SECTIONAL TITLE VALUATIONS: HOW TO SPOT A FRAUD
Selecting the right insurance valuer for your community scheme from a sea of chancers can be challenging. How do you spot the doers from the duds? Mirfin offers the following advice:
When the new Sectional Title Management Act came into effect in October 2016, the number of valuers that claim to specialise in sectional title valuations increased considerably as this new market presented a lucrative new opportunity for many valuers.
Unfortunately, with the Act not offering any benchmark as to the recommended qualifications for sectional title valuers, trustees and managing agents are left to their own devices in selecting the best valuer for the job.
More than three years later, it is clear by the habitual over-valuation of properties that many valuers are still not experienced, nor equipped to conduct a professional insurance valuation for community schemes.
This list highlights the top 10 telling signs that you are dealing with an unqualified valuer or poorly conducted valuation:
- Qualification: The valuer must disclose his official registration number to verify his professional qualification.
- Legal description: The property must be identified correctly according to its legal description (e.g. erf number, township, municipality) and not just by its street address.
- Referencing: The valuation should reference the sectional title plans or the latest approved participation quota (PQ).
- Schedule of replacement values: The valuation report should include a schedule of replacement values that provides a breakdown of replacement cost per each section and its allocated share in common property.
- Separate replacement values: Replacement values should be listed separately for registered sections and common property.
- Section vs unit: The valuation report must correctly use industry-specific terminology, such as differentiating correctly between sections and units.
- Professional opinion: The valuer should offer his own professional opinion and not just freely cite available guidebooks that offer average price ranges, such as published by AECOM South Africa (Pty) Ltd.
- Reticulation and utility services: The valuation should make provision for reticulation (water and sanitation) and utility services.
- Uninsurable items: The valuation report must exclude any illegal unit upgrades and wooden structures as these are uninsurable items and should therefore not be included in a replacement cost calculation.
- Professional indemnity insurance: The elected valuer must have adequate professional indemnity insurance to protect the trustees against personal liability in the event of a shortfall in the claim pay-out cause by an under-valuation.
If your valuer fails on even one of the above points, you are not getting a worthwhile service, nor do they have the necessary experience and knowledge to conduct a professional sectional title insurance valuation.
If your valuer fails on point 10 above – i.e. does not hold sufficient professional indemnity cover – they are putting the trustees at risk in their personal capacity. In other words, if the valuer gets the valuation wrong and the insurer refuses to pay out the full amount in the event of a claim, the affected unit owners could demand compensation from the trustees if it is proven that they acted negligently by appointing an unqualified valuer. With sufficient indemnity cover, the shortfall amount will be settled by the valuer’s insurance, keeping the trustees safe from any liability claims.
How much is sufficient professional indemnity cover?
It is generally recommended that providers of insurance valuations for community schemes and large commercial buildings hold professional indemnity cover for at least 10% of the building in question’s replacement cost but not less than R20 million.
We often find that valuers who are not adequately insured will over-state their estimated values to be on the safe side and not put themselves at risk but this simply shifts the liability to the body corporate who will now face a needlessly inflated insurance premium.
Read more here about the possible implications for the trustees if the valuer gets it wrong.