Is a $170.00 Aus Professional Fee (sic) “reasonable” to value appraise a sub-$1.0 mill residential property?

Don Gilbert is a Specialist Retail Valuer (“SRV”), a 3D Economist and an arbitrator. He provides independent, impartial advice to landlords, prospective investors and tenants ref www.auslease.com.au or www.leaseconsultant.com.au

He is also the inventor of the GEM Method of evaluating the ‘reasonable’[1] rent.

TITLE (not this article not properly edited; straight off the press)

‘Is a $170.00 AUS Professional Fee (sic) “reasonable” to value appraise a sub-$1.0 million residential property?’ © Donald E Gilbert as Trustee Gilbert Family Trust 2019

TARGET AUDIENCE

Retail Tenants, Landlords, Investors, Valuers & Property Professionals, Banking and Finance Industry, and other professionals eg. perhaps investment advisors

INTRODUCTION

Here is an apt quote from a Romanian Colleague (this is someone else’s words) translated by Facebook: “If the work that you are your (sic) can be made by several thousands of people, from Romania or other countries, it means you do not have a safe job. If your activity is described in the set of procedures, it can be learned in three months by anyone, then you don’t have a safe job.

Instead, if your activity means analysis of data, processing them and offering original solutions, then you will be one of the most valued employees and your job never be outsourced .”
Radu Georgescu

# 24/2 see further thoughts:

It is impossible for production-line valuation to pick up benefits and or nuances that add and reduce market value of any ONE property. Only a Skilled Valuer Appraiser can. ALSO how to use comparables. Are they comparable;

HOW ARE THEY COMPARABLE?

We have recently bought and sold residential property. We relied on external independent valuation expertise (residential is not my area of interest). We were prepared to pay at least $600.00 to $1,000.00 per valuation for the valuer that could add value or see the added value the property we were selling presented. That would have been a drop in the ocean for the benefit we could have gained;

With due respect, the Real Estate Agent (and one of the valuers appraisers) could not see or add value to our experience with either the property we sold; or the property we had purchased;

It was my skill and or expertise that enabled us to get a higher price, which the buyer could see. And is getting the benefit (the return on). And a very very good return; even in today’s market aka we are not investors;

I have the same experience with my Old Family Home; our local valuers appraisers treat property generically. Forget spectacular views across Brisbane from the deep end of the pool; another completely different aspect from the living room area; and then the accommodation the home offered. What is that WORTH if a skilled valuer appraiser can pick these benefits nuances?

The corner block; views; quality of home; a gem of a garden; huge huge garden potential (what we have just acquired), etc. Perhaps worth $200,000 maybe $300,000 even in a challenging Australian market?
= $170.00 AUS. Get over it. You are a PRODUCTION-LINE VALUER APPRAISER and deserve to get paid NOTHING.
I do not work in the residential area. I have hardly worked in residential appraisal, but keep an eye on general “trends” in our industry profession.

It has come to me via hearsay. Two firms, the International Brand CBRE and Landmark White (local) have outbid several dozen competitors to do residential mortgage work for Professional Fees (sic) of $170.00 per valuation appraisal, for properties that are sub-$1.0 million.

If this is not fact, they are free to challenge me!

Notwithstanding that, the topic of valuers appraisers Professional Fees needs to be debated discussed again.

BACKGROUND

We have just had a Royal Commission into Banking in Australia https://financialservices.royalcommission.gov.au/Pages/default.aspx

In 2011/12 I had already flagged on Business Spectator, a News Corporation business forum that we would encounter a major boom and bust unless processes procedures methodologies lending culture changed eg. Loan to Valuation Ratios (‘LVR’), but apparently the party was just getting into full swing, and my ‘concerns’ were smoothed over.

In 2016/17 I re-entered the debate with a series of probative articles on LinkedIn and teased out a series of converging factors.

While my head was in that “space” two astonishing metrics via random reporting came to light:

“Investors” were buying residential apartments “units” in Sydney for sub-1.0% “returns” (sic); and
Renters were paying up to 40.0% + of their pre – (or post – ??) taxable income on weekly rent!!
Two key metrics; s t r e t c h e d at opposite ends!

My overlapping “other” research for papers I was writing, revealed that the post WW 11 Japanese 1987 – 1990 boom which crunched, also saw “investors” buying property on sub-1.0% returns.

The whole Japanese Financial System has not yet recovered!

So why my interest in residential mortgage valuation agreements (sic), which the Australian Banks have either entered into with two service providers or not?

Of course, residential valuation is far more generic in nature; but as is the case (in my opinion), each valuation is important to properly “craft”.

OUR AUSTRALIAN “CULTURE”: A SCROOGE MENTALITY ALWAYS SEEKING A BAND-AID SOLUTION

# Update 25/2. It certainly appears that the points I have raised since publishing this article have hit a raw nerve with some members of the community. From the initial notice on LinkedIn to this article’s statistics it has been read far and wide.

But I missed a key point. Royal Bank Commission into the Finance Sector aside, just what have our banks learned? Has their behaviour changed? Is their culture changing? Do they understand anything about their Corporate Fiduciary Responsibilities and Duty to Mitigate Loss yet?

I suggest NO. By seeking to pay two firms (supposedly respected brands) well below the “cost” of producing tick n flick mortgage “valuations” (sic) is akin to getting cleaners in to do the work! Key decision-makers representing the Banks, in effect are seeking to expose a key asset (sic) on their Balance Sheets i.e. their residential housing mortgage book, which in turn face 100.0% reduction to any correction in the residential housing market because a high percentage of the residential mortgage book are on interest rate loans which are 100.0% exposed!

I believe that this advice alone warrants, an account to each bank of $1.0 million; and $5.0 million is a drop in the ocean compared to the losses potential losses Bank Executives have exposed their companies to.

After living here for 30 years, I think I know the Aussie “culture” quite well now.

I agitate the Small Poppies at every opportunity.

So why, following our Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, would our Big Four Banks and Suncorp (smaller regional) rush into the market place:

1. Seek to limit the several dozen (quite reputable) residential valuation firms, and screw down the already below “cost”-price of doing them (say from $220 – $450 AUS) to just $170.00 each?

2. And, limit the service providers to JUST TWO (and now perhaps to just ONE)?

WOW! That stopped me in my tracks.

Decisions on the run, Fire Bucket Method of Management come to mind, but perhaps in an effort to seem to be doing something – post Royal Commission, the Banks wanted to be seen to be doing SOMETHING!

VALUERS APPRAISERS CULTURE

Would you “value” a Professional Opinion that you have paid $170.00 for, which opinions in the main, the value of one’s largest investment? A property’s market value say $250,000, $500,000, $800,000 or $1.0 million?

Like HE double toothpicks!

Would you “value” an opinion which you pay $750 or $1,000 for or more?

There has been sufficient time to comply with RICS Red Book Standards: due care at the inspection; the research; the analytics; the comparable evidence used; the report is personalised to the property; etc. it is NOT production-line.

The valuer appraiser did not have to do 5, 6, 7 valuations (sic) per day to justify his or her position; let alone try to recall what he she did during the day!

I believe that an Industry Profession who values appraises THE WORLD ASSETS has no place for Professionals who cannot evaluate their own worth to themselves or the wider Industry Profession and the Community at Large! Period.

And I have refused to pay back Professional Fees, because there was an idiot valuer appraiser who sought to justify his time with 25.0% of my qualifications and or even less Intellectual Property (noting our area is highly specialised)! Compare apples with apples!

POST ROYAL COMMISSION INTO BANKING rebound

The Aussie Banks, the BIG FOUR, the big 5 need higher levels of Intellectual Property (IP) in the mix. Not less.

You pay PEANUTS; you get MONKEYS (to work for you)!

Australia / ians have a tendency to go from one stuff-up to the next. Business Capital gets burned; Finance Capital goes up in smoke; the Man in the Street gets caught up!

If the banking industry wants tick n flick valuations, the outcome will be more of the same.

Teasing out “market value” in the residential sector, which potentially faces some strong corrections needs a smarter more intelligent range of IP in the mix. Not less. And not less that is further arm-twisted by our banks and fewer suppliers beholden to them.

Banks Mortgage Books will shrink; by how much?

EMPLOYERS EMPLOYING VALUATION STAFF TO RED BOOK STANDARDS

Would you as an International Brand put your hand up, and expect your staff (valuers appraisers) to do work to RED BOOK STANDARD, day in and day out, week in and week out for $170.00 per valuation?

I have called on for a doable number per day on “average” for 48 weeks per annum.

I proffer that that number is 3.5 per day = $142,800 revenue per valuer.

No reward; no career; no back-up; no “return”. Risk IP a wider dynamic to the mix curtailed.

And now in a “contracting” market.

Please argue these points in the alternative.

Already there are huge holes in the loan books; the quality of which will take years to repair!

The Japanese are still fixing their 1987 – 1990 mess. Freddie Mac and Fannie May got hammered during the GFC. The value of the average US housing stock fell to 60.0% of previous levels or 6 / 7 X annual wage to 3 / 4 X annual wage. Before or after tax wages?

Australia is silent on “key” metrics such as leaving TAX in our out!

CONCLUSION

Valuers appraisers that cannot justify or argue their own case(s) in regard to their own worth to the community should exit the Profession.

Our Associations should start arguing our cases.

If a consumer is prepared to pay $170.00 for an opinion on their oft biggest investment in life, for a tick n flick “zero greay matter” valuation appraisal and falls in a heap (LVR aside aka THEIR EXPOSURE) to the mortgage aside; you get got what you have paid for!

If an International Branded Firm (and I am assuming this is FACT) puts its hand up to engaging staff, doing mortgage work, I believe they do NOT warrant RICS or API recognition.

Who will insure them?

Our corrections in this sector which are forthcoming aside, our Financial Institutions need higher quality IP in the mix.

And so does the public at large.