Clients often have valid questions in the interpretation of reports, and due to the complex nature of the assessment process, attempted explanations can often be a very time consuming and futile process, which is why the majority of valuations firms will not engage in any form of explanation due to the emotional nature of the industry.
It is for this optimistic reason we are provisionally trialling this FAQ’s page as a guide, in an attempt to improve procedures, service, client understanding and accuracy along with keeping cost down for genuine clients in certain reports. It is important to note an independent assessment is not a negotiation, opinions and interpretation will often differ from person to person. (Buyers or sellers agent and advocate reports exist for advocacy, however independence is lost here along with purpose).
Most questions in relation to reports are the result of a disagreement in outcomes. This occurs when pre-conceived opinions and their support are not disclosed in instructions or upon inspection, so when outcomes differ greatly from expectations we are unable to forewarn or explain our findings and/or properly address the supporting factors. In other situations this is unfortunately known as an illegal practice referred to as ‘fishing’.
The below questions and answers are a provisional trial to help address genuine questions and hopefully offer a guide or understanding to clients, specifically Pro-forma (Short form) Pre-sale or Pre-purchase report clients.
What is the difference between an Agent and a Valuer?
Agents are not (independent) Valuers, they are commissioned based marketers working for your business. An Agents opinion should be no higher than the highest possible price they believe they can realistically achieve for the subject property and their client.
Should you be particularly pleased with an agents opinion ask them to provide their highest achievable price in writing, this will offer you some increased level of peace of mind. But remember, this may have no impact on a Valuers conclusion or another’s view.
Can we recommend an agent?
We always recommend our clients select their agent based on the few key points below. Look for an agent which has sold properties in your street or area recently. You can find these by taking note of for sale signs in front of properties similar to yours which have sold within 3 months of the sign being erected.
This means the agent has achieved expectations by selling in a standard 3 month campaign. Ask them what they achieved to be sure it was a good price. These agents should also have names and numbers of those who missed out on the property, who remain looking and now may be more motivated by missing out.
Select an agent who has been based around or in the area for a while, this should ensure they have some experience and may have a reasonable list of prospective purchasers on file which are interested in the area, this will also indicate they can’t have had too many unhappy vendors.
Select an agent you are comfortable with, someone you feel will follow your instructions and respect your views and opinion, remember you are the boss after all. Many dissatisfied vendors report to us that they felt like they could not say anything to their agent once the agreement was signed, and in some cases felt compelled to take and offer they did not want as they felt bullied into doing so and just wanted to end the relationship.
Remember a standard agency agreement is 3 months and no sale, no commission for the agent. Be aware that the last four to six weeks of the agreement will bring with it a degree of pressure.
Naturally we recommend a Pre-sale report, as $330 is a drop in the ocean to help avoid the above when considering the agents commission you will be paying. Let’s say on $1,000,000 @ 2.2% the commission equates to $22,000 often advertising on top.
Don’t get us wrong, we are not anti agent, the right agent is worth their weight in gold to the vendor and even the purchaser in cases. They walk a vendor and purchaser through the process, which can be a very emotion period, one at which a vendor and purchaser might have walked away from on many occasions throughout the process. They can be the perfect buffer.
Why do Agents and Valuers opinions differ?
In almost every property transaction someone will pay above or someone will pay below what is considered fair market value. If economics where the sole reason for transactions, property would rarely exchange unless the assessment of fair market value was an exact science. Properties do exchange as the human factor exists within situations, along with the emotional factor both of which cause the large swings seen in above and below fair market value exchanges. Our duty as independent Valuers is to attempt to minimise these swings, yet due to emotional and situational factors, properties will always exchange regardless of what is considered to be fair market value.
A Valuers sole duty day to day is assessing property and providing a qualified independent outcome or figure with accuracy being the priority. A Valuer has instructions and an independent duty, an agent has instructions and a duty to the vendor. A Valuer has a fixed fee for their services, it is in the Valuers best interest to provide the most accurate outcome possible, they have nothing to be gained by providing a very conservative or over inflated outcome.
Should a client be dissatisfied or believe another Valuer may hold another opinion more inline with theirs, we always recommend they seek a further 2 independent valuations to address their concerns.
Upon selling, prospective sellers will often meet 3 or more Agents to gauge a variety of views and opinions. A client had 3 Agents, offering 3 differing opinions on his property, this drove him to further Agent opinions, 7 in all, which resulted in ranges from $750,000 to $1,500,000. Remember opinions will always differ from person to person and Valuers are not immune.
Why was the figure lower/higher than I expected?
The assessment of market value is commonly established via evidence, this can be comparable sales or rental evidence, yields, cost/summation etc, all of which need to be adjusted to the base date/valuation date. Furthermore as in most situations opinions will differ from person to person. The key variables in differing opinions in the assessment of property often come down to the evidence/information at hand as at assessment date, and the interpretation of this information. Once the evidence has been established and reviewed, adjustments are often made for market movement.
Most client opinions are based on something or should be, it might be a previous valuation, an Agents appraisal, a recent comparable sale or even a respected friend or acquaintances opinion. If the inspecting assessor has been forewarned of any pre established opinion and its basis, they can review the merit of the evidence upon inspection and make comment where required upon the differing views and opinions.
It is important to note: A client enlists an independent Valuer for an independent opinion only.
Value break down questions?
It is most important to keep in mind the break down figure is not a clear and final representation of the individual breakdown, it is often no more than guide of the equitable split between the total. Changes can be made in certain situations, however more often than not this will reduce or increase the reflection of the other and must be split as equitably as possible in line with the total. For example if one component is changed without the other it automatically changes the total outcome. It is more important to focus on the total and if the market lends itself to price or cost.
Note: If the total is not in line with someone’s expectations, the break up will follow in most situations. The total is where we strive to produce a fair reflection of the current market value in Pro-forma reports. Often those not happy with outcomes waste time on this or an interpretation of a description etc in view of justifying a more favourable outcome or opinion they hold rather than the main issue, being the total or final outcome to which we should both be aspiring to achieve.
The assessment of improvements is a depreciated figure, not to be confused with a replacement or cost figure. Depreciated improvement figures are derived from standard construction cost guides, which act as a guide only and as mentioned in break up figures, more often than not require adjustments to fall inline with total outcomes.
Depreciation is once again based on standard methods such as the age/life method, and once again more often than not require further adjustments to fall in line with total outcomes.
A Valuer, rightly so, may agree with a client on a depreciated breakdown on improvements in a particular case, however if the evidence indicates a clear land value, one figure or both must be reduced or increased equitably in order to fit inline with the total, or the total must be increased or reduced accordingly. Remember the break up is a guide only.
We have recently spent more than $500,000 in additions and renovations, why has our total improvement value breakdown only come in at $300,000?
We use the breakdown of value in our Pro-forma reports (Short form) for equitable purposes only. This is to say a property may be considered land value only, yet we will use a depreciated breakdown value as to indicate a value, whether it be minimal or not. It is noted in cases people will purchase a property with a significant improvement value of $1,000,000 or more and yet proceed to demolish and start fresh. In this case it may be viewed the property was land value only and no improvement value was necessary.
Specific purpose reports such as our full form reports do not breakdown value as the emphasis is on the single figure for a specific purpose, unless specifically instructed. In other situations the improvements may be considered inadequate, over capitalised, or in limited supply and in turn a premium may or may not be paid, once again opinions will differ.
If you are worried about the above, and that a future valuation may not share your view, which for various reasons cannot be settled by actually testing the market and selling the property, enlist the Valuer prior to the work commencing to conduct an ‘on completion’ valuation.
Why did our valuation come in below recent offers we have knocked back?
Upon inspection, the inspecting Valuer can only assess properties based on public information, property records and information which has been disclosed by the client upon inspection. Genuine offers on a property, if not disclosed to the inspecting Valuer cannot be reviewed or assessed as to validity or weight. Without this knowledge rarely can opinions be formed as to current achievable levels.
Where properties on the market exceed standard marketing campaign time frames, for example 3 months, and no differing indication can be reasonably obtained or offered, assumptions made by prospective purchasers can be formed in many situations that expectations have not been met. This often is reflected through to fresh assessments and opinions via information at hand and the interpretation this information, specifically where failure to clearly disclose genuine interest and rejected offers occurs for various reasons.
Having said the above, as Valuers we can only base outcomes and findings upon registered sales. Opinions on the state of the current market moving forward can only be derived from interest and offers, dependant on the information and strength that can be attributed to such information provided.
Often offers, specifically verbal, carry little to no weight. However, if any weight can be attributed to offers, conditional findings can be included in certain reports dependant upon evidence currently available and purpose, which will require the appropriate disclosure and qualification.
Full disclosure of all matters only assists and reduces the variables made in the assessment of property.
Why fee structures go up as values increase
Fee structures are based on the work involved and time frame required in completing the job in question. We have standardised a basic structure to assist our regular and future clients based on experience with similar jobs. The assessment of a property goes far beyond the initial inspection time, which is the least time consuming portion of the assessment process. Time and costs attached to obtaining sufficient and reliable evidence are spent in the research stage, and this is never a one size fits all process. So, our evaluation process can never be likened to the cost of a plumber installing a particular toilet, where the fee should be the same regardless of the value of the house.
For example the assessment of:
(1) a $500,000 single storey pre-fab house on an average size level block in a heavily populated area of similar houses and land, being of similar value, will require far less search costs and time than say;
(2) A $2,000,000 house on a larger block with a view or additional feature or features.
When assessing a property such as our example (2) above, fewer sales evidence will be available as it is not the norm, this will require searches further back in time and/or on a larger radius basis, along with further analysis of current sales, as the various adjustments will be required to bring these sales in line with the subject property and the current market.
But the Agent said?
The above question is only asked by a motivated client with purpose being the main issue: The motivation being the valuation was too low or too high for their purpose and financial loss or gain, based on a pre conceived figure obtained from an agent. It is no surprise the question is never asked if the figure is above or below expectations dependent on the purpose of the valuation.
We do offer our buyers agent and parties advocate services and reports, much like Agents opinions, the views expressed in such services are not accepted by third parties as the conflict is clearly bias toward the client.
Why should I indicate my opinion of market value?
This is a question often asked and rightly so. The question has been put more directly as if to ask, “Why if I am paying you to establish the market value, should I be doing your job for you or risking my view impacting upon your outcome?”. When assessing a property, a key step is to review comparable sales evidence, these searches require search or entry questions, one of which is price range and radius.
A search of 2 bedroom units in the past 12 months in a highly unit populated area may produce over 200 irrelevant sales, all of which can be briefly reviewed but at a significant cost to the client with each sale taking say 10 minutes of assessment, equating to over 33 hours prior to leaving the office to inspect the property.
Furthermore, the assessment of this many sales cannot help but be affected or produce an average figure for an area not assessing the true characteristics of the subject property as an individual, and unless the property is the average, this will prove inaccurate for the purpose.
Having said this, it is not mandatory and some clients have absolutely no opinion to which we are happy to proceed regardless.
Note: The above hypothetical questions and answers are to be viewed as a guide only with each question and answer having regard to specific existing situational aspect which will always differ from individual situation to situation.
I am aware of a sale I believe is comparable, superior or inferior to mine and appears not have been reviewed and or used, and is in conflict with my outcome?
When a client already has an established opinion of market value and it is based on something such as sales evidence, it is important to disclose this information and its basis and origin, as to equip the assessing valuer with all relevant information and afford them the opportunity to address this information and the weight it may or may not carry.
Opinions can be rightly and wrongly formed via outcome targeting, random or poor sales evidence selection. In many cases we have seen sales sighted based more on expected outcomes which appear to support expectations at a glance but fail to address the countless conflicting evidence which stand between the subject property and sale selected.
Key sales have no or limited and explainable alternative evidence standing between them and the subject property. These lines are highlighted mostly in condensed areas, where values can change dramatically in a short distance or when views or premium location come into play.
On many occasions a client may indicate a sale only 500 metres from the subject property, yet not be aware of the countless comparable sales which stand between the two indicating a contrary outcome.
We share the opinion that the right purchaser for the right property is a reality. Our industry is based upon specific time periods unless instructed otherwise. Remember the perfect vendor or purchaser may be here today but gone tomorrow. We recommend revaluations on a quarterly basis as comparable recent sales can impact the value of a property.
The above questions and answers have been provisionally assembled as a trial in view of attempting to address valid questions. We hope we have outlined the many variables attributed to assessing property for the various purposes in which we assess property.
Should the above questions not have given you the understanding of the process and addressed your concerns, please feel free to contact our office.
Nine times out of ten, when the above Questions and Answers do not assist nor apply to your situation or specific question in anyway, and an Independant Valuation cannot assist, the answer is our Consultancy Services.
As these situations are often of a specific nature, whether it be preparing or understanding an case or argument, interpretation of evidence and methodologies used, report critique’s, supplementary reports or a specific purpose consultancy report, our independant experience and knowledge may be the right solution.