I had this question posed to me recently.
As always, there are two sides to the story.
On one hand, registered valuations provided by an independent, trained valuer with experience in your local market and property type will give you a good indication of potential market value based on recent comparable sales in your area allowing you to make investment and refinancing decisions and giving your loan provider some surety in terms of your loan to value ratio (the market value of your home minus what you owe on the mortgage and other debt).
On the other hand, the valuer is not active in the marketplace as a buyer, is using historical data (even recent data can be out of date when used), is trying to make value judgements on things that are often intangible (how do you place a value on the particular view your home has looking towards the sunset, the landscaping, the loss of light resulting from the macrocapas that are in your neighbours property, the colours you have chosen to paint the inside of your home etc) and is often not as independent as may seem from the outside.
The Cynics View
Having been involved in the real estate industry for well over a decade, I know that registered valuers are generally well trained, competent, and professional in their business BUT they are also human. I have received many calls from valuers over the years who are needing fresh sale price info and often my opinion on the value of properties in my jurisdiction. It can be difficult to place a value on unique properties or places that have few comparable recent sales and yet they are asked to do just that by buyers, sellers, and banking institutions.
Independent? Not always. Impartial? yes. Objective? yes. Professional? yes. Can be influenced? YES!
There are valuers that value high, there are valuers that value low. Most people in the industry know how particular valuers work and hire them accordingly. Experienced investors and developers understand this also and use valuations to gain more borrowing, claim greater tax advantages, and convince unwary buyers of inflated values.
What options do I have then? Good question! I’m glad you asked.
First let me define Market Value – market value is in its most basic sense, the meeting of the markets.
Market Value is what a willing and informed seller will sell their home for
and what a willing and informed buyer will buy that same house for.
In the purest sense, this transaction should be without time pressure, duress, or any other influencing factors but this is never completely the case in reality. No one has perfect knowledge and there are always other influencing factors and people with opinions involved be it a real estate agent, valuer, builder, family member, work colleague, or local mechanic. Both parties can and are swayed in terms of value by other people, many of whom are totally ignorant of local market property values and construction methods but believe themselves to be resident experts. There is nothing worse than a fool who doesn’t know he’s a fool,and this definitely applies to real estate!
Option 1) If you are wanting an idea of value without putting your house on the market – obtain two valuations from independent registered valuers. Make it known that you are getting two valuations to both valuers but NEVER let either of them know who the other valuer is. You don’t want them to ring each other and decide on a satisfactory value for your property together. I have no proof that this happens but I have my suspicions and wouldn’t take the chance. If I’m paying for two valuations, I want two separate valuations NOT one merged valuation that I pay for twice. Remember also, that valuers have to be accountable to the banking institutions that the valuations get forwarded to. As such, it is often safer for them to be conservative on the value if they are unsure. In the fine print there is a reasonable margin of error built in as well.
Option 2) Get in touch with a couple of real estate agents and ask for a free market valuation from them. At least you don’t have to part with hundreds of dollars this way. Of course, real estate agents/licensees though professional in the main, are not totally objective or impartial either. They want your business and, therefore, want to please you. This can translate into a willingness to overvalue your property. Salespeople are also positive by nature and can be caught up in the enthusiasm that surrounds a potential hot new listing.
Option 3) Add both option 1 and 2 together – costly and involved. At least this way, you’ll get a good general feel for value. Remember that valuers often value low and agents value high.
Option 4) Put your house on the market. You will find out what the current stable of active buyers think about your place giving you the best indication of value available.
But what if I don’t want to sell?
If that is truly the case, why on earth do you want a valuation in the first place?
If it is simply for bank refinancing then get one valuation – the cheapest and highest value you can get. If you don’t have any such contacts, then ask a real estate salesperson or agent that you know and trust to give you a valuer contact that will work with you in the way you want.
Sometimes banks will let you get away with a written appraisal from a real estate salesperson. But be nice. Let the salesperson know this is why you are getting the appraisal. Some agents will charge you a paltry sum for this, others will d0 it for free to try and gain good will from you. Don’t be a user though, don’t pretend you are going to put your house on the market and get appraisals done for you only to use the info for your bank. It’s not nice and karma will get you in the end! Give them a bottle of wine and refer them to your friends and acquaintances so that they get something out of providing you with their time, expertise, and energy for free.
If you are wanting to sell your home but don’t trust the values that agents put on your property then try a no-price marketing strategy like a tender or auction. In this way you are allowing the buying market to show you the value of your home without artificially influencing it.
Be aware that with this strategy, buyers will take value hints from other sources if you don’t advertise a price eg the rateable value, their own registered valuation, the agent/s involved on the sale, and the influencing people in their lives that I’ve already talked about.
Have a read about getting your rating valuation up here
I value your opinion. Let me know what you think…
You have raised some interesting points David and I agree with you! If you need a valuation, as opposed to want a valuation, just get the valuation and use it for the purposes you needed it for in the first place. And stop there. Job done.
Market values are often confused with registered values.Sometimes they are the same, but not always.
I guess the difference between a valuer and real estate agent is this: A valuer is looking back in time and apportioning value on that basis, where as a RE agent is looking forward to see who is out there and asking what will they pay?
Agents are marketers, not valuers and they shouldn’t get to hung up on trying to assess value too much. The market does that for us.
thanks for your comments Neil. I like the statement you made
“A valuer is looking back in time and apportioning value on that basis, where as a RE agent is looking forward to see who is out there and asking what will they pay”
Am going to steal that one! So true!
Totally agree with you that Agents are not valuers BUT the public have an expectation that we are AND more importantly, the recently introduced real estate Agents act puts the onus on us as agents to accurately value properties or break the law!
I have a real problem with this! The wording of the Act is vague and open to interpretation. As far as I know, there has been no cases before the REAA Authority relating incorrect pricing yet so we don’t know how they will swing in their interpretation.
Here is the part of the REAA 2008 that I am referring to:
9.5 An appraisal of land or a business must be provided in writing to a client by a licensee; must realistically reflect current market conditions; and must be supported by comparable information on sales of similar land in similar locations or businesses.
Sounds straight forward right?
But what if the property is unique, has few recent sales, is damaged or defective (eg leaky), doesn’t sell for the expected appraised price, or sells for ways more than the appraised price? The agent is then open to being sued right?
There are no further definitions for the words “realistically” and “comparable”and “similar” in the Act.