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Valuers face legal negligence risk

PROPERTY valuers making valuations not indicative of true value could be negligent and liable to pay compensation.

This follows an unsuccessful appeal in the High Court in the case Kenny & Good Ltd v MGICA.

An Allens Arthur Robinson review says the High Court found the valuer was liable for loss suffered by the lender and indemnified by mortgage insurer MGICA.

“The case involved losses incurred by a lender’s mortgage insurer,” it says.

“The insurer had relied on the valuation report to insure a loan which was secured against a property.”

The court considered whether the valuer, Kenny & Good, was liable for losses resulting from a fall in the property market.

“The valuer argued that liability should be limited to the difference between the value of the property presented in the valuation report and the true value of the property.”

However the court rejected this argument.

The court held that liability was not confined to the extent to which the valuation was incorrect but also extended to losses arising from the resale of the property in a depressed market.

This was because the valuation was not only on the property’s value at a particular point of time but also extended three to five years into the future.

Blake Dawson Waldron Lawyers’ Stanley Drummond wrote in an article in the latest Australian Property Institute’s journal that the case had created more uncertainty for valuers.

“It is clear (from this case) that where a valuer negligently overstates the future value of a property, the valuer is responsible for losses suffered as a result of a fall in the market in the relevant period,” he wrote.

“Unfortunately, the High Court’s decision...has not resolved the general question of whether a valuer is responsible for losses suffered as a result of a subsequent fall in the market in circumstances where the valuation states the value as at a particular date, without any future predictions.

Mr Drummond believes when the valuation does not incorporate future predicted value, the valuer should be responsible for the lender’s loss up to the amount by which the valuer has overstated the property’s present value and not the loss of any subsequent fall in value.

Valuation firm Herron Todd White managing director Garrick Smith said there had always been a common law requirement in regard to negligence.

He said it was crazy for someone to make an unconditional future valuation because of the uncertainty in the property market.

Mr Smith said most valuations had either a disclaimer or qualified what assumptions the valuation was made under so that liability would not go back to the valuer.

He said valuers in recent times had adopted a very cautious approach to valuations because litigation was becoming more commonplace.

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