The Dual-Mandate Conflict on a Distressed Office Block
You are a registered valuer instructed by First Meridian Bank to value a 6,200 m² GLA office building in a secondary node for mortgage security. The borrower, Kestrel Holdings, has separately approached you (informally, by phone) asking for a 'market rent opinion' to support a rent review against their sitting tenant. You have previously valued the property for Kestrel 14 months ago at R82 million. Current market evidence suggests R68–R72 million. The bank's instruction is verbal and says 'keep it quick, the loan-to-value is getting tight.' The same bank is also a major source of your firm's panel work. You have not yet signed an engagement letter.
1. Identify and analyse the ethical and professional-practice issues raised, and state what you must do before accepting either instruction.
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Conflicts of interest. Two potentially opposing clients (lender vs borrower) over the same asset. Accepting both creates a self-interest and conflict threat. The conflict must be disclosed to both parties in writing and managed - or one instruction declined. Given the bank is a panel client, there is a familiarity/intimidation threat from the 'keep it quick, LTV is tight' remark.
Undue influence / independence. The comment about LTV is pressure toward a favourable figure. Independence requires you to value to market, not to the loan. Document the instruction and your refusal to be steered.
Scope and terms. No engagement letter = no defined basis of value, assumptions, limitations, fee or liability cap. You must issue a written engagement letter (basis of value = market value, IVS/Red Book compliance, inspection, reliance, indemnity) before work starts. A verbal 'quick' instruction is unacceptable for a mortgage valuation.
Prior knowledge. Your earlier R82m valuation is now stale and inconsistent with evidence. You must not anchor to it; disclose the prior involvement.
Action: (1) Decline the informal borrower instruction (or obtain written consent from both and Chinese walls). (2) Issue engagement letter to the bank. (3) Disclose the prior valuation and any fee dependence. (4) Proceed independently.
2. The borrower pressures you to 'at least match the previous R82m because nothing has changed.' How do you respond and what does your report need to contain?
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Response: Politely but firmly decline to be steered. The duty is to the instructing client (bank) and to the market. 'Nothing has changed' is contradicted by market evidence (R68–72m). Explain that a valuation is an opinion of value at a date, not a negotiation.
Report must contain:
- Basis of value (market value), valuation date, purpose (mortgage security), and intended user.
- Extent of inspection and any limitations/assumptions (e.g. no structural survey, title assumed good).
- Market commentary and evidence (comparables, yields, capitalisation) supporting the figure.
- Reconciliation to a single figure with a stated range and rationale.
- Material change disclosure: explicitly note the prior valuation and why the figure has moved (e.g. softening yields, vacancy, rate increases).
- Statement of independence and any conflict disclosure.
- Caveats: value assumes vacant possession/marketable title, no contamination, etc.
- Signature, valuer registration, date, and compliance statement.
Key point: Document the pressure in the file; if pressure persists, consider reporting to the client's compliance/ethics line.