API / RICS STRATEGIC ALLIANCE WHAT DOES IT MEAN FOR API MEMBERS?

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1 Independent Objective Authoritative The home for property professionals in Australia Australian Property Institute Limited API / RICS STRATEGIC ALLIANCE WHAT DOES IT MEAN FOR API MEMBERS? Reference API / RICS Strategic Alliance - What does it mean for API Members? Effective 28 November 2017 Australian Property Institute 6 Campion Street Deakin ACT 2600 ACN Telephone: Facsimile: Website: national@api.org.au

2 Contents How will the changes in APIV address the level of risk vs. the quantum of valuations?... 3 What are the implications of changing the insurance process?... 3 Will there be different premiums/fees depending on the type of work that I undertake?... 4 When will the Redbook come in?... 4 How many RICS Registered Valuers are currently in Australia?... 5 Why is the Find a Property Professional function no longer available?... 5 Will the CPV certification still exist?... 5 Will the API/RICS training remain separate?... 5 Does RICS have a disciplinary process for their members?... 5 Have you issued fines against Members?... 5 What are the most common complaints against Members?... 6 Are APIV exemptions policed?... 6 Are you talking to the insurance industry about low risk valuations conducted by non-api members?... 6 Should I report an API Member who is not part of APIV?... 6 Disclaimer: The information in this document is not intended to constitute legal/insurance/financial or professional advice and has been prepared without taking into account your personal objectives, financial situation or needs. Members should carefully consider the appropriateness of this information to their circumstances and seek independent advice from brokers/financial/legal advisers before making any decisions. The API / APIV do not accept any responsibility for the consequences of any action taken or omitted to be taken by a person, whether a Member of the APIV Scheme or not, as a consequence of anything contained in or omitted from this . Australian Property Institute API / RICS Strategic Alliance - What does it mean for APIV Members? Page 2 of 6

3 How will the changes in APIV address the level of risk vs. the quantum of valuations? The APIV is currently exploring various Scheme amendment initiatives, subject to approval by the Professional Standards Councils. 1. Abolition of Membership Categories One of these initiatives is to abolish the Membership Categories that currently apply to APIV Members for the duration of each PII policy period. In place of Membership Categories ( Current Model ), the API will seek to incorporate a Monetary Ceiling (i.e. liability cap) per real property valuation concept introduced by the RICS Professional Standards Scheme in the APIV Scheme ( Proposed Model ). The difference in the two Models are illustrated below: Current Model If a firm s highest valuation in the 12 months period leading up to their PI insurance renewal is $16 million, their Membership Category as of the PI insurance renewal date will be Category E with a Monetary Ceiling of $5 million and Maximum Excess level of $150,000 for the entire duration of the renewed policy period. Any future claim that arises from a valuation conducted during this policy period will have a Monetary Ceiling of $5 million, irrespective of the valuation amount or the compensation claimed by the litigant. Proposed Model The Monetary Ceiling would be affixed to each valuation of real property and not to the whole duration of the policy period. Valuation firms would be able to plead a lower Monetary Ceiling for claims arising from lower valuations without being compromised by higher valuations conducted in the past. 2. Low-Risk Valuations In addition to the abolition of Scheme Membership Categories, the APIV is also seeking to recognise the different valuation purposes within the Scheme, more specifically in relation to lower risk non-mortgage valuations, by establishing a set of risk matrix to adjust the amount of such valuations for the purpose of the Scheme. For example, if a firm issues a valuation of real property of $15 million for financial reporting purposes, the risk matrix may adjust the valuation figure from $15 million to $3.75 million for the purpose of the Scheme. The Monetary Ceiling for a claim arising from this particular valuation would then be $2 million, as opposed to $5 million that would have applied without the risk adjustment. More information on these initiatives will be communicated to APIV Members once the application is finalised and as it progresses through the Professional Standards Councils approval process. What are the implications of changing the insurance process? Under the Proposed Model, the APIV s Scheme administrative processes (eg. annual membership renewal checks, compliance audit, etc) will remain largely the same. For example: Australian Property Institute API / RICS Strategic Alliance - What does it mean for APIV Members? Page 3 of 6

4 The APIV Team will need to verify the highest valuation conducted by a Member since their last APIV membership renewal and ensure that the Member held a Scheme-compliant PII policy prior to the issuance of that valuation. The APIV will continue to strongly recommend that Members maintain their PII limit at sufficient levels to match the highest Monetary Ceiling held by their firms for at least 7 years to ensure the Scheme requirements are satisfied and that their Monetary Ceiling can be successfully pleaded as a defence to cap their liability in a legal proceeding. The outcomes of claims, however, could be substantially different for example, liability for a $9 million mortgage valuation being potentially capped at $3 million under the Proposed Model, instead of $5 million where an APIV Member is a Category E Member for their current PI insurance policy period due to a $35 million valuation conducted in the relevant 12 months period. It is hoped that this change will eventually lead to a reduction in insurance premiums for APIV Members. Some administrative matters will also change: 1. Abolition of Membership Categories Instead of looking back at the highest valuation for the 12 months period prior to their PI insurance policy renewal and, if necessary, increasing their PI insurance limit at that time, members will need to think prospectively and increase their PI insurance limit mid-policy if they intend to conduct a valuation outside their normal valuation range. In such a case, the PI insurance limit increase will need to be effected prior to the issuance of the subject valuation report. 2. Low-Risk Valuations Once this initiative is implemented, APIV members will need to apply the risk matrix to the applicable non-mortgage low-risk valuation purposes to determine the adjusted valuation figures and ensure that they maintain a PI insurance limit that is sufficient to meet their highest Monetary Ceiling. Will there be different premiums/fees depending on the type of work that I undertake? With respect to insurance premiums, each broker may charge a different amount depending on various factors such as the types of work undertaken, business structure, past claims history, risk management strategies employed by the insured, etc. With respect to APIV membership fees, the following fees apply to each person and company that become members of the APIV, irrespective of the type of work undertaken: Joining Fee $ per person and per company, which will increase to $ as of 1 January 2018; and Annual Renewal Fee $ per person and per company, which will increase to $ as of 1 January When will the Redbook come in? The RICS Valuation Global Standards 2017 (referred to as the Redbook) came into effect on 1 July It applies to all RICS Members who undertake valuations. At this stage, the Red Book does not apply to API Members who are not also RICS Members. However, once the mandatory RICS Australian Property Institute API / RICS Strategic Alliance - What does it mean for APIV Members? Page 4 of 6

5 Valuer Registration rollout for APIV Members is complete, all API members will need to comply with the Red Book. How many RICS Registered Valuers are currently in Australia? RICS has over 200 Registered Valuers ( RVs ) in Australia. About 300 of RICS membership is comprised of practising valuers of real property. Of these, about 200 are RVs. Why is the Find a Property Professional function no longer available? The API s current Search for Property Professionals website is being replaced by a new Find a Property Professional website. This new website, which will be linked to the API s website and database, will allow Members to promote their services to fellow Members and to the public via a refreshed, more user-friendly website. This new website is under development with an expected release date of early Will the CPV certification still exist? The API s CPV and RPV certifications will remain for API Members who undertake valuations in Australia. Over time, the requirements and assessments for CPV will be reviewed and aligned with those of RICS. Will the API/RICS training remain separate? API and RICS are developing a joint approach to training and CPD for property practitioners in Australia. This will be good for practitioners, improving access and choice. We plan for API Members to have access to a range of RICS online training products at member rates, and for RICS members to have access to API events at member rates. Does RICS have a disciplinary process for their members? Yes, RICS have a robust investigative and disciplinary process for their members under the Disciplinary Rules and Sanctions Policy. Have you issued fines against Members? Sanctions provisioned within the Complaints Policy enable the API to issue fines to Members charged with professional misconduct, either in the form of a penalty fee or payment of costs for the complaint investigation and hearing. The amount of fine is based on a number of factors including the severity of the breach, the degree of reckless intention or negligence of the Member, the extent to which the breach has affected other parties and the potential harm the conduct may have on the reputation of the API. Australian Property Institute API / RICS Strategic Alliance - What does it mean for APIV Members? Page 5 of 6

6 What are the most common complaints against Members? The most common complaints include allegations of Members not meeting professional standards when conducting a valuation, maintaining poor relations with clients, delaying in communication and not efficiently servicing clients instructions, acting outside of the professional expertise and conflicts of interest. The majority of complaints also involve concerns around quantum, however a complaint will not be investigated by the API where the only issue of concern is the quantum of the valuation. Are APIV exemptions policed? Yes. Due to technological limitations in the past, however, it has not been possible to fully enforce Section 39 of the API Membership Policy, which provides that all eligible Members (i.e. API Members living in Australia with a current CPV or RPV designation) must join the APIV Scheme or obtain an exemption from the APIV. With the arrival of the APIV s new Member Evolution system in early 2018, all Members in breach of the Section 39 requirement will receive a notice of non-compliance reminding them of their obligations to either join the APIV Scheme or apply for exemption from participation in the Scheme. Further disciplinary action will follow for those who do not comply with the requirements set out in the notice. Are you talking to the insurance industry about low risk valuations conducted by non-api members? This question was asked by a member in the context of insurance valuations conducted by non-api members, particularly in the aftermath of deregulation in New South Wales where there are a number of valuers who are no longer registered but continue to practice without any accreditation from API or RICS. This is a matter that will be regulated by market forces in time. In the context of PI insurance stakeholders, the APIV has been vocal about the importance and benefits of APIV Scheme membership to PI insurers in the valuers market. Should I report an API Member who is not part of APIV? If you are of the view that the API Member in question should be either an APIV Scheme participant or exempted but are neither, you should report that person to the APIV. The APIV will then contact the person in question for further information and follow through to Scheme Membership, exemption from participation and/or disciplinary action. Australian Property Institute API / RICS Strategic Alliance - What does it mean for APIV Members? Page 6 of 6