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Crucial lessons from the property crash

At a glance

  • After 2008, property surveyors faced litigation from property owners looking to make money back from the crash
  • Since the property bubble burst, the public has demanded better practices from surveyors
  • Brokers can advise their surveyor customers on best practice to avoid future claims, such as taking detailed reports

In the aftermath of the financial crisis and the bursting of the property bubble, many people in the finance and property industry were blamed.

Bankers were accused of being reckless, the public’s borrowing habits when it came to property came back to haunt them, and mortgage brokers were cited as playing fast and loose with regulations.

However, one group who were heavily criticised were property surveyors, who were accused of allowing ‘bad’ money to trade hands by prematurely signing off on deals.

Steps surveyors can take to protect themselves

  • Making sure that adequate site notes are taken on site
  • Making sure all records are as comprehensive as they reasonably can be to avoid claims of professional negligence
  • Highlight any potential issues to the buyers in the form of a covering letter
  • Maintain high quality record keeping and management

The result was an increase in litigation against surveyors. The Telegraph reported in 2011 that the “high level of claims being brought by banks and other lenders is leading to a near doubling in insurance costs for some surveyors and millions of pounds in exceptional costs.”

As property owners attempted to recoup their losses, surveyors became an easy target, with one company receiving 50 separate writs in a month. The backlash that many surveyors received was attributed by some brokers to “applying common sense to a profession that got badly caught out by the recession.”

Following best practice

Four years on, the public are demanding more historical information and best practices from surveyors. With the insurance market shifting to accommodate an increase in claims from property owners and lenders, surveyors need to ensure they are conducting best practice at every opportunity.

“Pre-2008, there was an environment where surveyors felt they had to do more evaluations just to stand still. That led to situations where surveyors may not have actually provided adequate site notes,” says Steve Watson, Head of Professional Indemnity at Zurich.

“When it comes to valuation claims, the challenge for us is the inability to properly defend them, due to the inadequate records that have been kept, because of surveyors’ large work volumes. This creates a knock-on effect, as we see the market and valuations kick up again. The danger is that we get back into that cycle again”

Brokers with surveyor customers can advise a number of ways of reducing their risk.

“Firstly, surveyors need to look a bit harder at the contractual positions they take with lenders,” notes Steve. “That’s not easy, because the lenders tend to be quite aggressive in terms of forcing contractual terms upon surveyors.

When it comes to valuation claims, the challenge for us is the inability to properly defend them, due to the inadequate records that have been kept

Steve Watson, Head of Professional Indemnity at Zurich

“Surveyors need to have a stronger voice, and try to limit their liability on a contract where they can. They certainly need to exercise more diligence around the individual valuation work that they undertake.”

This means that standard T&Cs are no longer providing adequate protection. As some property landlords try to reclaim as much money as possible, surveyors need to ensure they read the small print and not be overly reliant on it.

While surveyors are not expected to walk a potential buyer through every aspect of a report, there are things that they can do to protect themselves, such as issuing a covering letter, which draws the buyer’s attention to any potential limitations in the report or any caveats.

One case that reached the Court of Appeal involved a landlord, who bought a buy-to-let flat, based on a valuation (of both capital value and rental income). The valuation from the bank turned out to be overly optimistic, and as a result, the landlord sought damages. The bank denied it owed the usual duty of care because the landlord wasn’t a residential buyer, but an investor. However the judge disagreed, awarding damages of more than £70,000.

“When it comes to learning lessons from the credit crunch, surveyors need to engage in better file management, better reports, better record keeping,” says Steve. “If they do that, they’ll also find themselves in a better contractual position.”

Image © Getty

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