A lucky dip

This post is about new dwelling settlement valuations.

Such valuations have always been a lucky dip, but the situation seems to be getting out of hand.    There is a growing inconsistency with these valuations.

In a recent case, a new 26 apartment complex in inner Brisbane received settlement valuations ranging between 4% and 21% lower than the purchase price.

Sadly, this is not an isolated outcome. It is becoming the norm.

As a consequence, buyers of new dwellings are forced to seek several valuations and developers are obliged to pick and choose valuers in order to help buyers obtain their approved finance.

Despite some developers dropping the original contract price to help facilitate settlement, buyers are becoming understandably angry and the inconsistent valuations are leaving many in financial distress.

Yet the banks originally provide finance at the contract price and under certain terms but are now instructing many valuers not to put that price on the settlement valuation.  This, of course, often adversely affects the buyer’s payment terms at settlement.

This forced price reduction is eroding the values of each dwelling in a complex or estate and, in turn, is having a negative impact on new housing development.

Fewer buyers will be willing to buy off the plan unless this is sorted out and therefore less new housing projects will be able to start.

Many small to medium sized developers have already left this space as this trend has resulted in too much sales risk. The housing industry is suffering as a result.  Trades have limited work and many property related businesses are putting off staff.

The big guys will probably kick on, but the small to medium sized developer may soon disappear.

I think things need to happen here and fast.

If I had a magic wand I would:

1. Make the banks man-up and honour their original loan terms.

2. Spread the sales and marketing monies to property professionals like valuers.  They don’t get paid enough, especially when compared to the amounts paid to those selling and financing a property.

3. Limit the reliance on algorithm based sales data.  In-depth local knowledge is required, and each matched property needs to be actually comparable to the product being valued.

4. Loosen the comparison criteria that valuers are allowed to use.  It’s difficult to value a new product if you cannot use a comparable sale in the same development and/or cannot use the sale of a new dwelling in any nearby equivalent complex or estate.

5. Make each new project’s valuations subject to a peer review of at least three independent experts plus allowing for valid input from the developer.

6. Set up a simple panel system to help resolve project valuation issues.

7. Loosen the Professional Indemnity insurance noose that is currently around the valuation industry’s neck.  PI insurance is way too onerous for many professions these days and especially for valuers.

End note

Buying a property is often the biggest decision a person or family makes.  To many it is a very stressful experience.  The level of uncertainty and stress is even higher for those buying a property, off plan.

Yet it is really quite telling when right at the end of the process, once all that energy and effort has been expended – by the developer and buyers alike – that a property transaction is treated as a lucky dip.

More certainty is required at the onset.  A better way forward is needed.  The current situation can be changed.  It can be improved.  It must be.

Until next time,

Michael Matusik

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