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Valuation fluctuation: The rise and fall of property values

valuation fluctuation valuation fluctuation
Annie Kane 15 minute read

The red-hot property market has moved at such a pace in the past year that, when coupled with lower levels of supply, property prices have rapidly escalated. But while prices have risen, valuations haven’t necessarily moved in step. Annie Kane takes a look at what is causing the valuation fluctuation, and how brokers can help avoid any ‘valuation shocks’.

When the pandemic hit and borders closed, it seemed that the nation as a whole started looking at their direct surroundings and considering not only how they were living, but where they were living, too. Property purchases went through the roof and, with a limited supply of housing on market, so too did property prices.

According to the latest figures from the Australian Bureau of Statistics (ABS), Australia’s 10.6 million residential dwellings are now worth more than $8.2 trillion, after rising by a whopping $449.9 billion in the March quarter 2021 – the largest rise on record – to breach the $8-trillion mark for the first time.

Residential property prices rose 5.4 per cent in the March quarter 2021, taking the mean price of residential dwellings in Australia up to $779,000 (from $739,900 in the December quarter 2020).


And in NSW, the average price of dwellings rose above $1 million for the first time (coming in at $1.01 million). Annually, residential property prices rose 7.5 per cent, with rises in all capital cities. The head of prices statistics at the ABS, Michelle Marquardt, commented that the results were a reflection of the housing market conditions.

“Strong demand for housing was supported by record-low interest rates, government initiatives and rising consumer confidence.

“Price rises were observed in all segments of the housing market, with growth in house prices continuing to outpace price growth in attached dwellings,” Ms Marquardt said last month.

Going up

The fact the property market surged so quickly led to a surge in valuation demand. First, it was the turn of the refinancers. As auctions surged ahead and buyers were incentivised into market, a property frenzy started to take hold.


According to Domain’s Auction Report for May 2021, major cities were seeing the highest number of auctions and the highest clearance rates in 20 years (since these records began).

Auctioneers and real estate agents were receiving pre-auction bids, and sight unseen purchases soared. Buyers pushed up house prices rapidly (particularly for those properties at the top end of town) as the fear of missing out reached fever pitch. Home owners, many of whom were watching auctions take place in their neighbourhoods, were realising that their property could suddenly be worth a lot more than it had been even a year before (and from when they applied for their mortgage).

As such, brokers started seeing a surge in business from home owners looking to value their property and refinance their home, potentially bringing down their loan-to-value ratios on their mortgage (see page 4 for more) and freeing up cash. For many brokers, the valuations coming back from lenders delighted their clients, particularly when coupled with record-low interest rates and cashback offers.

Jodie Wolfenden, finance specialist at Superior Wealth in Queensland, tells The Adviser: “A lot of clients were thinking what their homes are worth from around mid last year. With all the booming that’s been going on, they were coming in hundreds of thousands of dollars above, which is quite mind-blowing. They were really quite shocked by that. It gives them a lot more options and capacity with what they can do, potentially, if they’re looking to access equity and buy something else.”

Going down

For some, however, the valuation wasn’t quite what they were expecting. While the market may have been hot, some valuations were coming back much lower than hoped – particularly for automated valuation models, which struggled to keep up with a white-hot boom in the market.

Indeed, according to a poll of 138 brokers responding to a survey that ran on The Adviser website between February and May, 78 per cent had found that valuations from lenders were coming back lower than market (with nearly half stating they were ‘vastly under market valuations’).

This particularly hurt borrowers who found that they were now higher up the loan-to-value ratio (LVR) scale than they had previously been. Those who were refinancing may have found that they had moved from 80 per cent LVR back up to the more ‘high risk’ areas.

Moreover, for those purchasing a property at auction, a lower valuation after auction may not only have increased their LVR interest rate bracket, but – in some cases – meant that they had to find additional money to pay the lender’s mortgage insurance (LMI) too. Or, in more extreme cases, swallow the vendor’s deposit and walk away from the purchase entirely.

Ben Kingsley, founder and managing director of Victoria-based brokerage and property investment advice company Empower Wealth, explains that it’s “usually first home buyers with higher LVRs or novice investors buying off the plan that get hurt the most by low valuations”.

“On the whole, we have been pleased with the sensible approach most valuers are taking in a fast-moving market, where demand and multiple offers are common,” he says, noting that he had only experienced “a couple of examples with low valuations in one very fast-moving pocket of Brisbane”.

However, he added that if a low valuation does come in, and the property is purchased, the brokerage would contest any low valuations with current supporting market sales, “which more often than not results in an adjustment to purchase price from the valuer”.

“If they are not forthcoming with a revised consideration, we usually assess the shortfall impact and make a judgement call to either switch lenders, where we have confirmation of a purchase price valuation or, if the difference is small enough for the shortfall to be covered in the initial buffers we have in place for a client, we would discuss with our clients as to preferred path they are happy to take forward,” he explains.

What’s causing the issue?

With market expectations being one thing and valuations coming back as another, the real question is: why?

First and foremost, it comes down to the lender’s risk settings. Given that a lender may need to sell the property quickly should it be necessary to recoup the debt, their approach will always be conservative.

But the process of getting the valuation completed is fairly standardised across the country. Professional valuations undertaken for lenders are aligned to the Australian Banking and Finance Industry Residential Valuation Standing Instructions (the current iteration of which is around 43-page long).

A lender will instruct an accredited or registered valuation firm to undertake a valuation when they need to verify the security of a mortgage. This is done as either:

  • A desktop/electronic report, often used in conjunction with property data providers such as CoreLogic and PropTrack (usually used for lower-risk scenarios and for quicker turnarounds);
  • A Kerbside valuation report where the valuer views the property “from the kerb” and compares to comparable settled sales; or
  • A physical “full valuation” assessment, where the valuer visits the property and inspects it internally to provide an assessment of value when combined with the research of settled comparable sales in the area.

The valuation tends to include an assessment of market value as at the date of inspection, a description of the sale property and comparison to three settled resales (as a minimum), and can also include “agent’s advice” and/or “unsettled sales” as evidence to support an assessment of market value.

Valuers are required to be independent and at arm’s length from all parties, including the borrower, vendor, developer, purchaser, real estate agent, broker and mortgage originator. As such, they should not be privy to the details of whomever is interested in buying the property or their loan requirements, LVRs etc.

Given that valuers operate under the same rules, lenders should be getting similar outcomes from whomever they instruct in the valuation market. However, variances do occur. Generally, this comes down to the opinion of the individual conducting the assessment of the value compared with recent settled sales (normally within six months), the comparability of the subject property and the knowledge of what is happening within the market at that time.

The settled sales element has been a key part in the equation in the last year. Sales have been taking longer and longer to settle, particularly given turnaround time blowouts for broker-lodged loans (see the June edition of The Adviser for more), with three-month settlements quickly becoming the norm, not the exception. As such, there may have been only a slim number of “recent” sales to choose from.

Couple this variance with the relevant risk settings of the lender (some lenders might instruct for value to be based on a 90-day sale period, for example, while others might use a shorter period) and the type/amount of the loan being applied for, and the end result can be quite different from what a real estate agent’s appraisal might be.

Matt Carlson, chief customer officer at valuation company WBP Property Group, explains: “A market appraisal that a real estate agent may provide a potential seller can’t really be compared [to a valuation].

“The real estate agent is responsible to their prospective seller, and not the lender that may fund the purchase. The valuation assessment is based on recent comparable settled sales, relied upon by the lender for the application and security of funding and for (potentially) years to come.”

He continued: “We get instructions from dozens of lenders across Australia, and our industry peers will mostly be doing work for numerous lenders as well. The lender and the valuer who does the valuation shouldn’t matter, the challenge comes where the opinion of value provided is different from the expectations of the broker and or their client.”

Empower Wealth’s Mr Kingsley adds that when variances in valuation do occur, the “common sense approach” of approaching the valuer to discuss it and showcase any other valuations/supporting evidence or market trend data collected can be helpful in overturning any initial short valuation.

“Although, speaking from experience, there will also be the odd valuer bucking the trend, sometimes for good reason, other times for professional opinion or their own risk prevention,” he added.

Mr Carlson added: “Unfortunately, this does happen, and it is not something that we or our colleagues across the industry want to see. Fortunately these cases are only small in percentage, but we understand that it can cause complications with the customer, the structure of a loan, and can create friction in the process – it does for us too,” he said.

“We make the assessment based on the data and evidence available and our knowledge of the market. Where there are differences, the valuer will make comments within the report to provide the reasons,” he said.

Noting this issue, Mr Kingsley suggests that one potential solution could be having valuations based on broader ranges. He elaborates: “While I always recognise valuers are qualified and trained professionals in their field, all valuations are ultimately an opinion of value at a moment in time, so it is not an exact science... I believe valuers should be able to quote in tight ranges rather than an exact amount, given that, often, two or more valuers will settle of different exact valuations.”

Top tips

With the property market continuing to break records, the key to managing any potential valuation shocks for clients is to manage expectations and keep track of market trends.

Ms Wolfenden comments: “First of all, it is all about setting the expectation with the customer upfront; setting the reality that a valuer is going to value a property generally from a risk-adverse stance, if they need to sell in a short period of time perspective, so it is going to be a lot lower. Then it’s looking at the comparable sales, because sometimes you might have to do a little bit of homework to make sure that they understand the property down the road isn’t the same.

“For investment properties that are brand sparkling new and haven’t been built yet, I generally allow a possible valuation variance of up to 10 per cent. I use the car analogy with brand-new property; you might pay a high premium price for your brand-new car, but the minute you drive it out of the showroom, you’ve lost 10 per cent. So, I always accommodate a 10 per cent variance,” she says.

WBP’s Mr Carlson agrees, adding: “A challenge for the market and our industry collectively is managing the expectations – not every house in Australia will experience the same value increase (or decrease) uniformly. Education and setting up for alternative scenarios with the customer is really important, and brokers are great at that.”

As such, he recommends that brokers use tools that are widely available to indicate if there may be a challenge with the valuation (CoreLogic, PriceFinder, PropTrack, REA, Domain etc) and keep track of recent comparable settled sales within close proximity to the property in question. As well as using automated valuation models for indicators of value, he adds that brokers can also bear in mind any confidence scores and the value range and, in some cases, may be able to request upfront valuations from lenders, which can help brokers structure the deal before submission, as opposed to having to react if the valuation comes in lower than expectations after the application has been submitted.

Indeed, NextGen.Net’s chief customer officer, Tony Carn, highlighted that brokers are able to order valuations through ApplyOnline for many lenders, which can have the added benefit of improving turnarounds, too.

Speaking to The Adviser, Mr Carn says: “Some lenders are now enabling a broker to order the valuation [through ApplyOnline] rather than going on a third-party portal. They can order the valuation quickly, but then also use that data to convert to an application. The best use case, though, is actually a broker starting an application, inputting the security details and then ordering the valuation. The key thing there is there is no rekeying of data; there’s no margin for error. That’s helpful if you’re doing an approval in principle, for example, which is still over a quarter of all locations in the market.”

Mr Carlson concludes: “Engage with local experts, seek opinions – again this is more about sensing if there are potential issues and therefore helping manage the customer experience – and if the broker has evidence and thinks there is more information that can support a higher value, then lodge a query as per the lender’s process.”

Valuation fluctuation: The rise and fall of property values
valuation fluctuation
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valuation fluctuation
Annie Kane

Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Email Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.



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