As we are all too aware, COVID-19 is having a devastating impact on the economy. Due to the continuing change in tiered restrictions, businesses find it increasingly difficult to plan ahead, motivation is dwindling, and investors are taking fewer risks.
However, the property market has indeed seen a period of activity over the past six months. Firstly pent up demand resulted in a spike in property transactions post-lockdown. This was followed by further increased activity resulting from the levy on Stamp Duty Tax, which runs until the end of March 2021. What will happen throughout the rest of 2021 is anyone’s guess, but many experts predict a rise in unemployment and a decrease in sales and property values.
Over the last 5-10 years, many SME surveying practices have become increasingly involved in bank panel work, which, over time, has become firmly set in their business model. In many cases, this, quite often, guaranteed income stream has become such that their other, less profitable (and harder to obtain) lines of work, such as private surveys and valuations, have become neglected.
Professional Indemnity Insurance (PII) is one of the main hurdles for any small to medium-sized surveying practice to obtain.
Firstly, because there is a lack of insurers in the market, many surveyors struggle to find the cover they need. Then there are the problems associated with PII insurance, a stringent requirement for surveyors wanting to take on lending work. It’s important because it pays out damages to customers and defence costs when a surveyor has offered neglectful advice. The truth is, more and more surveying firms are now struggling to renew it, instead making use of the RICS market facility, which offers temporary, twelve-month insurance. If a surveying firm hasn’t managed to secure PII within this time, they may be forced to stop valuing properties.
The critical question is, why has PII increased in the first place? There are a couple of different reasons. To begin with, there aren’t that many PII insurers on the market. Many insurers can’t justify offering it, as resulting claims can be expensive to defend.
Premiums themselves have also become more expensive recently due to lockdowns caused by COVID-19. As a result, some insurers believe valuers could be sued for overvaluing commercial property, which have fallen in value recently. In some cases, premiums have risen to cover this, which isn’t affordable for many surveying firms.
This type of situation was similar to the global financial crisis back in 2007 and 2008, where claims against valuers for overvaluing property increased as lenders attempted to recover lost funds through claims. However, some surveying companies have managed to counteract the number of claims made by improving their risk management process.
Two other factors are believed to have hiked up PII insurance premiums. Firstly, there’s a fall in property values as a result of events like Brexit and Grenfell. Then there’s the Hart v Large case, where a couple received substantial damages against a surveyor that failed to identify critical problems with their property or recommend the most appropriate type of building survey. The one suggested being a HomeBuyers Report, which is a basic survey.
With these challenges in place, plus the devastating impact of COVID, it’s not surprising to hear that many of the larger surveying firms have had to lay off staff. CBRE and BNP Paribas Real Estate are the worst affected, with 250 job losses each. JLL has confirmed the loss of around 200 roles, while Knight Frank and Avison Young have lost 100 jobs each. The impact hasn’t been as bad for Allsop, where only 26 jobs are being made redundant.
Aside from this, other firms have remained profitable by making bank panel work a significant part of their business. As a virtually guaranteed source of income, it’s a more reliable stream of work than private surveys and valuations that are less profitable, harder to obtain, and aren’t carried out as often.
Smaller firms have benefited by taking on more of this type of work instead of focusing on private surveys and valuations. Advertising has played a crucial role in this, which has allowed the smaller firms to attract private clients with a professional yet value for money service. This can lead to clients’ personal recommendations, not to mention positive online reviews that are invaluable for generating future business. Although many surveying businesses have struggled throughout COVID and have had to lay off staff, it could be an ideal time for smaller firms to expand and offer new services which are more in line with their bigger rivals.
This article was written on behalf of CJ Bloor Property Consultants Ltd.