In today’s show we catch up with Jonathan Millar, valuer from JDMA Valuers, who takes us to task over some advice we have given about getting valuations.
Kevin: We’ve spoken before on the show about getting valuations done if you’re a buyer or a seller. Interestingly, the difference between the valuation you might get done and the one that the bank gets done was explained to me in a comment from Jonathan Millar, who is a valuer with JDMA Valuers, in a message he sent to me through the website pointing out that the bank may complete a valuation but it’s one that will keep their lending risk in check.
Jonathan joins me. Jonathan, what do you mean by that?
Jonathan: With regards to that, each valuation completed for a bank has about eight risk factors that they will include in that report. That’s obviously just to help the bank make a lending decision with a particular client.
Sometimes there is a misconception that if a valuer is completing it on behalf of a bank that he’s going to be conservative, because that might then help them with the risk side of things. But to be honest, the valuer shouldn’t be conservative; he should just value it as he sees it in the marketplace, and then the bank makes its own decisions on lending in line with all these risk comments and factors that are in each valuation report.
Kevin: In reality, is it a myth then that the valuation the bank does is actually more conservative than any other valuation?
Jonathan: I can’t speak on all valuers, but certainly the valuation report shouldn’t be conservative; it should be at its fairest market value. The valuer determines that after looking at sales of similar properties in the location, then he works through why it’s worth a certain amount of money.
He certainly shouldn’t be conservative, because obviously the client then potentially loses out on a percentage of equity in their property. The bank obviously looks after themselves by lending to 80%, and then they have to include mortgage insurance beyond this figure.
But yes, I’ve certainly heard that many times before, that sometimes they believe that the valuer is conservative. It may be the valuer didn’t get close to what they thought it was worth. That sometimes can occur. But whether it’s someone engaging a valuer to complete a private valuation or whether it’s for the bank, the two figures should be exactly the same.
Kevin: I’ve heard other stories as well, Jonathan – you might be able to clear this one up for me, too – that when a valuer does a valuation, they’ll ring around real estate agents in the area to get a feel for what’s been selling, what’s been listed, and so on. Is that fair that they should be doing that, do you think?
Jonathan: What assists the valuer in that situation is that you have to try to use the most recent sales evidence, and while there are few systems out there that provide the valuer with sales of properties that have occurred in that same locality, some sales may not yet be on the database.
If they can see a sold sign on a property on the street, especially where they’re valuing, most times the agents are very helpful and might advise on what the property has sold for – if they’re permitted to do so – so that would give you the most recent amount of information. Certainly, I would engage some of the local agents, just to capture that extra bit of information.
Kevin: If I were getting a bank valuation done on a property that I wanted to borrow against to maybe go and buy another property, how would you feel as a valuer if I wanted to be there during the valuation, and even influence that by giving you some of the recent sales to try to support my view of what the value might be?
Jonathan: I think that as much as information as possible can be provided to the valuer. The client should feel that the valuer has every piece of information to value that property as well as he can.
It’s especially important if you’re an owner and you know of something that sold very close by similar to your property, and you believe you know what it sold for – sometimes people can be wrong – that’s really good information to give the valuer, because if that doesn’t pop up on some databases, which can take three months and sometimes longer to capture that sales information, then the valuer certainly should be trying to keep his finger on the pulse. Some of that information from the owners of properties can be really good.
Kevin: Valuers are human, and all humans can make mistakes. If I were to get a valuation done by a valuer and I wasn’t happy with it, nothing to stop me from getting another one done, maybe even using a combination of both of those if one was higher than the other.
Jonathan: Certainly, it’s not a perfect science, and two valuers can be slightly different in their assessment of value on a property. If you had a valuation, and you feel like the valuer didn’t do a thorough job or you had some sort of issue with what the assessment is, some banks’ lending policy won’t allow more than one valuation, however, nothing stops you from getting a private valuation and then taking that through to the bank.
We certainly get a lot of people before buying a property getting their own valuation so that they can assess all the positive and negative features as determined from the professional valuer, just to make sure you make the best decision possible.
But as I say, if you had the valuation and you’re not happy with that, there are some processes with lending institutes. They can be reviewed, but look, it’s always best to try and give as much information in the first instance. If you do get a private valuation, then take that valuation through to the bank, especially if another valuer has seen that the property appears to be worth more than what the previous valuer has determined it at.
Kevin: Yes, of course. One of the recommendations that we always make, too, Jonathan, is that any buyer or seller should always get their own independent valuation done. Tell me, what is the cost of a valuation?
Jonathan: It ranges a little bit, but up to about a rough estimate of $1 million, the fee would be $440 including GST. Above that, it just depends on the style of the property and how much further it may value. It might be up to $770 if it’s above that level.
Kevin: Great advice, Jonathan. Thank you so much for joining us. Jonathan Millar from JDMA. They are licensed valuers.
Jonathan, thank you for your time.
Jonathan: Thank you, Kevin.