Enzo Raimondo - Valuation Misinformation From REIV

Published 29 July 09 06:48 AM | Peter Mericka 

OPINION
by Peter Mericka B.A., LL.B
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

 

Enzo Raimondo, CEO of the Real Estate Institute of Victoria (REIV) is a master of the partial-truth. In a recent article in the Herald Sun newspaper Raimondo purports to advise consumers on "forming an accurate view about the value of a property" but deliberately avoids informing consumers of the easiest and most accurate method of all.

In his regular propaganda piece in Melbourne's Herald Sun newspaper "Home Truths", Enzo Raimondo tells trusting consumers:

"One of the biggest challenges prospective homebuyers face is forming an accurate view about the value of a property."
(Herald Sun, Saturday 11 July, 2009 p.8)

So far, so good. It is indeed difficult for anyone to determine an accurate view about the value of a property. This was made particularly clear by an article on page 15 of the same newspaper about the deceptive practices of real estate agents who underquote on properties, declaring "Top real estate agency under investigation". Reference was also made the Raimondo's REIV having voted against measures that would stop this disgraceful practice. (See "REIV Votes Against Corruption Remedy")

The problem of "forming an accurate view about the value of a property" is easily solved. Just get a formal valuation from a professional, qualified valuer. Whenever banks, courts, the Australian Taxation Office, other government departments or lawyers need to determine the true current market value of real estate they call for an independent written valuation, prepared by a professional valuer.

But real estate agents don't want consumers to be independently informed about property valuations. So, instead of suggesting the most obvious, accurate, fair and reliable method for estimating the value of real estate, Raimondo leads consumers on a wild goose chase, which eventually ends up with the consumer being cooked. Here's Raimondo's suggestion to consumers...

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Filed under: REIV, Valuation, Enzo Raimondo, valuer, api

Comments

# Gerry Dubbin said on July 29, 2009 9:51 AM:

Hi Peter,

While it goes without argument that both residential property sellers and interested buyers need always to get themselves into a position where they can objectively assess the approximate value of a given property, from my years of experience as a buyer and seller, coupled to 5 years operating between an agency and their clients in an independent non estate agent role, I am not so sure as you and the president of the API appear to be, that the best way of achieving this is solely via the services of a professional valuer.

I have always used the general rule that a valuer's valuation of a given property will almost always represent the lower end of the scale when it comes to the potential price at which a property will change hands. Of course, the use of a professional valuer to provide a seller with the basis upon which to base their price (or reserve) will be of assistance to that seller. It is arguable however, whether they should use the value placed on the property by a valuer as the only basis of their reserve on the property as a number of other, difficult to measure issues will also be involved in what any given property has the potential to achieve by being offered for sale - either at auction or by selling it via various other methods of sale.

Unfortunately, being human beings for the most part (I often have my doubts when it comes to some of Enzo's colleagues at REIV and among some of those practicing as estate agents) few of us if any, can with any confidence of being accurate, define the price at which a property will actually sell. hence the degree of uncertainty that will always prevail in the buying and selling of anything of any value - and that includes residential property in my view.

Both buyers and sellers should always strive to equip themselves with as much intelligence on the current market prices at which properties are being transacted.  By all means, seek the advice of a valuer if you choose but, like other means of assessing values, a professional valuation can only be relied upon at best to provide a reasonable guide as to the value of the bricks, mortar and land.  Emotions unfortunately often can be observed to cancel out all else...............  

# Peter Mericka said on July 29, 2009 10:27 AM:

Hi Gerry,

I note your comment "I am not so sure as you and the president of the API appear to be, that the best way of achieving this is solely via the services of a professional valuer" and I must assure you that I would never suggest that a consumer should rely "solely" on a valuation.

A written and independent valuation prepared by a professional valuer is a starting point.  That's all.

Real estate agents like to promote themselves as being able to provide this starting point, but their advice is invariably self-serving.

A consumer who is unsure about the value of the property they intend to sell or to buy should use the formal valuation as their starting point, and then use whatever tools or avenues of enquiry they feel are appropriate for their purpose, including emotion.

I refer you to my SLOD! Best Price Negotiation Strategy as an example of how a vendor is best served by using a valuation.

Having obtained the valuation, the vendor is able to answer the threshold question, "Do I want to sell in this market?"

If the question is answered in the affirmative, a price range from 5% below the valuation to 5% above valuation informs purchasers that the vendor is prepared to accept an offer within that range, with the final sale price being subject to negotiation.

If the valuation is a little conservative, competing bids tend to drive the price up.  If the valuation is a litte ambitious, there may be no or low bids.

We have seen bidding take the price beyond the higher end of the range, and we have seen vendors accept prices that are less than the formal valuation.

What is important is that all parties to the transaction know exactly where they started, and how they got to where they ended up.

I mentioned emotion.  Sometimes a purchaser will pay more for a property because they intend to live in it forever.  An investor, on the other hand, will not add anything for emotional value.  Similarly, we have had vendor clients who have been prepared to accept less than the highest bid because, as one client put it, "We wanted to see our house go to a good home."

So, there are many variables associated with the sale or purchase of real estate and which may or may not come into play during the negotiation process.  The valuation is simply the starting point, but it is an excellent starting point because of its objectivity and the expertise that goes into its creation.

# Peter Mericka said on July 29, 2009 11:59 AM:

Consumer Affairs Victoria - What A Toothless Tiger!

Have a look at what CAV are advising consumers on their website under the heading of "Understanding property price underquoting":

"Do your homework before you decide to buy a property. This will help you to understand the market and be a better judge of property sales prices.

Research as much as you can about the market value of property in your preferred areas by:

• searching the internet
• attending auctions
• speaking with a variety of estate agents
• reading newspapers for auction results.
• Use the agent’s estimated selling price as a guide. Remember: the agent represents the seller but must be fair and honest with buyers.
• Ask the agent to justify their advertised price. They should have knowledge of the market in the area to support their estimate.
• The seller does not have to tell the agent their asking price or auction reserve price until the day of the auction. The reserve price decided on the day might be above the agent's original estimate.
• Don’t allow emotion to cloud your judgment; be realistic about the likely selling price."

So, the CAV answer to the problem is to throw up a bunch of motherhood statements, and send consumers back to the dodgy real estate agents.

No mention of a formal valuation or professional valuers.  CAV likes to stay cosy under that REIV doona!

# Tim O'Dwyer said on July 29, 2009 9:02 PM:

If you looked and sounded like a spiv, what responsible CEO would dare appear on national television to defend the dubious practices of his members?

# George Rousos said on July 30, 2009 11:16 AM:

Hi Peter,

It's the New South Welshman,

Here is another way of looking at this.

When it is said that a property is only worth what the market is prepared to pay, you have to question the logic behind such a ridiculous statement.

Therefore, a person borrows between 80-90% of the value of the property, earning in excess of $100K a year (higher than their commitments), having very little extra cash put away for the hard times, no contingency plan incase they lose their job and still pay the asking price for the property.

This is a common case of what is "unaffordable" and completely "unsustainable".

So what is the meaning of logic???

When it is said that a property is only worth what the market can afford and sustain.

And, what dictates affordability in a given market or the reduction and increase in real market prices.

The answer is ( with a drum roll) "The Economy".

I think publishing prices is a bad idea and introduces more uncertainty to the property industry.

# Peter Mericka said on July 30, 2009 1:32 PM:

Hi George,

I tend to believe that the more information the better.  The problem is in who interprets it, how, and for what purpose.

In my experience, real estate agents (following Enzo's example) tend to use and manipulate information for their own purposes, passing it off as "guidance".

A low-level but very common example is when the real estate agent tells the vendor "the market is talking to you", when the real estate agent is using 3 below-par offers to condition the vendor into accepting a low price.

The professional valuer is an expert who is able to take available information and use it to determine a reliable estimate.

The formal valuation is a useful tool because it's not tainted by irrelvant factors, such as the real estate agent's need to win a listing or to condition a vendor, or the vendor's personal hopes or expectations.

# George Rousos said on July 31, 2009 8:56 AM:

Hi Peter,

Fair points raised.

Taking what you have said, if the agent is unable to provide credible sources of information on how the selling price was substaniated, then advertising any selling price would only mislead consumers and create uncertainty in the marketplace, therefore only advertise what is believable.

# Austin said on July 31, 2009 10:30 AM:

Hi all,

Speaking from personal experience, I have found that the current system can work the other way around - we bought our first property for a comparative pittance because the real estate agents OVERquoted and drove a lot of the more likely buyers away. At auction time we were only there for a look - the starting bid seemed reasonable so we put up our hand. In the end ours was the only bid and the seller lowered their reserve to meet it.

# Peter Mericka said on July 31, 2009 11:51 AM:

Hi George,

The establishing of property value, and the setting of prices are matters that should NEVER be left to the real estate agent because of the obvious conflicts of interests.

It is in the interests of the real estate agent to overquote on value (to win the listing) and to convince the vendor to accept a low price (to win the sale).

Separate the real estate agent from values and prices and you'll soon see just how "good" a real estate agent is.

# Peter Mericka said on July 31, 2009 11:52 AM:

Hi Austin,

I must correct your last sentence.  It should read, "In the end ours was the only bid and the real estate agent managed to convince the vendor to accept our offer and so the seller lowered their reserve to meet it."

# George Rousos said on July 31, 2009 1:04 PM:

Hi Peter,

I suggest you are correct, the only person who should be setting prices and establishing property values should be a professional valuer. If you look up appraisal and valuation in the dictionary, they will come up as synonyms, but there is a huge difference between those words when it comes to real estate.

Real estate agents often offer people “free appraisals” of their property but as good as it sounds, those appraisals are inaccurate (to say the least). What the agent is really doing is applying their knowledge of local market to try and predict what that property can be sold for. Why they call it appraisal? Because they are not professional valuers and it’s illegal for them to use the word “valuation”.

Further to this, the valuation is becoming more and more like an economic valuation, due to there being so many external factors in the market both past and present which impact on real market prices e.g. interest rates, market fluctuation, inflationary pressures, stock market, government activity, demographics, population, petrol prices and natural human caused events etc.

However Peter, you may not be aware of this, but in NSW in the estimated selling price guidelines for agents, it states agents need to be particularly alert in relation to the use of price guides in advertisements promoting the auction or sale of residential properties. Careful consideration should be given to the following and what the Office Of Fair Trading require of agents?

Matters that should be considered when an agent is determining an estimated selling price include:

Features of the property which would affect the value of the property in the market, such as recreational facilities or special architectural features.

Future use of the property (such as zoning, rights of way, redevelopment, resumption by public authorities, historical preservation orders, covenants or restriction of user, development approvals)

Market demand in the area

Sales of comparable properties

Likely level of demand for the particular property

Recent valuations of the property

The circumstances of the vendors ( are they under pressure to sell,how much time is available to develop a marketing plan, are they limited in terms of the way they wish to exhibit the property or in respect of their desired method of sale)

Seasonal factors ( does demand traditionally fall away or increase at the time of year the property is being marketed)

Economic factors ( the level of demand for property,whether interest rates on the move, whether the authorities warning about overheated markets.)

In other words Peter, in order to achieve these objectives, the real estate agent would need to become a "registered valuer" or appoint a "registered valuer"  to determine the estimated selling price, otherwise the NSW Office Of Fair Trading are just leading real estate agents down a path of misleading and deceptive conduct.

# Peter Mericka said on July 31, 2009 1:52 PM:

Hi George,

I know that a number of real estate agents have had themselves accreditated as valuers.  That's great in terms of the services they offer in their capacity as valuer.

However, it does nothing for them in their capacity as real estate agent, because of the conflict of interests.

When a real estate agent is made a part-owner of the vendor's property for a limited period of time, and the only way he or she can realise the value of their share in the property is to get it sold during that limited period, the ethics and fiduciary duties associated with providing accurate advice as to the value of the property go out the window.

# George Rousos said on July 31, 2009 2:28 PM:

Hi Peter,

Maybe the buyer's agent could solve the problem or a professional valuer working as a buyer's agent.

I've received a number of enquiries recently coming from financial planner's, accountants and mortgage brokers about doing the Buyer's Agent course in NSW.

We see a need for more buyer's agents than real estate agents here at the moment.

# George Rousos said on August 7, 2009 2:17 PM:

Hi Peter,

As you aware, many agents in both NSW and Victoria are being hammered for underquoting, which is an offence under both sections 72 and 73 of the property stock and business agents act 2002 here in NSW.

Section 72 refers to when the agent makes a false representation with respect to the agent's true estimate of the selling price of a property to either a seller or prospective seller of residential property.

Section 73 refers to when the agents statement on the estimated selling price of the property in pursuant to an agency agreement, is different to what is being advertised.

I've just finished speaking to one of my trainers about real estate agents inflating prices of properties ( being the vendor asking price, not what is true market value) in order to obtain listings.

In this case,  if the agent publishes a listing price which is not a true estimate of the selling price or it cannot be truly substantiated in accordance with the conditions of the market at that time, then it is a false and misleading advertisement under section 51 of the act.

Under the rules of conduct ( Rule 9)  here in NSW of the Property Stock & Business Agents Act.

An agent must act in accordance with a client’s instructions unless it would be contrary to this Act or regulations under the Act, or otherwise unlawful to do so.

Is this the same in Victoria???

# Australian Real Estate Blog said on March 29, 2010 11:30 AM:

When stupidity reaches the front page of The Age newspaper, something has to be said. Today’s Age screams,