Property valuations can often be a source of contention between homeowners and valuers.
This makes sense, according to Matthew Porch (pictured above), head of distribution at Aquamore Finance, a Sydney-based private lender.
“They may have lived in the property for a number of years and made lots of memories there,” Porch said. “That subconsciously plays into why they believe their property is worth more than their neighbour’s.
“You could talk all day about why people think their property is worth more but, to be completely honest, a lot of it is just emotional connection to that asset.”
While that may be true, it doesn’t make it any easier for the broker, who must deal with the situation of a disgruntled and emotional client.
Speaking at a recent Aquamore Finance 15 webinar about the price-valuation mismatch, Porch explained the reasoning behind the valuer’s decisions, the lender’s perspective, and how brokers can manage these situations.
Property valuers are qualified professionals who adhere to strict industry standards that promote objectivity and independence.
“The valuer’s job is to come to an independent conclusion around what that asset is worth in the event that it needs to be sold for the lender to retrieve the funds,” said Porch.
“By that very definition, there will often be a mismatch in what people think the property is worth and what the what the actual value of the property is.”
From the lender’s perspective, Porch said it’s important to look beyond assets when evaluating property.
For example, Porch said Aquamore takes a holistic approach of assessing a client, rather than just solely looking at the asset on its merit.
“We look at everything in conjunction with the application that client has made. And that’s what property valuators want to hear from a lender,” he said. “You are not just relying on the valuation, but the entire picture.”
Saying that, in Aquamore’s experience, most residential deals go through with valuations close to what’s expected.
In residential property where there is a contract of sale, “nine times of 10”, a contract would stack up with the valuation.
“A contract of sale is a willing purchaser and a willing seller in a normal environment. That in itself drives value,” Porch said.
“But where things get speculative is when you’ve got clients looking to leverage up against existing assets and they believe that it’s worth more than it actually is.”
For brokers dealing with emotionally invested borrowers, Porch advises letting the experts handle it.
Property valuers are highly qualified and insured, meaning they have a professional obligation to get it right.
“The people that we’ve got a panel of some of the largest and most well-respected valuers in the country. Let them do their job,” he said. “Of course, there’s times where the valuers get it wrong. Keep in mind it’s a very difficult job – I wouldn’t like to do it.”
“But they are the experts and ultimately, it’s their PI insurance that’s on the line.”
Brokers also shouldn’t try to control the valuation process, according to Porch, as this can lead to problems down the line.
“I know a lot of brokers like to control as the valuation process. I’d strongly recommend against that,” he said.
“If you engage the lender, the lender is a client of the valuer. There’s a tri-party agreement between the three parties – the borrower, the lender, and the valuer. Just engage the lender, they’ll engage the valuer and you work with what comes up.”
Instead, Porch recommends that brokers should break down the process and explain that it’s out of their hands.
