RICS have issued an alert to their members about the impact the Covid-19 situation will have on real estate valuations that have been prepared.
What does the RICS alert say?
The alert tells all members that if they believe there is material uncertainty in a valuation they have issued to clients they must amend any existing terms of engagement that have already been agreed.
RICS have suggested that members inform their clients that they should proceed with ‘less certainty – and a higher degree of caution’ in relying on the valuation provided.
RICS also advises saying that given the unknown future impact that Covid-19 might have on the real estate market, the valuation should be kept under frequent review. Such statements are likely to also be included in any new valuations – assuming members are able to carry out a valuation, with the country currently in lockdown.
You can read the full guidance – and suggested wordings – on the RICS website.
What does the alert mean for the real estate market?
As we saw during the 2008 financial crisis when similar alerts were issued, this is going to have a significant impact on the real estate market, particularly where there is lender involvement.
A stand-off now seems inevitable. Lenders will want to concentrate on existing clients and variations to existing loans. This means all new business is likely to be put on hold for the foreseeable future. This is likely to be the case until RICS confirm that the statement is no longer necessary for valuations.
Lenders and/or funds are now going to be unwilling to rely on the valuations with these statements included. This is particularly true because RICS are unable to stand behind the valuations which have been prepared, given the ‘material uncertainty’.
In already uncertain times for the real estate market, this alert is likely to have a significant impact We think it is likely to be stalled until the full impact of Covid-19 is known.