Criteria for Valuers

From Open Risk Manual

Definition

Criteria for Valuers are any filtering criteria that apply to the selection of a third party to perform of the role of a Valuer (e.g., perform Collateral Valuation)

EBA Requirements[1]

Institutions should ensure that a valuer carrying out the valuation or revaluation tasks:

  • is professionally competent and meets any national or international requirements and accepted professional standards that apply to the valuer or for carrying out a particular valuation assignment;
  • has the appropriate technical skills and experience to perform the assignment;
  • has the necessary knowledge, i.e. knowledge of the subject of the valuation, the relevant property market and the purpose of the valuation;
  • is independent from the credit decision process.


Institutions should ensure that the fee or the salary of the valuer and the result of the valuation are not linked in a way that creates a conflict of interest.

Institutions should assess the performance of the valuers, in particular the accuracy of the valuations provided, e.g. by backtesting on the value of the collateral through advanced statistical models. As part of such assessments, institutions should also look at the concentration of valuations performed by and fees paid to specific valuers.

In order to mitigate any conflict of interest sufficiently, institutions should take reasonable steps, e.g. via contractual terms, to ensure that valuers who are going to carry out the actual appraisal of a given property and their first-degree relatives meet all of the following conditions:

  • they are not involved in the loan application, assessment, decision or administration;
  • they are not guided or influenced by the borrower’s creditworthiness;
  • they do not have an actual or potential conflict of interest regarding the property in question, the valuation process and the result of the valuation;
  • they do not have any direct or indirect interest in the property;
  • they are not related to either the buyer or the seller of the property.


Institutions should ensure an adequate rotation of valuers and define the number of sequential individual valuations of the same property that can be performed by the same valuer. Any further revaluations beyond this number should result in the rotation of the valuer, resulting in the appointment of either a different internal valuer or a different external valuer.

See Also

References

  1. EBA, Guidelines on loan origination and monitoring EBA/GL/2020/06

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