Enzo Raimondo & REIV - Misleading Advice On Property Valuations

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

Enzo Raimondo is the CEO of the Real Estate Institute of Victoria (REIV), but he is not a lawyer. In fact, Mr. Raimondo is not even a licensed real estate agent, and he is certainly not a qualified real estate valuer. So why is Mr. Raimondo telling consumers about the role(s) of professional real estate valuers?

Enzo Raimondo, CEO of the REIV, has a regular column in the Saturday Age, called "Market Talk". Unfortunately, Mr. Raimondo misuses his column on a regular basis. In his most recent piece, Mr. Raimondo attempts to establish a false distinction between what he describes "present" valuations (provided by professional property valuers) and "future" valuations (provided by Licensed Estate Agents).

Misleading and Deceptive Assertions

Here is what Mr. Raimondo told his readers in The Age newspaper on Saturday 5 March, 2011 (Domain p.11):

"Valuers can serve many purposes

Valuers assess the value of property. Their services have a wide application, such as determining the valuation used by municipal authorities and state government to assess rates and taxation liabilities and estimating how much a property may be worth in the event of a compulsory acquisition.

When you take out a mortgage, the financial institution uses a valuer to determine the extent of the loan it's prepared to make.

Often people need to settle a property without a sale on the public market, for the purposes of dividing assets in the event of a divorce or deceased estate. In those cases, valuers provide a valuation.

Courts rely on them to give expert advice, as do parties involved in negotiating retail leases.

Valuers use a range of tools and systems to form their professional view. They look at recent comparable sales, the size and location of the property and its features. The valuation they provide can differ from the price paid when a property is sold because a valuer is unable to determine how much a property is worth to a buyer.

A valuation may also differ from the selling price provided by an estate agent because a valuer can only take into account past sales, while the estate agent looks at what a house may be worth in the future.

If you are looking for a valuer, find one that is a member of the REIV by visiting reiv.com.au.

ENZO RAIMONDO is chief executive of the Real Estate Institute of Victoria"

The first paragraph is correct in broad terms, but it makes no mention of the concept of "current market value" and the basis on which this is determined.

The second paragraph is as silly as it is misleading. Sure, financial institutions obtain valuations, but it is quite false to suggest that the valuer is used "to determine the extent of the loan" being offered to a borrower. The valuer's role is to provide an estimate of the current market value of the property, and it is then up to the lending institution to determine whether or not the property should be accepted as security for a loan.

The third and fourth paragraphs provide examples of the ways in which professional valuations may be used. It is worth mentioning here that courts, government departments and banks do NOT accept pseudo-valuations (known as "appraisals") from a Licensed Estate Agent as evidence of a property's worth, as Licensed Estate Agents are NOT qualified to provide valuations.

While the first and second sentences of the fifth paragraph trivialise the role and the qualifications of the professional property valuer, a truly misleading statement is contained in the third sentence:

"The valuation they provide can differ from the price paid when a property is sold because a valuer is unable to determine how much a property is worth to a buyer."

In my opinion, this statement by Mr. Raimondo is quite dishonest, insofar as it invites the reader to incorrectly assume that while a valuer is unable to read the mind of the purchaser, this shortcoming is not shared by the Licensed Estate Agent or the unlicensed estate agent representative, (also called a "sales representative" or "sales consultant").

Mr. Raimondo then appears to reinforce the false understanding generated by the above sentence with this paragraph:

"A valuation may also differ from the selling price provided by an estate agent because a valuer can only take into account past sales, while the estate agent looks at what a house may be worth in the future."

The reader could conclude that the professional valuer is backward-looking and reliant on old information based on past sales, while the estate agent somehow looks into the future - and does so with amazing accuracy!

Mr. Raimondo then uses this false material to conclude:

"If you are looking for a valuer, find one that is a member of the REIV..."

Real Estate Agents and Conflicting Interests

The real estate agent's appraisal has two functions:

1. It is a marketing tool, used to attract vendor clients. (See "Some Free Cheese In The Mouse Trap"
2. It is a conditioning tool, used to convince a vendor to drop the price in order to bring about a quick, commission-releasing sale.

Some real estate agents have actually become qualified valuers. This gives them credibility when providing valuations, but it also gives them an opportunity to "cross-sell" their services as estate agents. There is an obvious conflict of interests where an estate agent seeks to gain listings by providing formal valuations, particularly where the vendor's purpose in obtaining the valuation is to assist the vendor in determining whether or not their property should be offered for sale in the current market.

Anecdote:

We are presently seeking an explanation, on behalf of a vendor client, who commissioned a valuation from a valuer who is also a Licensed Estate Agent. The valuation was obtained so that the vendor could determine a reasonable asking price for the property and to determine a price range in accordance with the Lawyers Real Estate procedure as set out on our webpage titled "Getting a valuation". The estate agent/valuer estimated the current market value at a figure which, according to our client, was "ridiculously low", so we advised the client to obtain a second valuation. The second valuation was prepared by a professional valuer who is NOT also a Licensed Estate Agent, and was $100,000 higher than the first valuation. We sold the property for a figure in excess of the second valuation.

We are now seeking an explanation from the estate agent/valuer, in order to discover how a "professional" could be so wrong.

Sale Price

Sale price should NOT determined by the estate agent, nor is it in any way "foreseen" by the estate agent. The sale price should always be determined by the vendor, taking into account matters important to the vendor. The use of commission as a remuneration model, however, encourages real estate agents to pretend that they can "foresee" what a purchaser is likely to pay for a property.

The only thing foreseen by the estate agent is the opportunity to ensure that a commission-releasing sale will take place during the currency of the estate agent's Exclusive Sale Authority. Once a vendor has signed an Exclusive Sale Authority the only thing standing between the estate agent and the commission is the vendor, and the vendor's understanding of the property's value. Having the ability to influence the vendor's understanding of the market, the current market value of the property, and as Mr. Raimondo puts it, "what a house may be worth in the future" is an important tool for conditioning the vendor.

The way an estate agent determines "what a house may be worth in the future" is to determine a price that will allow for a sale during the currency of the Exclusive Sale Authority and then to convince the vendor to sell at that price.

Conclusion

The real estate industry is bedeviled by conflict of interests and misleading and deceptive conduct. Consumers are best protected by professional valuers who operate full-time as valuers, and do not moonlight as estate agents in circumstances that cast doubt on their integrity, align them with real estate agents and bring their independence, professionalism and integrity into question.

Mr. Raimondo should examine his ethical position and that of the REIV. He should then withdraw his recommendation to consumers that they should use valuers who are members of the REIV.

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