Battle lines are being drawn between some of the nation’s leading property valuers and brokers about the accuracy of residential property valuations used for assessing loans and sales prices.
The Finance Brokers Association of Australia has called on the nation’s prudential regulator to investigate alleged systemic under valuation it claims is being caused by over-reliance on computer-generated pricing.
It has singled out market leading Valuation Exchange (ValEx), owned by CoreLogic, the world’s largest data group, for dominating the market and allegedly relying on computer-driven market averages that ignore defining features of individual properties.
FBAA chief executive Peter White, an industry veteran of more than 36 years and the founding chief executive of Wizard Home Loans, said: “There is too big a divergence the valuation and sale prices. Valuations should reflect the true value of the property.”
But ValEx, and other groups that provide computer-based pricing, claims its massive databases provide “comprehensive, accurate and reliable data” and rejects claims of systemic problems.
“We acknowledge that at an individual property level there has always been, and there will always continue to be, valuations that do not meet the needs or interests of all stakeholders to support a loan application,” a ValEx spokesman said.
It claims there are no significant differences between its valuations and competitors and that fewer than 3 per cent of 90,000 monthly valuations are queried by lenders or brokers.
Boom property markets, rapidly rising prices, competitive auctions and large sales volumes have fuelled allegations from brokers, vendors and buyers about the accuracy of valuations.
Critics of the system, which include out-bidded buyers, claim published prices for properties are routinely under-quoted to help generate buyer interest, and boost attendance at open days and auctions.
They claim property prices for popular postcodes in Melbourne and Sydney are routinely underquoted by more than 40 per cent of the final auction price, with quotes in some hot-spot neighbourhoods topping 70 per cent.
Last November average underquoting in Sydney suburbs such as Bexley, about 14 kilometres south of Sydney CBD, and Lugarno, 23 kilometres south of Sydney CBD, was nearly 30 per cent, according to realAs.com, a property valuation website.
For example, a four-bedroom, single-storey brick veneer property in Kawana Close, Epping North, about 18 kilometres north-west of Sydney, sold for $1.5 million, or 40 per cent above the advertised price.
In Melbourne, sale prices for suburbs like Chadstone, about 15 kilometres south-east of Melbourne CBD, and Ormond, 12 kilometres south-east of Melbourne CBD, were also about 30 per cent lower than the valuation, according to the website.
For example, a three-bedroom, single-storey house in Orchard Grove, Blackburn, 17 kilometres east of Melbourne, sold for about $986,000, or 50 per cent higher than formal valuation.
Collusive bidding is more likely to happen in Melbourne because bidders are not required to register before an auction, which means anyone can raise their hand.
In Sydney, only registered bidders can bid for a property.
Real estate agents blame strong demand and rapidly escalating prices during sales campaigns for the wide gap between advertised prices and amounts paid by buyers.
Some also claim to routinely adjust prices during a campaign to reflect strong demand and rising prices, adding that the onus is on the buyer to check amended listings.
Consumer groups have also criticised the industry and state governments for failing to police bad practices. The former Victorian coalition government, which lost power late last year, said it would crackdown on repeat offenders.
Mr White, from the FBAA, said he is putting together a lobby group, which will include at least two leading valuers, to urge the Australian Prudential Regulation Authority to investigate.
“I believe physical inspections are the most effective and accurate. You can’t tell whether a house is infested by white ants from a picture,” Mr White said.
“What is the methodology for these computer-created numbers? Are they extracting the right data from the right source? Are they using the right algorithms? It needs to be looked at because many brokers and valuers fear it could be manipulated.”
He will also be approaching federal government ministers and bureaucrats to press his demands for reform.
“Every property is different in so many ways, which is why individual assessment will always be more accurate than a formula,” he said. “In the majority of cases, no one is physically visiting the property anymore, so valuations are being provided sight unseen.”
Josh Rowe, chief executive of realAs.com, believes the key issue is transparency, regardless of whether the valuation is generated by computers or individuals.
“A good indicator of future performance is past performance,” Mr Rowe said. “How accurate has the human valuer and/or computer algorithm been in the past? Don’t forget that all computer algorithms are originally formed by a human mind too”.
He said pressure could be put on valuers to improve performance by publishing both the prediction and the sale price so the public can assess their accuracy.