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".
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
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".
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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