Property Valuation Farce Exposed

An independent sworn property valuation is required when buying investment property, assuming you are borrowing money.

This information will help you understand the valuation process and understand that it is a farce; and that is exactly why it is important to know this information.

Before getting to the details, this information has been voluntarily confirmed as correct by a registered valuer. Read the box below, the comments were received unsolicited from the valuer. When finished, then proceed for more details.

Valuer Verifies That Valuation System Is A Farce

Just stumbled across this web page about the injustices of Bank Valuations. I am a Registered Valuer with CPV, AAPI & CPP qualifications with 10 years experience in the field of Residential/Commercial Mortgage Valuations. Whomever wrote this 'Valuations Farce' information is right on the money. But as to how to change it?, that is another question entirely.

I think a great place to start amending this issue is for bank clients to start suing Valuation Firms for being too cautious and ruining a deal and/or causing the client to lose a property(s).

Forcing disclosure of the Valuation figure would remove a lot of the perceived injustice. After all, if the Valuation Company has done a professional job that is backed up with quality sales evidence, the Valuation Report will stand on its own merits and survive any debate by an unrealistic client. If the client can source and provide better sales evidence and make a prudent case for the amendment of the figure ascribed in the Report, why should the client be disadvantaged?

It should also be pointed out to Bank Shareholders, that the majority of Valuations (that are supposed to safe guard the banks interest) are generally done by 1st /2nd year graduates (with very little front line/market experience), because they are the only ones desperate enough to do the work at the fees currently offered by the major lenders.

Valuation firms are generally powerless to negotiate better fees as the 4 majors control the overwhelming majority of lending at present and the resultant valuation work.

The system was once quite noble, but has descended into a farce. But, how do you effect change?

With the 4 majors all playing the same game and Valuer's getting the same fees they were 10-15 years ago...there is little if any hope it would seem.

These days the average Valuer has to have one eye on the clock and often does not have both eyes on the property he/she is supposed to be assessing. It's no wonder the current system is letting people down and causing frustration.

Anyhow, it is good to see that someone is telling it like it is.

James H. – Valuer CPV, AAPI & CPP

The Banks Valuation Process

Most banks apply this or a similar system. Regardless of the slight difference that one bank may have from another, they all end with the same result:-

In simple terms, when the bank receives your application, they order a valuation from an independent property valuer. The bank rarely has its own valuation department, so there is no such thing as a "bank valuation".
The valuer is selected randomly from the banks panel (list) of valuer's.
You have no say in which valuer the bank uses and many banks have a computer controlled random selection process thatscans the list from which to make a selection.
The randomly selected valuer receives instructions to value the property(s) that you are using to provide the bank with its security against the loan. For most people investing in property, this will be their own home and the investment property they are purchasing.
The independent valuer undertakes the process of that valuation company to determine their opinion of your property and establish a dollar value.
The bank receives the valuation report.
The bank approves the loan if the banks Incomes and Assets Test are satisfied (see further down). However, there are few things to note about the valuation document:-

So now here is the reality,

Valuation's are a FARCE!

I could not make it any bigger than that.

Why are valuation's a farce?

To answer and prove this for yourself, you would have to order two other valuations to the one the bank ordered for each property, meaning three or more valuations on one property.

What you would discover, is that the valuationfigures are inconsistent and most time, not even close to each other.

I have seen many properties, with at least three valuations from different valuation companies, only to find the valuations vary as much as $100,000 or more.

There is no science or standards to the valuation process

In writing this page, it is only a week or two ago that a poor client experiencedthis problem. On the same property, the banks valuer marked a property down by $90,000. Another valuer had already valued the property at the purchaseprice. BUT..... because the later valuer was not selected by the banks random system, the higher valuation could not be used, despite the fact that it was done by one of the largest valuation companies in Australia.

How can that happen?

Realise this, you and I are held hostage to the inept, lazy, frightened valuer'sthat are rife within the industry!

There is no science or consistent valuation process. It depends on the luck of the draw, which valuer you end up with. It is pot-luck!If you get one of the few good ones, you are very fortunate.

Now why would I say that there are frightened valuer's

Because many valuer'sare so worried about over-valuing that the chronically under-value just so they cannot be wrong. That way they cannot be sued by the bank should there be a default.

I believe this will be a misguided strategy as one day, I am sure a valuer will end up being sued for under-valuing. Not by the bank but by a smart, already wealthy would-be borrower who has been declined by a bank due to low valuations. Anyway, so what to that. The reality is that most people are just held hostage to the system....

Many people who should be receiving loans are denied a loan because of inept, lazy and/or frightened valuer's who do not do their job properly.

Now I have briefly explained the frightenedvaluer but what about the inept and lazy?

Well, the system makes them that way. The bank may pay a valuation company a few hundred dollars to do a valuation. However, the individual valuer often only receives a pittanceshare of the fee or is on a wage/salary.

The problem is that they are under pressure to produce valuations like sausage machines. It is a production line. Consequently, they do not have the time to do a professional job. So, lazy and/or inept practices are employed to come up with 'safe or frightened or ill-informed valuations, fast. Whichever, is the reason, there is no doubting that it means one thing to you, under valuations and unrealistic valuations. I guess the only good thing there is that you will never get an over valuation.

Do All Properties Suffer This?

No, but many do and certainly investment properties. There seems to be a culture among valuer'sthat sees them incapable of determining a reasonable valuation on property that is for investment purposes or to be constructed. Probably this is because they fear investors will default easier than home-owners. There may be minor truth in that but certainly not enough statistically to justify this inept system.

Remember - it is inept because there is not consistency. If it were consistent, meaning two or more valuer'scould be within say $10,000 of each other on the same property, I could cope and work with the system. But that is not reality. The valuations are the proverbial dogs breakfast i.e. all over the place.

What Can You Do About It?

Be prepared, and sadly, if you receive a bad valuation, you most often should go to another bank and see if their randomly selected panel valuer is more professional.

I have had many clients who have done that with success. It is a pain in the backside to do it but don't roll over, go for it with another bank/lender. One memorable client with their home worth about $350,000 receiveda valuation of around $255,000. Only to then to try another bank and receive a valuation of $345,000! Figure that, same house, dramatic variation in valuations.

So, other than trying anotherbank, there is not much you can do. You are hostage to the farcical valuation industry.

Hopefully, you will still have enough equity to cover the shortfall in borrowing due to the inept valuation. I am sorry I don't have any magical answer but at least this information will help you to understand what happens out there in the world of bank finance and valuations.

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