The person who provides the valuation for a property should never be involved in the sale of that property.
One of the greatest mistakes a consumer can make is to believe that an “appraisal“, offered by a commission estate agent is the same as a formal valuation provided by a professional and accredited valuer.
You can’t know your price until you know the value
What should you accept for your property? What if you accept an offer, and then discover that your home was worth more? What if you reject an offer, and then discover it was the best offer made? How can you determine a reasonable counter-offer figure?
First, you must find out the current market value of your property!
It is at this point that most vendors make a major mistake:
Never have a commission estate agent “value” your property
Where the person selling the property is also the person who is determining the value of the property a major conflict of interests arises. The combination of conflicting interests, high commissions and the agency contract known as the Exclusive Sale Authority often results in distorted “appraisals”, under-valuing or over-valuing and dissatisfaction for the average consumer.
Commission estate agents never really say that they can “value” properties. They usually say that they will provide an “appraisal” or an “opinion”. This is because commission estate agents are not qualified to provide valuations. The only person qualified to provide a true valuation is a professional and independent (i.e. not employed by an estate agency) accredited real estate valuer.
The benefit of the formal valuation
By having your property formally valued by an independent valuer you have a starting point for your sale. Whether you sell your property through Lawyers Real Estate or through a commission estate agent, a formal valuation will ensure that you remain in control of your sale.
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.
Professional skills of the valuer
While we can gain some idea as to the state of the 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.
How it works:
1. The client obtains their an independent valuation (in order to avoid any possible conflict of interests, we do not involve ourselves in the obtaining of the client’s valuation).
2. The property is advertised as seeking “Offers Over $………” (the valuation price).
3. The vendor is able to select the best offer put forward by prospective purchasers, but only if the best offer is truly acceptable to the vendor.
- It emphasises the making of offers over a soundly based reference price.
- It encourages the early “knock-out” offer.
- The “counter-offer” can be used effectively to achieve an acceptable price.
Why don’t commission estate agents use independent valuations?
The simple answer is that the commission estate agent loses control over the vendor if he loses control over the price.
The major role of the commission estate agent is to win “listings” for the commission estate agent and the agency, because without listings the agency has no stock to sell. In order to win listings the commission estate agent must:
- Convince a vendor to sign an exclusive sale authority (to give the commission estate agent control over all purchaser enquiries);
- Have the vendor accept the commission estate agent’s “appraisal” (only valuers can use the term “valuation“);
- Have the vendor allow the commission estate agent to market the property at a price that will attract interest (commission estate agents are regularly criticised for making up false “price ranges” consisting of fictitious upper and lower prices); and
- Having won the listing, the commission estate agent must attempt to convince the vendor to allow the commission estate agent to sell the property at a price acceptable to the commission estate agent.
(We make no mistake when we say “a price acceptable to the commission estate agent” – in a scene from the real estate program “Location, Location” on Channel 9, 7.00 p.m. Sunday 26 January, 2003 a woman whose property was in the process of being auctioned was being pressured by a female commission estate agent to accept the highest bid, even though this bid was well below the woman’s reserve price. It was quite clear that, while the highest bid was acceptable to the commission estate agent, it was NOT acceptable to the vendor. The commission estate agent saw it as part of her role to “convince” her client to accept the unacceptable).
Because an independent valuation establishes the current market value of the property, and gives the vendor a valid reference point for determining price, the commission estate agent loses control over the vendor.