What happens when a valuer gets it wrong?
By law, trustees of sectional title schemes are obliged to obtain a replacement valuation every three years. This valuation must reflect the replacement cost of all structures and common areas for which the body corporate is responsible and serves to determine the sum insured.
Price vs. quality
Naturally, price plays a significant part when trustees appoint a valuer but experience and assurance are not always considered in equal measure. The unfortunate reality is that insurance valuations are susceptible to human error as they rely on the valuer’s personal experience and judgement.
How to screen a valuer
Trustees have a fiduciary duty to ensure that the body corporate is adequately insured and for that reason, prospective valuers must be thoroughly vetted. Aside from comparing fees, it is equally important to verify the valuer’s sectional title experience and professional assurance.
Here are some questions you might want to ask prospective valuers:
1. Are you registered with the SA Council for the Property Valuers Profession (SACPVP)?
2. How long have you been active in the sectional title industry?
3. How many complexes have you assessed over the past 12 months?
4. How much professional indemnity insurance do you hold?
5. What is your liability policy in the event of a claim against you?
What happens if the valuer makes a mistake?
If the body corporate should find itself underinsured as a result of an inaccurate valuation, it should be in a position to recover the shortfall from the valuer. Reputable valuers will hold sufficient professional indemnity insurance to back their liability in the case of an inaccurate valuation.
How much professional indemnity insurance is needed?
A valuer’s professional indemnity insurance should be proportional to the scale of the buildings they assess. As a rule of thumb, the valuer should hold at least 10% of the assessed insurance value and no less than R20 million when valuing community schemes, as these come in many different shapes and sizes. Without adequate professional indemnity insurance, the valuer will be unable to offer adequate liability to cover a sizeable shortfall. In this case, the affected body corporate members can turn to the trustees in their personal capacity to compensate the shortfall which may likely exceed the fee paid for the valuation.
To protect their own interests, trustees must consider a more holistic approach than just comparing the costs. By asking the five questions suggested above, trustees will find themselves in a stronger position to select a reputable valuer and stay out of harm’s way.
Is it really worth the personal risk just to save the body corporate a few rand?
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