A consumer should only rely on a valuation provided by a fully qualified and accredited valuer, who is independent of all parties associated with the sale. A commission estate agent is never independent, as payment by commission makes the commission estate agent dependent upon a sale taking place, and this gives rise to a conflict of interests as between the commission estate agent and his own client.
First, some quotable quotes:
“Entry level requirements (for entering real estate) are far too lenient and low – at present you need a 50 hour course to call yourself an expert”.
(Mr. Enzo Raimondo, CEO of the Real Estate Institute of Victoria – the professional body of Victorian real commission estate agents
– quoted in the Sunday Herald Sun, October, 2002 p.78)
“Most real estate agents do not have the proper training and qualifications to provide valuations. And the agency profession’s track record in over-quoting to home owners (to increase their chances of winning the listing) is so bad that both the NSW and Victoria State Governments are implementing new law to severely punish transgressors.”
Terry Ryder, “What’s that property really worth? The contentious issue of valuations” in Australian Property Investor, August/September, 2002, pp.50-57 at p.54.
“Predicting how much a buyer is prepared to pay is hazardous in the extreme…It’s always difficult for an agent to predict the effect market movements will have on house or unit prices…To expect a real estate agent to place a hard and fast market value on a property where scarcity and market movements exist is clearly unrealistic.”
Estate agent Max Raine, quoted by Terry Ryder in “What’s that property really worth? The contentious issue of valuations” in Australian Property Investor, August/September, 2002, pp.50-57 at p.54.
Commission estate agents, in order to qualify to operate as commission estate agent, undertake a short course, and then gain experience “on the job”. Knowledge of real estate values in an area is gained simply by observing sales of various properties on a regular basis.
The average vendor gains some understanding as to the approximate value of his/her home in the same way. However, this simple “local knowledge” approach is just one small part of the larger picture.
The Local Knowledge Approach
Relying on local knowledge alone is rather like forecasting the weather by holding your hand out an open window.
Commission estate agents, and anyone else who takes an interest in the local real estate market will gain some insight into local property trends. This local knowledge can be developed in a number of ways:
- By regularly checking local newspapers and estate agency windows for asking prices;
- By keeping track of sales information;
- By purchasing statistical information from companies such as Home Price Guide (see www.homepriceguide.com.au).
- (But take care with any form of FREE valuation or appraisal!)
But local knowledge has its limitations. While it provides a rough guide to the market, it lacks the precision needed to be able to determine the true value of a property.
Conflict of Interests
The most alarming aspect of commission estate agent valuations is the conflict of interests they involve. For a particularly outrageous example of the misuse of commission estate agent valuations, see “FREE cheese in the mousetrap.”
The Valuation Profession
When the Taxation Department, Family Court, Government, Banks or any other body dealing with money and assets requires precise knowledge as to the value of real estate, do they call in the commission estate agents? No, they engage a professional valuer – someone who is able to stand up in a Court and swear on oath as to the value of the piece of real estate in question.
While we can gain some idea as to the state of weather by holding a hand out an open window, for a more precise understanding of current weather patterns we rely on a qualified meteorologist – someone who has formal training, recognised qualifications, and who uses a number of recognised methods in order to come to a soundly-based conclusion.
Valuing real estate calls for precision and knowledge. Proper interpretation of available data requires formal training and qualifications.
In order to become a valuer in the State of Victoria a person must satisfy the standards of the Australian Property Institute (API), including:
- Completion of VCE or equivalent tertiary entrance qualification;
- >Completion of a Bachelor Degree course recognised by the API (e.g. RMIT’s Bachelor of Business (Property) or Melbourne University’s Bachelor of Planning & Design (Property Construction));
- Two years’ full time work experience, completing work beneficial to the candidate as a professional valuer; and
- Completion of an oral examination, where the candidate is asked questions to determine their valuation knowledge, and examples of their work is assessed.
Graduates who have completed the above are then eligible to apply for membership of the Australian Property Institute as professional valuers.
The conduct of valuers is guided and informed by the Code of Ethics, Rules of Conduct, Concepts, Principles and Definitions, Practice Standards, Guidance notes etc. published by the API’s publication Professional Practice 2000.
(For further information about professional valuers, visit the Land Channel at www.land.vic.gov.au or The Australian Property Institute (Victorian Division) at www.vic.propertyinstitute.com.au.)
Using A Valuation
It is important to remember that a valuation provides nothing more than a starting point, or indication as to where the market is at.
In some cases a property will sell for well over the valuation figure, simply because the person who eventually buys the property happened to want it more than anyone else, and was prepared to pay what was necessary to secure it.
At the same time, purchasers will not make any offer at all on a property if it is not what they want.
The true benefit of a valuation is that it provides both you and potential purchasers with a firm basis from which to start negotiations. It has been obtained by recognised and professional methods, and no-one has to worry about “under-quoting” or “over-quoting“, or the inventing of false figures.
At all stages of your sale you should engage properly qualified professionals.
The only person properly qualified to provide you with an accurate and reliable valuation is an accredited professional valuer.
Only by having your property formally valued will you be in a position to retain control of the sale of your most valuable asset.