Can you bank on an agents value? – Greg Dickason

Many people think that just because you get a real estate agent out who’s going to give you a price on a property, that that’s a valuation. Well, I have to tell you it’s not. There is a big difference between a valuation that a valuer will give you – a sworn valuation – and a market appraisal price.  Greg Dickason explains the BIG difference.
Kevin:  Many people think that just because you get a real estate agent out who’s going to give you a price on a property, that that’s a valuation. Well, I have to tell you it’s not. There is a big difference between a valuation that a valuer will give you – a sworn valuation – and a market appraisal price.
But let’s have a look into this a little further. Greg Dickason joins me from CoreLogic.
I know you and I have spoken about this, Greg. Hello, welcome to the show.
Greg:  Thanks, Kevin. It’s a pleasure to be here.
Kevin:  Thanks, mate. There is a difference – isn’t there? – between the two. Could you just tell me your perspective on the difference between valuation and appraisal?
Greg:  Yes, absolutely. Appraisal is what a real estate agent will typically provide you, and it’s really their opinion of what the property would sell in the market. Often, it’s related to what they’ve recently seen listed, what they’ve recently seen sold, and also, to some extent, their belief in a marketing campaign and to what kind of buyers they can get in the market.
It’s a lot more belief-orientated. It’s focused on some confidence, and generally, it might be the slightly higher end of the kind of price that you can get. In most cases, it’s realistic. Real estate agents are professionals, but if you like, it’s more optimistic than a valuation that you’d get from a sworn valuer.
Kevin:  You talked about it there being optimistic. I think it’s more forward-looking – isn’t it? – what the agent believes they can get.
Greg:  Correct. In a rising market, often, they’ll get that or even more, and vendors can be very happy with the result. In a market that is flat or falling, sometimes there is a requirement for some realism to set in, and you might find that the appraisal that you get is maybe slightly higher than what you actually can get, especially if the market has turned.
I definitely think it’s a very valuable tool, because you’re getting a professional out to have a look at your property, but it’s not necessarily done for the same reasons as what a sworn valuation is from an accredited valuer.
Kevin:  So, then, explain to me why a sworn valuation can be so different.
Greg:  Generally, a sworn valuation from an accredited valuer is for risk purposes. If I am a bank and I need to understand the value of an asset that I’m about to lend against, I need to be very sure that whatever the valuation that comes in is a valuation that I can get regardless of the market conditions. Assuming there isn’t a massive drop in the market, but based in the current market, it’s a very, very confident value that I can get.
Generally, it’s for risk purposes and it’s a very realistic, even in some cases, pessimistic view of the price for the property.
Kevin:  They’re sometimes called bank valuations. It is a sworn valuation, and they’re sometimes perceived to be a little bit on the conservative side. You’ve probably explained why that is the case there, Greg.
Greg:  Yes, exactly. It’s about risk management, and therefore, it is sometimes conservative.
It also often comes with insurance. So, when a lender asks a valuer to do a valuation, often the valuer is insured, so if the valuation is too high and the lender has to sell and they make a launch, they can actually go and claim that loss from the valuer or from the insurance company.
Kevin:  Of course, there is another price that you can get on your property, and in recent times, we’ve seen desktop valuations. Would you like to explain to us how they are generated?
Greg:  Absolutely. If you think about the process, if I’m a lender and I want to lend – say you, Kevin – I want to lend you money to buy property, I have to take into account the total risk that I’m taking on. And that’s not just about the property; it’s also about the size of the deposit that you’re going to put down. It’s also about you, how much do you earn, how long had you earned that money?
If I can take an overall, holistic view about that lending, I can then make a decision as to how much effort I want to put into getting a very accurate valuation to manage my risk. In some cases, if you have a good deposit and I’m pretty sure you’ll pay back the loan, I might go to what is known as an AVM, an automatic valuation, in which case I don’t even go to a value; I simply use a model that’s provided by a company like CoreLogic, and that’s good enough.
In other cases, I think, “Actually, I do want a valuer to have a look, but I’m pretty confident in the property and don’t need them to actually drive out to have a look at the property. But I want them to sit down in front of their desk and do a little bit of desktop research and come back with their opinion of value without having actually gone to the property.” That’s called a desktop.
The benefit of that to the end customer is that that can be turned around very quickly. As you can imagine, a valuer sitting down in front of a desktop, they can turn it around in a couple of hours. If you want to buy a property and the bank accepts a desktop, it means that potentially, you get approval very quickly.
If, however, they want to manage the risk a bit more, you want to lend a bit more very close to the purchase price so your deposit is quite small, they will also then send a valuer out, and then there are different types of valuation even then. There is what’s known as a curbside where they don’t go into the property, but they do drive to it and have a look at it. Then there’s the full bells where they actually walk through the property.
There are lots of those and they’re all based on the risk profile that the bank is taking on and also how quickly they want to get a response back to the lender, to the borrower.
Kevin:  Very good explanation, Greg. Thank you so much for your time. Greg Dickason from CoreLogic. Thanks, mate.
Greg:  Absolute pleasure, Kevin.

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