Valuers concerns or should I be concerned for the valuers ?

[Rolf Latham]

ok here it is.

Market considered inconsistent: Translation; There have been a few high sales but not enough as yet for me to be able to truly justify this price if I am taken to court. There are still a few sales that do not support this price.

Uncertain Market Conditions: Translation; The market has picked up very quickly, probably due to a reduction in interest rates, if the RBA raises rates then this rise could well come to a grinding halt and these recent prices may look high.


Basically the valuer is saying that "holy hell the market that has been dormant, and flat after falling has jumped". Not just a nice steady slow increase but jumped a lot. .

and therein lies the challenge

these markets have never "fallen" in the last 3 cycles, and have proven to be some of the most resilient stock. On that basis then, these valuers would be rating Western ex cheapo Sydney at 6/5 ....... wait a minute - I had one like that today.

even RP AVM modelled estimates are providing vals useable to lenders within 1 or 3 percent in these locations. Id hazard a guess the statistical validity of AVMs is generally better than a manual val.

Utimately, my real concern is for the survivability of valuers as we once knew them.

Effectively, you now have 2 sources of valuations - VMS and Valex.............. and that cant be good for any industry

ta

rolf



ta
rlf

 

[Jamie M]

My rule of thumb, when I am valuing an auction purchase that looks high (based on available sales evidence) is to ask where the third last bidder dropped out.

If the last two bid it up into the stratosphere I usually pull it back. If they went up an amount above the third bidder that is acceptable then I rubber stamp it. If it is at the upper end of acceptability I may well put a at least one 4 on the risk rating, possibly a 5 or two 4's.

Thanks for the response - I appreciate the insight. It's great to have a valuer on the forum.

I'm fairly certain in this instance that the valuer was a tad incompetent - there were comparable properties (same street - same dwelling types) that had sold within the last three months at higher prices. The other two valuations that came back picked these up and the result was what we'd expected.

Cheers

Jamie

 

[D_One]

I think lots of work being done by valuers these days are on the side of caution. How can a valuer use comparables of empty lots to justify a value on a property with a live able and functional house.

 

[bumskins]

A problem is, valutations can be susceptible to manipulation in a shallow market. There are previous examples of fraud which have relied on this means.

As mentioned the valuer should be making valuations based on reliable evidence (more scientific and less liberal). If some valuations lag the market, then so be it. As long as everything is reasoned, then I see no problem with it.

 

[Rolf Latham]

As mentioned the valuer should be making valuations based on reliable evidence (more scientific and less liberal)..

totally agreed

Thats why more and more lenders are relying on automated methods, and where we are talking homeogenous stock types, these are quite reliable, because they remove the bias to find comp stock that supports a vals case. Using comparables that are 5.5 mths old in a variable market ( up or down) is not great.

Challenge here is that when markets slow you wont see valuers using near 6 mths old comps, but when the market is rising, you likley will

Conversly some are doing vals on ALL stock regardless of LVR etc.


ta
rolf

 

[Scott No Mates]

Valuers rely on historical data ie settled sales evidence only as you can never tell which incomplete sale will fall over. Incomplete sales can be used to colour closing statements ie rising or falling markets.

If a val based on incomplete sales went to court the valuer would be shot down if the sales evidence that was used all failed to settle. History is a valuable asset for valuers ... past performance does not predict future returns.

 

[Rolf Latham]

Valuers rely on historical data ie settled sales evidence only as you can never tell which incomplete sale will fall over.

what % unconditional NSW sales with a 5 to 10 % exchange deposit fall over ?

ta
rolf

 

[Scott No Mates]

a court doesn't see it that way way nor does the pi insurer if you want to keep the premiums manageable.

 

[Tim86]

The thing that I hate with valuers, I will buy a run down unlivable property without walls, bathrooms, etc... for $370 000. Then I will fit it out and finish off walls, put in 2 bathrooms, paint the whole house, do the flooring, hook up hot water, turn it from 2 beds into 4, etc... and then I go and get a valuer to re-value, firstly the bank says it's too soon for a re-val as there hasn't been enough time in the past 2 months for there to be any change in price so I have to pay for a re-val out of my own pocket. Then the valuer comes out and looks at the past sales history and sees that it was sold one month ago for $370 000 and then thinks "Oh the house must be worth $370 000" and then gives me a very low val because of that.

Grrrrrrrr

 

[Kinnon Bell]

The thing that I hate with valuers, I will buy a run down unlivable property without walls, bathrooms, etc... for $370 000. Then I will fit it out and finish off walls, put in 2 bathrooms, paint the whole house, do the flooring, hook up hot water, turn it from 2 beds into 4, etc... and then I go and get a valuer to re-value, firstly the bank says it's too soon for a re-val as there hasn't been enough time in the past 2 months for there to be any change in price so I have to pay for a re-val out of my own pocket. Then the valuer comes out and looks at the past sales history and sees that it was sold one month ago for $370 000 and then thinks "Oh the house must be worth $370 000" and then gives me a very low val because of that.

Grrrrrrrr

Are you providing the valuer of photos of what it looked like when you purchased it?

Last reno we did was on an almost unliveable house. We took lots of photos before we did anything. When the valuer came by we showed him about 50 'before' photos. Valuation came in at $270k over a $232k purchase price. This was in a dropping market too.

 

[Marty McDonald]

a court doesn't see it that way way nor does the pi insurer if you want to keep the premiums manageable.

A price is a price. Courts, prop valuers and their pi providers are wrong in my opinion. A futures derivatives (insert any market here besides re) buy / sell price is taken as market value on trade. Then settles a few days later. If the purchaser can't settle that's another matter.

As Rolf says how many uncon contracts wouldn't settle. Besides those with valuation problems I would say 0.0000001%. Statistically irrelevant.

Also in a down market you think the valuers aren't influenced by the bearish exchange price for the property down the road? Of course they are the same way they would be influenced by the bullish auction exchange down the road in a strong market. I think valuers decide on the price then find the comps to suit their opinion. I got no beef with that. $200 revenue and a couple of hours work sure.

 

[Scott No Mates]

A price is a price. Courts, prop valuers and their pi providers are wrong in my opinion. A futures derivatives (insert any market here besides re) buy / sell price is taken as market value on trade. Then settles a few days later. If the purchaser can't settle that's another matter.

A sale which is not concluded, is not a sale and cannot be supported in a valuation or in a court case, the price which can be proved (ie evidential) is the price at which the property was transferred and nothing less. The big talker will say that they will pay $x for the property but is the no show at the table.

Also in a down market you think the valuers aren't influenced by the bearish exchange price for the property down the road? Of course they are the same way they would be influenced by the bullish auction exchange down the road in a strong market.

Influential and can be mentioned in their market commentary but is not evidence

I think valuers decide on the price then find the comps to suit their opinion.

That's what it is all about - being able to provide the evidence to validate their opinion based on market evidence.

 

[Marty McDonald]

That's my point Scott not mates. It shouldn't be that way. In any other market a sale is a sale and it doesn't have to have actually settled before its considered as such. For example equity trades settle a few days after the transaction BUT are recorded as the market value at the time of the transaction.

 

[Scott No Mates]

The difference is Marty, no two parcels of land are identical unlike shares which are all part of the one company.

 

[Tim86]

Are you providing the valuer of photos of what it looked like when you purchased it?

Last reno we did was on an almost unliveable house. We took lots of photos before we did anything. When the valuer came by we showed him about 50 'before' photos. Valuation came in at $270k over a $232k purchase price. This was in a dropping market too.

The valuer came before we did the reno's and said the place was unlivable so the bank wouldn't lend on the property. The same valuer returned a month later after the reno's and valued the place again. We got a value about $25k more than what we spent on it...which was rubbish.

 

[jrc77]

Tim,

Wait a bit and try again. We did a reno, got a val and were disappointed with it. Waited three months and tried again, val was $125k higher. Which valuer was right? Hopefully the second one

Regards,

Jason

 

[RetireRich101]

I understand that a property is not settled should be proceeded with caution in a valuation or in court order.

I find at least in 2 of my Valex reports that valuer has included comparable properties that are not settled or listed as agent agent advised sale.

In a Land & Environmental court, the expert witness, ie valuer can demonstrate or provide a comparable property that is not settled to demonstrate a buyer would be willing to paid for a particular property in a open market. It may get shot down by the judge, but at least the Valuer has spoken and made his point heard.

BUT we're at the mercy of the Valuer so to speak, since you're the one need money from the Bank and they wont allow you to get your own Valuer...

 

[Marty McDonald]

The difference is Marty, no two parcels of land are identical unlike shares which are all part of the one company.

That is not my point. My point....Remove the valuation from the equation and how many exchanged contracts wouldn't complete. F all. Therefore I think valuers should be able to rely on uncompleted sales as comparables if they so choose. After all they are very often much more relevant in the real world. Think like you were an active house hunter, would you gauge value from the 10 properties sold over the last few weekends auctions in the suburb you are looking at or would you go off the completed sales from 3 months ago.

Of course one sale doesn't make a market but if a Valuer thinks it is a reasonable comparable they should be able to use it is all I'm saying. I'm not arguing what the law is.

 

[Scott No Mates]

The trouble is Marty, valuers are tied to the professional standards set down by the API. As such, they are unable to use 'invalid' or non-substantiated data from incomplete sales. The mere fact that someone is prepared to pay $x for a property at auction, doesn't preclude the fact that they may do a 'runner' if they realise they do not have the funds to complete. It is a very small risk but a risk none the less.

To your point regards the purchaser who is looking at the market and what they are prepared to pay, this is a value judgement made upon an analysis of their personal circumstances whereas the valuer is risk averse, looking at what a distressed sale will achieve for the mortgagee who wants to cover their exposure (maintaining shareholder value) and not necessarily what is in the best interests of their client.

 

[RightValue]

Valuers can now use unsettled sales in their sales evidence, but must include 3 settled sales as well.

This is as a result of the Resi Val firms saying that the new Standards requiring only settled sales was BS and leaves you behind in a moving market.