Top 10 property valuation myths

A broker publication came out this afternoon with the following article written by Propell national Valuers:

The top 10 property valuation myths

In summary the aleged myths are:

1. “Swimming pools add no value”
2. “Bank valuations are always conservative”
3. “Valuers don’t spend enough time in a home to give a solid valuation”
4. “More bedrooms = more value”
5. “The valuation doesn’t reflect my home’s presentation”
6. “Property prices never go backwards"
7. "Commercial property is riskier than residential property"
8. "Market Value is the same as sale price"
9. "Investors should only buy for capital growth"
10. “Buying interstate is a great way to diversify"

I don't agree with everything 100%, but I think it's a good article, well worth reading if only to give an insight to what valuers are doing.
 
A broker publication came out this afternoon with the following article written by Propell national Valuers:

The top 10 property valuation myths

In summary the aleged myths are:

1. “Swimming pools add no value”
2. “Bank valuations are always conservative”
3. “Valuers don’t spend enough time in a home to give a solid valuation”
4. “More bedrooms = more value”
5. “The valuation doesn’t reflect my home’s presentation”
6. “Property prices never go backwards"
7. "Commercial property is riskier than residential property"
8. "Market Value is the same as sale price"
9. "Investors should only buy for capital growth"
10. “Buying interstate is a great way to diversify"

I don't agree with everything 100%, but I think it's a good article, well worth reading if only to give an insight to what valuers are doing.
One I have encountered a few times has been 'sale price should be what I had my property valued at previously!' :)
 
Not sure how 'buying interstate is a great way to diversify' relates to 'valuation myths'. It is a completely separate issue.

And except for the most bizarre of cases, I think that sale price should equal market price. What a cop out for the valuer to say that they know better than what two unrelated people agree to when they agree to exchange contracts on a property at a certain price.
 
Not sure how 'buying interstate is a great way to diversify' relates to 'valuation myths'. It is a completely separate issue.

And except for the most bizarre of cases, I think that sale price should equal market price. What a cop out for the valuer to say that they know better than what two unrelated people agree to when they agree to exchange contracts on a property at a certain price.
I suspect Aaron what the valuers are stating here is that at the end of the day, a property is only worth what one person is prepared to pay.
EG: Buyer get so emotionally attached to a property they will literally pay "anything" for it and as a valuer, how are they supposed to guess that final amount.
I think the correct terms might be "fair market price should equal sale price" but even that might be stretching it..
 
An additional myth should be "my house is worth more than the same size/bedrooms as others in the street, because its mine!".
 
An additional myth should be "my house is worth more than the same size/bedrooms as others in the street, because its mine!".
Haha. I went to some open homes yesterday to guage what is selling in the price range of what I think my PPOR is worth. There is not a lot on the market but the ones I saw I thought "mine's better than that for the same money I was thinking". Then I thought "do I have rose coloured glasses?"

I'll know soon enough.
 
2 myths that the article appears to support:

- Valuation is an objective science

- Valuers are independent and can’t be influenced by lenders.
 
2 myths that the article appears to support:

- Valuation is an objective science

- Valuers are independent and can’t be influenced by lenders.
Definintely not an objective science. We've proven on multiple occassions that two valuers can have opinions that vary by over 20%. If it were a science I'd expect the variation to be significantly lower.

I don't think valuers are influenced by lenders in most cases. As the article describes, valuers have a fear of litigation, hence their reports tend to be conservaitve, especially when the market dropping. There's no doubt that valuers err on the lower side of market value, but I don't believe it comes from the bank; probably more from fear of the what the bank will if the bank makes a loss and needs to recover their money.
 
Definintely not an objective science. We've proven on multiple occassions that two valuers can have opinions that vary by over 20%. If it were a science I'd expect the variation to be significantly lower.

I don't think valuers are influenced by lenders in most cases. As the article describes, valuers have a fear of litigation, hence their reports tend to be conservaitve, especially when the market dropping. There's no doubt that valuers err on the lower side of market value, but I don't believe it comes from the bank; probably more from fear of the what the bank will if the bank makes a loss and needs to recover their money.
PT_Bear has hit it pretty much on the head.

Valuation is as much an art as a science.

A valuation is a matter of professional considered opinion (the art part) based on the analysis of comparable sales evidence (the science part).

It is both subjective and objective.

Most important I believe is the level of experience of the valuer. Valuation is one profession where there is no real substitute for experience.

What adds value in one area does not necessarily add value in another area.

For example with period homes I will use different rates per sqm for the building in different areas, this is based on my analysis of sales evidence within discrete markets.

I have been in houses in areas with median house prices under $400k, where people have overcapitalised on a McMansion and spent $60k plus on drapes that to be gentle, do not suit all ethnic tastes. Aside from the fact that these are Chattles (removable) and should be largely ignored, what one person likes another may loathe, so the added value is zilch.

And once again.

I have never ever had pressure from a bank to be conservative in a valuation.

I have had plenty of pressure from bankers to be more generous in my figures to make their deals work.

I know that others know better, but this is my experience in conducting around 20,000 valuations for lenders ranging from third tier (eg liberty and bluestone) through to the big banks (eg NAB, CBA Westpac) and just about every lender in between.
 
2 myths that the article appears to support:

- Valuation is an objective science

- Valuers are independent and can’t be influenced by lenders.
Make a bet?!
If the valuer wants repeat business and the lender sees a reliable borrower that has a good record with that lender, they will definitely push the valuer for better figures. It's happened to my benefit in the past.

I'm not saying that today's market is conducive to it happening often, but as I said, it's happened for sure.
 
PT_Bear has hit it pretty much on the head.

Valuation is as much an art as a science.

A valuation is a matter of professional considered opinion (the art part) based on the analysis of comparable sales evidence (the science part).

It is both subjective and objective.

Most important I believe is the level of experience of the valuer. Valuation is one profession where there is no real substitute for experience.

What adds value in one area does not necessarily add value in another area.

For example with period homes I will use different rates per sqm for the building in different areas, this is based on my analysis of sales evidence within discrete markets.

I have been in houses in areas with median house prices under $400k, where people have overcapitalised on a McMansion and spent $60k plus on drapes that to be gentle, do not suit all ethnic tastes. Aside from the fact that these are Chattles (removable) and should be largely ignored, what one person likes another may loathe, so the added value is zilch.

And once again.

I have never ever had pressure from a bank to be conservative in a valuation.

I have had plenty of pressure from bankers to be more generous in my figures to make their deals work.

I know that others know better, but this is my experience in conducting around 20,000 valuations for lenders ranging from third tier (eg liberty and bluestone) through to the big banks (eg NAB, CBA Westpac) and just about every lender in between.
Good post RV.
I've long held my suspicions about valuations and influence so its good to hear an alternative logical argument.

Regarding your point about period homes, I live in an area in Melbourne littered with "period charm" with Californian bungalow's being the popular choice. I've changed my naive views on their value over the years and would now choose one over something new any day of the week.
Am I correct in assuming they are valued higher given their relatively limited supply and the fact they do not "seemingly" date like a modern home?

On another note, I've also seen instances (such as Perth) where their value (cal bungalows) carry no added value at all? Might this be because they are not representative of the area?

Cheers
B.D
 
Am I correct in assuming they are valued higher given their relatively limited supply and the fact they do not "seemingly" date like a modern home?
I definitely would say that a period home adds value as it appeals to a broader range of people. I personally love them (own 4 of them) but their price is limited in many ways by their smaller lot sizes and simply the fact that they are much older than other buildings. Probably not the same problem with your Californian bungalows since they are usually on lots of at least 600 sqm in Glen Iris, Camberwell etc.
 
I find it interesting how 'scientific' valuations are. I know that it's not an exact science, but I think most laypeople are surprised when they find out that valuers don't rely on 'gut instinct' and 'first impressions' instead using measurements and calculations to get to their dollar figure.

Clearly presentation, furniture style and cleanliness can make a big difference to the price a buyer is willing to pay, but valuers will overlook these things because they don't affect the 'real value'. Or when a seller can't understand why he can't get the same sales price that another identical unit in the same block achieved, even though his looks like a tip and the other is immaculate.

It's also interesting that one of the myths is that pools don't add value. I don't agree that this is a myth. I know that a lot of people will pay a premium for a property with a pool, however it can significantly narrow the market from a sales perspective, especially if there's not much back yard left over.

And I don't know that professional valuers are conservative, rather that sales agents are often generous in an attempt to win the listing.
 
I don't have any doubt that valuers are conservative. That is the nature of their job, the environment, and the PI insurance that they do not want to invoke if a lender sues them. Same could be said for the vast majority of other professionals like lawyers, doctors, accountants etc. The whole nature of PI insurance is to keep professionals in check for fear that they void that insurance through their (mis)conduct.
 
the lender would pursue the borrower first anyway, so the likelihood of the insurance being invoked is slim
Very true, then the lender will get compensated by the mortgage insurer and so on.

Keep in mind though, a valuer might run 20-30 valuations a week, which could translate to upwards of 1,000 per year per individual valuer. In many cases they're probably only paid $300-$500.

With default rates running around 2% for some lenders, that means of the properties valued, 20 might be in trouble and 10 per year might be sold at a fire sale. In this case 5 might not sell for the valuers estimate (in a falling market) and could be a potenital liability for an aggressive valuer.

If each of these costs the valuation firm $25,000 they're in trouble to the tune of $125,000 which is a substantial slice of the revenue generated by the same individual. I don't imagine the profit margins are high enough to cover those kind of losses.

Hence valuers are conservative because they don't want to be taken to court at all.

All of my figures are completely made up, but even one pentalty per annum per valuer could be pretty nasty.
 
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