Valuers set market property prices and standards are low

J

j

During the boom in Perth some Valuers overvalued property. The buyers (FHO's) accepted the trusted specialist, the licensed valuer and the bank accepted the valuation. Everyone wanted a sale, commission and the lender seeking interest income. With e.g. 80% LVR (20% owner equity), 90% LVR (10% owner equity), or 95% LVR (5% owner equity), , which is the lenders downside protection.

For example locations like Kwinana south west of Perth when the median price for 3 bed, 1 bath property went from $200K to $300k in 12 months. ($8k to $10k per month) Irrational unsustainable growth. Market peaked and dropped and prices are now comparable ($280K to $300K) a few years later.

Now if a valuer conducted a property valuation on this case study e.g. 3 bed, 1 bath B & T on 728sqm lot, with no recent improvements. Comparative property price in Jan 2006 was $200K. Purchase price offer $230K in Mar 2006. $30K price increase (15%) over 3 months. (basic location capital growth/no improvements) Annualised this would be a 60% increase or $120K.

1 or 2 recent sales data (1-2 months old) used as comparative data to justify the price. The 3 month old sales data indicated sales of $200K price. The sale went through. (I can provide factual examples)

The interesting question is what are acceptable standards in terms of comparative sales data? e.g. there should be at least 4 comparative sales if possible and the data should be 2-3 months old. However it must be settled property, so usually 2 months old.

Now the Australian Property Institute (API) has a document re Valuation and Property Standards. Entitled 'Property Pro Residential Valuation and Security Assessment Pro Forma Supporting Memorandum'.

See item 7 Sales Evidence and the Market page 16.1.10. It states:

" The three most recent comparable sales available should be provided. More sales may be considered" e.g. 2-3 months old
" Sales relied upon should, as far as possible, be realistic comparisons in price range, type of property and location. Where the sale price evidence differs significantly (say +/- 15%) from the value adopted on the subject property, the valuer should provide suitable comment on the dynamics of the market to explain why it has been necessary to rely on such evidence".


So the industry standard is only 3 comparative sales 2-3 months old.
The sale price can differ +/- 15% over 3 months. The annualised price could differ up to 60% within this standard.


My point is that valuers set property market price, not buyers and sellers...
If there is not an acceptable valuation no deal and no sale. Even in a rising market, flat market or falling market. Unacceptable valuation = no sale. Would you agree?

Valuers set property market prices, not buyers and sellers.

The large majority of property purchases in Australia are attached to a home loan. Every home loan is attached to a valuation.


If the API industry standards above accept only 3 comparative sales and the sale price can differ up to 15% over last 3 months, the system is geared for high growth (up to 60% annualised)

Now the long term median price growth rate is claimed by various sources e.g. REIA, RP Data, Residex etc to be 8% to 9% p.a.

However the API Valuation and Property Standards 16.1 is geared to allow up to 60% annualised growth.

Of course this is great if you are a seller. Yeehah!

However this is a disadvantage for the uneducated buyer (FHO) with nil or limited property analysis skills. They do not know what they do not know. The buyer (FHO) would just accept what the licensed property valuer has claimed? The valuer is the specialist and they must be right?

So my questions are:

1. should this standard be reviewed?
2. is an up to 15% sale price variance over 3 months an acceptable standard?
3. is an up to 60% annualised sale price variance rational and realistic?
4. what effect should the long term median price growth rate of 8% p.a. have on valuation standards?
5. what role, education, responsibility and accountability should valuers have in setting property market prices in Australia? (It is a significant responsibility)
6. is it just a case of buyer beware or should the buyer (FHO) totally 100% trust the licensed valuer opinion?


cheers
 
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many sales are conducted on a cash basis and once this happens there is a benchmark. I disagree that valuers set values. Also you can't have it both ways - if you set aside comparatives on the way up you have to set aside comparatives on the way down. Valuers aren't there to predict the future or to stabilise the market, as a developer once told me quite rightly, valuers are pessimistic historians
 
johntaps said:
6. is it just a case of buyer beware or should the buyer (FHO) totally 100% trust the licensed valuer opinion?


cheers
Click to expand...

i think this is a key point - most of the time the valuer acts for the bank to protect their interests, it is up to the buyer to decide what they want to pay for something :confused:
 
Valuers interpret the market and provide a point in time valuation. They don't make the market. Buyers and sellers make the market.
 
When taking out a loan, the valuer works for the bank. Sometimes the buyer doesn't see the amount of the val, just a bank approval. The valuer isn't providing the val for the buyer at all.

You want you own valuation, pay for it yourself.
 
alexlee said:
When taking out a loan, the valuer works for the bank. Sometimes the buyer doesn't see the amount of the val, just a bank approval. The valuer isn't providing the val for the buyer at all.

You want you own valuation, pay for it yourself.
Click to expand...

exactly!!!!!:D
 
Some valuation companies have been black listed by developers for consistently undervaluing off the plan properties.
 
Everyday I learn something new when reading these threads. :D My experience (limited though!) has been that valuers are really conservative mob and the valuations are always lower than houses possible selling price in the market. :D

When we were making an offer for the current PPOR we wanted to get valuation done for our previous PPOR, so we knew roughly how much the loan would be and if we have afford it at all. The valuation was 35% less than our property eventually sold for two months later. Nice surprice. :D By the way valuer did not know the reason why we wanted to get valuation done.
 
Seriously guys and gals! I have always thought that valuers gives a really conservative estimates especially when bank valuations are in question. :eek: If that is not the case we were really lucky that our house valuation was 35% under the selling price. What the horrible situation if it was 35% over. :(
 
Tillie said:
Everyday I learn something new when reading these threads. :D My experience (limited though!) has been that valuers are really conservative mob and the valuations are always lower than houses possible selling price in the market. :D

.
Click to expand...

Not always.

Last week I valued a house in my patch that a colleague had valued in April 2010. He valued it at $910k, but it needed completion of renovations, both a cost and an effect on saleability, which I would have thought would have put the completed value at about $970k (based on his valuation figure).

It sold in Nov 2010 for $870k with the renovations all nicely completed. The owners had thought it was worth nearly $1m.

The same day I was looking at a sale for sales evidence for another property I was valuing. It had sold in Dec 2010 for $1.3m; when I drove past it I realised I had valued it so I looked it up. In April 2010 I had valued it at $1.475m, and the owners estimate of value at that time was $1.8m.

Another one, yesterday I valued a property with an owners estimate of value of $680k; I valued it at $810k.

Mind you I am sure I have undervalued a property or two in the past as well.

Anyone who thinks valuing is always easy should actually try it sometime.

cheers

RightValue
 
Token Funder said:
Maybe the buyer got a pre-offer val and it was he/she who got the incompetent valuer ;)
Click to expand...


Quite possible or the property could have had development potential.

This week I valued a property for a potential purchaser hoping to put in an offer to the owners estate prior to it going on the market.

I was valuing the property for the persons bank. They thought the property was worth $500k; I valued it at $620k;

It does have development potential so if it goes to Auction it may well go for a figure quite a bit higher than my valuation figure (the owners were talking much higher); however for mortgage valuations you have to ignore development potential - hence the mortgage valuation can be well below a highest and best use valuation or sale price.

cheers

RightValue
 
I find it very difficult trying to get an idea of what a house's value should be in the older suburbs that we live in.

We have a contract for sale on a block with existing Demo Precinct house on it in good condition, but crying out for a major renovation. Whilst we had an idea of its worth, we were keen to price it correctly. Not too high to scare people off and not too low that we felt we had given it away. The fact that it is a development block muddied the waters for choosing a list price.

Ultimately, we had two developers look at it, but the highest of the verbal offers was $45K under the price we accepted from the family looking for a nice big yard.

Finding comparable properties within the previous three months in order to see what they sold for was not easy. Blocks were smaller with more high spec houses, or the houses were similar but on much smaller blocks with no development scope. With the market being pretty soft, it really had to be fairly recent too, which was tricky.

I could easily be wrong, but I imagine a 4 bed, two bath, two car on a regular sized block in a newish suburb would perhaps be easier to place a value on.
 
Valuers set market price

This is a pretty good topic. 18 replies and 192 views today

Having observed the buying frenzy in Perth in 2006 as a buyers advocate, valuers approving just about anything and lenders accepting crazy short term growth it provided me with an insiders point of view.

Occasionally when observing the market and observing other sales e.g. the property we were considering, that was purchased for over market price (by another buyer), we would see a valuer provide a bank valuation under the offer price and save the buyers bacon (not our client). The deal would fall through and the property would come back on the market. This was the exception and not the norm.

So the valuer was the deal breaker. They could make or break the deal.

Often the valuer would ask the buyers agent for the sales data and naturally the buyers agent would provide sales data that supported the sale. Alternatively the valuers would often call the selling agent for the sales data and naturally the sales agent would provide sales data that supported the sale. Why would a buyers agent or sales agent provide sales data for lower priced sales and risk losing the sale? Self interest and self preservation are human nature.

Often the valuer was very busy and it was much quicker to get sales data from the buyers agent or sales agent. As time is money. The valuers were often on a schedule and have to do so many valuations in one day. Time is money when they have to do volume (valuations). The churn and burn process.

My point is this:

If there is not an acceptable valuation there is no deal and no sale.
Even in a rising market, flat market or falling market an unacceptable valuation = no sale.
Valuers are the deal breakers, as they have the responsibility and accountability to provide a satisfactory valuation.
A sale subject to finance cannot be approved without a valuation. No valuation and no deal.
The sale is 'dependant' on a valuation.
What ever value they approve, that sets the market price for that property.
Therefore Valuers set property market prices, not buyers and sellers!
Think about it...

Oh of course there is further intrigue, in the context that real estate agents act as valuers and vice versa in Australia.

cheers
 
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