Recently we received this question from a reader regarding independant valuations;

To the Editor

Are you able to let me know of any property valuers who can value investment properties in Western Australia and that the bank will accept? If you cannot recommend one individual can you let me know if this is possible and a few hints of how to go about it.

At the moment the bank has the valuations done by someone jumping on the internet in an office, the valuations do not reflect the current market and also the properties could be gutted inside as when they did their valuations they did not even look inside the properties.

Kind Regards
David O'Dwyer

The response;

Hi David,

You raise two very important questions here.

Regarding professional valuations: although theoretically anyone can claim to "value" a property, the usual case is that only a valuer licensed by the Australian Property Institute (API) – will be recognised as a property valuer in the mortgage, finance, legal, government and accounting industries. Hence, Australian banks will only accept a valuation from a valuer licensed in his or her respective state. There are different regulation and licensing requirements for valuers in Australia across states. In Western Australia, for instance, valuers are required to be licensed and need to have completed an approved course of tertiary study and gained a certain level of supervised experience. Nationally, requirements of entry to both courses and the API are strict, and members must comply with strict professional codes of conduct and ethics, as well as complete professional development requirements annually.

So if you are shopping for a good valuer, first of all make sure that they are full members of the API, as this is not a mandatory requirement but certainly a preferable one. A good idea is to also find out who the valuer's clients are: if they already service the big banks, which tend to have strict valuation criteria, then you are practically guaranteed someone decent.

You raise an important question regarding AVMs – Automated Valuation Models, which is what was used by the bank in your case. This is a relatively new valuation method to Australia, but it has been used in the US, UK and Canada for quite some time now. Basically, AVMs are mathematically generated statistical models which collect general market data (with a lag period of 2-3 months) then apply a scaling factor to all properties based on this data. AVMs can be valuer-assisted or not, but even with valuer expertise the property is not physically inspected in any way. So, in this sense you are right in saying the property could be gutted inside (or even renovated with solid gold bricks for that matter) and the bank wouldn't know!

When measured against full inspection valuations, AVMs have been shown to have a large range of values – as high as 40% in some cases, which from a risk management point of view is not a good thing. This is the major reason why AVMs are generally used for low risk loans only. Also, they cost about 10-20% of the price of a full valuation and have a turnaround time of a few hours as opposed to 48 hours and more.

Therefore, AVMs do not compare to full valuations. Full valuations cover not only the physical inspection of a property's land and building(s), but also a detailed risk analysis, research and analysis of current local market trends and comparable nearby sales. There are numerous variables which the valuer must confirm in order to arrive at the final assessed market value.

Regards
Greville Pabst FAPI FRICS, CEO & Director of WBP Property Group


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