Myths, stories and fables behind the valuation inspection. Let’s call it for what it is.
Blogger: Edwin Almeida, Managing Partner, Just Think Real Estate
When we’re asked “how much is a property worth?”, the general answer banted around the place is: what a purchaser wants to pay for it and vendor wants to let it go for. The final say, however, comes down to the valuation of the property.The final dollar amount the valuer writes in their report. Hold on tight and be prepared to take a journey with me through the valuation process as I see it.
The sale is agreed to and negotiated by the real estate agents. There is a meeting of the minds between vendor and purchaser. It appears to be a win-win for all involved, but this is just the beginning. The purchaser informs their broker of the deal being struck. The broker informs the bank and a valuation is ordered. Now the rollercoaster ride begins and ends with the final report that will be sent to the bank.
The valuer attends the property and an assessment is made to ascertain its value. An information gathering exercise begins. The valuer, looks into past sales within a specific time frame, contacts other agents who are selling or have sold properties in the local area. If the valuation company contracted is used regularly by the bank, they may have a general idea as to values already for that area, based on previous reports. The final report is then passed on to the bank. Simple, I know. Now is it really this simple? Allow me to expand over three points.
Valuers attending the property
This is where most of the time, if anything can go wrong, it will. Typical and lazy, agents will only pass on details of the tenants or the owners for the valuer to obtain access. Tenants or vendors don’t know what will take place and most often, valuers upset tenants because they just push for immediate access. The opposite is also true when valuers are upset when they can’t obtain quick access. An emotional rollercoaster that impacts the valuation.
On the other hand, if the RE agent has organised access between owners and tenants and has attended the inspection, frustrations all around can be eliminated. If the agent further obliges by presenting a pre-prepared report to the valuer, the agent can win favour and use this time to build rapport to lobby in favour of the sale price. This is more persuasive than only passing details over the phone for the valuer to otherwise organise access.
The reports mentioned above are made up of the sales contract as the main guide and or the refinance amount produced by the mortgage broker. Adding to this data, are reports valuers source through different websites, past sales in the area and property on the market.
If I may digress, my questions at this point are; why do they need the front page of the contract? Are they not the experts in this field to be able to be on point with the value? Shouldn’t they be able to calculate; land value, construction costs and depreciation without a guide such as the front page of the contract? My belief is they can, but they don’t because there is an easier way out.
The last time I saw a valuer actually conduct a comprehensive valuation, which included measuring every room and the entire yard, was approximately 9-10 years ago. Which leads me to the last point.
Impediments and influences
The first impediment to a fair valuation comes down to the instruction the valuer receives. The rule of thumb and what is common knowledge in the industry; banks instruct valuations to be prepared as though the property was being auctioned off, a quick sale guide. The next internal influence the bank imposes on the valuer, is the amount paid to valuers to conduct a high risk associated task which is very low when compared to legal ramifications. This in turn leads to the time constraints valuers face to keep a business operating. Making it an easier decision to value down rather than up.
Taking stock of what influences a valuation and what motivates a valuer you can therefore, not afford to leave the valuation inspection to chance or third party emotional influences. To avoid the roller coaster ride and being let down after achieving a great sales result, I encourage you to adopt these tips:
• Don’t just pass on contact details, attend the valuation and pre-prepare a property report for the valuer. A report that is persuasive
• Make sure the property is pleasing to the eye. First impressions count just as much at a valuation inspection
• Understand if you had to implement the best of your negation skills, this is it, selling the value of the property to the person that has the final say
• Don’t argue with the valuer, educate and influence them by being prepared with all the data which adds validity to your sales or re-valuation figure
Lets face it, valuers are on a time constraint and are time poor. If you want the valuer to err on your side, than prepare for the valuation just as though you are preparing for the actual sale. This may include checking that the property is presentable and all documents are in order. Don’t be complacent or lazy. This is where all the selling and negotiation skills you can muster come into play. So break the myth and attend the valuation, after all who told you agents don’t attend valuations? Understand the power and influence the valuation inspection has on the final value of the property and when you do, less will be relied on chance.
About Edwin Almeida
Edwin is an independent real estate agent who is passionate about teaching people the many skills he has learnt over the years. Edwin teaches people skills that can assist in making decisions on all things real estate and property, from preparing to rent to leasing property as a landlord, buying a first home to organising an investment portfolio. Edwin is most happy when he gives free advice, and shares industry secrets with other real estate professionals.