement, including little or no post-COVID-19 sales evidence.
Due to the unknown future of the economy and property market values, we are in a position of assessing values in a vacuum, devoid of suitable, post-COVID-19 sales data. Consequently, the only market evidence we have available is historic, pre-COVID-19 sales data, which may not reflect the prevailing, current market.
Our valuation is therefore reported on the basis of ‘material valuation uncertainty’ as a consequence of extraordinary circumstances. Consequently, less certainty and a higher degree of caution should be attached to our valuation than would normally be the case.
Fee Payment and Works Programme
Our fee estimate for the work is $Fee plus disbursements and GST.
We would have the report available 3 weeks / or a date after confirmation of this Client Engagement Contract Letter.
It is our company’s policy to have payment prior to the valuation being released…..on the 20th of the month following completion of our report / or prior to commencement of any work.
Our bank details are as follows:
NZ Bank Limited: 12–3456–7891011-00
Account name: Valuation Limited
Please state the property address in the details column.
Please note that this Client Engagement Contract Letter and the attached Conditions of Engagement are to be read in conjunction with each other and form an integral part of each other. By emailing your confirmation, you are accepting all terms and conditions of the Client Engagement Contract Letter and Conditions of Engagement.
In conclusion, LPMS urges its valuer members to have a written CEC letter for any job. Given the current turmoil due to COVID 19, failing to do so may lead to problems arising with any potential dispute or claim, and more importantly, the potential loss of indemnity cover if the Valuer is found to be negligent in terms of our NZIV Code of Ethics and Practice Standards.
Some of you may view this letter as being a little late, however the Valuers Executive of LPMS will revise a further letter under Alert Level 2. Hopefully, we will get there soon and back to some normality.
Authors: Patrick Foote & Matthew Taylor
Gribble Churton Taylor Valuers