BVWire—UK has been privy to a number of conversations recently with leaders from valuation professional associations around the globe. One concern raised regularly anticipates the economic downturn predicted by the business press and most financial pundits.
A common theme: Fair value analyses often lag cyclical changes in investment or market values during periods of rapid change. As an example, the director of the Nigerian valuation professional organisation (VPO) explained to BVWire—UK that, in his country, the single biggest consumer of valuations is the governmental bank that assumed distressed assets after the last financial crisis. Because of the lag, fair market reports overvalue these distressed assets, and the government ‘have not been able to dispose of their assets at prices comparable to the valuations.’ He reports that his appraiser members face a great deal of pressure to ‘price’ assets rather than provide market value as required by IVS.
Other UK agencies, and valuers, have also complained that valuations don’t follow market variations rapidly enough. One RICS board member cited the UK retail sector, which is struggling, but discount rates and market comparables have not dropped with commensurate haste.
‘If there’s a crash, as every one is predicting, values are likely to stay “too high” for some time, when prepared using BV standards for some time,’ she warns. There isn’t a simple answer to the following questions:
- Do BV standards, and the valuation profession generally, have increasing responsibility to provide fair market values as well as market pricing?
- What are the risks?