Episode 172 | The future of valuations & its importance in the marketplace | Shelley Horton, CoreLogic

Adapting for the future and bringing objective valuations closer to reality.

We welcome back Shelley Horton from episode 34. Shelley is the general manager of CoreLogic Valuation Solutions, which advises on the future of valuations’ and their role in the market.

The property market is booming. For any transaction -- to buy, to sell, to refinance -- it all requires a valuer. Some valuers are seeing up to 15 properties a day. From desktop valuations to feet on the ground, how are 30 minutes with a property enough to reveal its true value? The reports can have a flow-thru effect on a buyer/seller's decision, leading to action or inaction that could be costly.

In this episode, the team and Shelley discuss the state of the valuation industry. Understanding how valuers assess and produce their reports—highlighting the overwhelming need for accurate, objective reports that ultimately guide property buyers to make better decisions.

RELEVANT EPISODES:
Episode 171 | Pain & Gain Q4 2020: Who suffered and who triumphed? | Eliza Owen
Episode 121 | Valuations: What should you know? | Bart Mead
Episode 34 | The hidden things to look for when working out the price to pay | Shelley Horton

GUEST LINKS:
https://www.corelogic.com.au/news/valuing-properties-more-about-expectation-management-valuation-itself

HOST LINKS:
Looking for a Sydney Buyers Agent? www.gooddeeds.com.au
Work with Veronica: https://linktr.ee/veronicamorgan

Looking for a Mortgage Broker? www.wealthful.com.au
Work with Chris: hello@wealthful.com.au

Send in your questions to: questions@theelephantintheroom.com.au.

EPISODE TRANSCRIPT:
Please note that this has been transcribed by half-human-half-robot, so brace yourself for typos and the odd bit of weirdness…
This episode was recorded in April 2021.

Veronica Morgan: There are a lot of myths around property valuations. Like the belief that bank Val's always low or that evaluation is what a property is actually worth. And in a rising market, when relying on settled properties for evidence will ensure value as a pretty much always out by a long shot is begs. The question are valuations as they are currently done, actually worth anything. What does the future look like in this space?

Veronica Morgan: Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent buyer's agent co-host of Foxtel's location, location, location, Australia, and author of auction ready.

Chris Bates: And I'm Chris Bates mortgage broker. Before we get started, I need to let you know that nothing we say on here can be taken as personal advice. We always recommend you engage the services of a professional.

Veronica Morgan: Don't forget that you can access the transcript for this episode on the website, as well as download our free fall or forecast report, which experts can you trust to get it right? The elephant in the room.com did I, you

Veronica Morgan: Today we're discussing the future direction evaluations with Shelly Horton. Corelogic's general manager of evaluation solutions. Australia Shelley works with CoreLogic's valuation partners, as they navigate an evolving landscape of digital disruption and business transformation. Now long-term listeners will recall that we interviewed Shelley way back in episode 34. Shelley had stepped out of the valuation industry for a number of years and set up her own buyer's agency, which knows that has added a rich consumer perspective to her experience. And now that she's returned to the corporate arena with us chili to help us understand more of the role valuations play in residential real estate and how things are changing. Thanks for joining us today. Shelly. Great to be Veronica. Now I will say Chris is absent. He's he moved to the boonies a while back just before COVID actually. And you know, they've had a power outage, so this is what happens when you leave the metropolis go off the grid. He's not that far, he's actually still in Sydney. Believe it or not Northern beaches. That is for those who haven't been living now, Shelly, a booming market, not withstanding. What are some of the challenges facing the valuation profession at the moment? Well, to be honest, they're quite there's quite a few of them at the moment. The rate

Shelley Horton: Of market growth we're currently seeing right across Australia, I think has surprised everybody. And more so than the valuation industry and also the many clients who rely on evaluations, you know, banking, finance, government clients, and the like and for the valuation industry, it's been particularly tricky because we've seen a real shift in the last 12 months to platform activity. So through CoreLogic's banking and finance platforms specifically it's probably about 70% of all of our activities refinance based. And if you read a number of our other sort of market indices and market reports are Tim wallers and Eliza Oh. And put out that probably would highlight as well, that sale activity and transactions in the market has been at extraordinary low levels can pair to the historical historical sort of patterns. And that presents challenges because any valuation, whether it's an automated assessment or there's a value or involved in the process relies on comparable sales evidence. And when that is hard to find and few and far between, and some of those results can be quite erratic and volatile. It makes it very hard for people to sort of work through that and establish well, what is the actual value of a property

Veronica Morgan: Really does make it difficult because obviously as a buyer's agent, you know, for those of us who do go through the excess exercise of pricing property, we suffer, we face the same challenges. And it's quite funny how you might see a road terraces say, you know, where my office is in Balmain. You might see a row terrorist and you think, Oh, it's going to be easy to find comparable data for a particular property. But as you know, they have been renovated over the hundreds of years that they've been alive, they've been in existence and nothing else may have sold anything like it for the last five years. And so, like you say, with reducing or diminishing transactions and obviously the scarcity of that top property anyway, that's my here difficult, but then you've got situations and I've been tracking, you know, the prices people are paying versus what we're pricing it. And we do factoring for market growth and we price it. I know that value is don't do that. And, and even then on average property going to auction is 10% over what we've priced it at. How on earth, you know, can the institutions that have traditionally relied on valuations? How do they make sense of that? And, and, and, you know, how is it still relevant, I guess?

Shelley Horton: Yeah, it's a good question. I think with with the current market, and again, even though the sales evidence might be scarce, it's still basically, I guess, the, the guide or the litmus test for what a property is worth. And so it's really important this market for value is to understand a bit more around you know, the interest level in properties cause are different properties being valued for refinance purposes. If, you know, if relying on sort of comparable sales evidence, it still needs to be the most recent to reflect what's happening in the current market. And as you pointed out Veronica, you know, oxygen activity at the moment, you know, it can be quite volatile and, and properties might sort of go, you know, 10% above where you may have estimated as a buyer's agent. Whereas we're sort of seeing significant growth week on week and month on month at the moment.

Shelley Horton: And so one of the other challenges, I guess, for, for valuers is that they need to consider settled evidence and new South Wales and example a settlement period of six weeks. So they might be lying, relying on evidence because they have to, because that's sort of mandated to them. That's already dated at the time of doing evaluation so that there's other ways to solve for that. They can also consider exchanged. So for instance, an auction result on the weekend because that's sold under auction conditions and it's effectively exchanged without a cooling off period, they can factor that in as well. But then every market across Australia is also different in Victoria as an example, you could have a 30 or 60 or 90 day settlement. So again, following that same pattern, you might be looking at something that's three months out of date and the markets will truly move.

Shelley Horton: So it's a real challenge for the industry. And I think one of the ways to potentially solve for that is to revisit some of those long-held beliefs or long-haired views around looking at only settle sales evidence, and try to make sure that the industry can leverage what's happening on the ground. And the most recent evidence. So even if it means looking at a property that transacted last weekend or two weekends ago there needs to be, you know the end users of those reports so that the banking finance industry or, or other sectors that rely on valuations need to be accepting of being potentially being able to change a long held view. In that regard,

Veronica Morgan: It was a challenge because for those people trying to get into the market, you know, where they're just scraped to save their deposit, you know, they have much more reliant on that valuation coming in at what, you know, at what they're paid, at least aren't they, I mean, if there's a, if their value is using historic data, if the valuation comes in low, because of that they've paid market price, otherwise they're not going to be at a buy the property then, you know, there's a, there's a huge risk for some particular segments of the market. I would imagine is what happens to them. Is there any sort of discussion around that behind the scenes?

Shelley Horton: So if evaluation comes in under what somebody paid

Veronica Morgan: Yeah. And we know what happens, you know, and we know it happens a very good reason in some areas, for instance, has been well-publicized in the, you know, the, off the plan space, but I'm talking about in a rising market where a first home buyer in particular, someone who doesn't have equity in other property than our upgrading that are already in the market and their finance is quite tightly tied to that valuation coming in at the right level. And the problem is of course, trying to get valuation before you exchange contracts in, in new South Wales, you have to exchange contracts, but elsewhere, you know, to commit to buying a property, you know, so do you Sue to get what I'm saying? That the there's a real risk evaluations coming in low purely because I have to use historic data in a rising market and they're the most risk or they're the most vulnerable segment of the market. I would imagine too, having the valuation coming in lower than what they paid.

Shelley Horton: Yeah. It does happen. And at the moment it's happening a lot. So we're seeing, you know, there's a perceived, it's probably a perceived or perception of the evaluation industry in general, that they are more conservative and they always come in under an owner's estimate or the purchase price in this particular market. Coming in at a purchase price is certainly becoming a little bit more prevalent. And that again is just due to the rate of growth at which properties are transacting. And, and you know, that, that the volume of sales activity is not there to support it. If it does come in under though, there are different ways to deal with that. The valuation could potentially be challenged. But to do that, you need to have a really strong case as to why that is so pointing out potentially sales evidence that may have been missed.

Shelley Horton: So a broker or a lender, for instance, if they want to challenge a valuation would need to you know, identify that, hang on a minute, there's two or three properties here that have transacted that they don't seem to have considered. And I think one of the challenges just with, you know, again, you touched on it earlier with with going to auction, you can go to an auction and you have 10 people registered to bid. You've usually got a bit of a spread. You've got those people who register and don't even put up their hand, you've got a couple of people that then participate. Then you might end the current market. You've probably got two or three who are going kind of above what could reasonably expected based on, you know, probably the transactor two weeks ago as an example.

Shelley Horton: And so that's where it becomes really tricky for the valuation industry. But if you get back to what the definition of market value is, and this is sort of an industry-wide definition in my view, still holds, stood the test of time. And that is a property that's advertised for sale. It's given adequate exposure and marketing. For everybody to know that it's going to sell at a particular point in time, and as long as either the buyer or seller isn't particularly you know, swayed one way or the other. So if someone's not desperate to sell, someone's like desperate to buy that that is a test of market value. So whilst on the surface, it might, you know, you might shake your head when you see an auction result. You know, I've been auctions in, and you can see that somebody might, might pay $2 million for a property, but if they didn't somebody would've paid $10,000 less than if they didn't get it, then the third bidder would have paid, you know, another $20,000 less.

Shelley Horton: So that is actually the definition of market value. I think the challenge for the industry is you might have one style in isolation and, you know, giving somebody professional comfort that they can effectively sort of put their put their professional opinion out there to support something where maybe there's only one sale rather than having, you know, the comfort of, and like when you're purchasing a property, right, you might, might go to a couple of auctions or you might sort of follow a couple of properties and track them. And that gives you comfort. The property value probably sits around a particular range. And then based on that, you might be prepared to start putting in offers on a property. So it's kind of similar to value as in that, you know, that they're doing exactly the same thing that property buyer's doing. But then they've got those nuances of, you know, having to look at largely settled sales.

Shelley Horton: They can look at exchange sales in the current market. There's not many of those. So the, the market dynamic at the moment is particularly tricky. That said it can be challenged. You know, there may maybe another evaluation that gets done on a property that is not a great customer experience. So if you think about it from a bank's point of view, the stress involved, if somebody, you know potentially put 10% of, of, you know $2 million on the line at auction on Saturday, and I wait for the valuation and it comes back in and you know, but for a say maybe a small rounding issue or a small you know adjustment for the valuer, you know, they might might think, you know, I've seen plenty of examples where property might sell auto Mount and, you know, it can be just the psychology of trying to sort of bid someone out of the, out of the competition, just going above $2 million, for instance, you know, two, 2,000,011, and then for F for, for just rounding evaluation might come in at $2 million. It's just that annoyance and the inconvenience there that can cause problems in the whole whole kind of home home-buying lifecycle.

Veronica Morgan: Yeah, it's never a nice feeling to have valuation coming paid for. It is terrible, but it's also important to highlight. There are, there are extremely

Shelley Horton: Cases where, you know people do also pay well above wherever the odds and, and, and that's important because that's what value is there for, for lenders going to loan money to a borrower. They want to make sure that, you know, if everything goes, pear shaped that at the end of the day, they've got a security they can sell on that property is you know, a good property that would be saleable. And I want to know, you know, what they'll get for that again, if they were, if they were to go down that path, I mean, that's, that's not the desired approach in the industry. And so not an outcome that people necessarily want, but it's, it's, it is the reality of what people are kind of considering at the end of the day. So value is also got in the back of their mind that potentially there might be consequences if they don't get that that figure, right.

Veronica Morgan: It can be sued. Can't they? I mean, there's, this there's look given the costs in this industry have actually been driven very low. How CA I mean, I always wonder how I can evaluate it,

Shelley Horton: Possibly do a good job. Yeah. You're sounding like a valuer.

Veronica Morgan: Look, it is it is a common

Shelley Horton: Question, a common challenge for the industry. I think data and technology is, is really the answer to that. One of the ways there are a large large number of valuations process for instance, just through our platforms every year in excess of a million valuations would get done just for, for mortgage purposes every year. And there, you know, a number of firms that tend to concentrate in certain locations and markets, and they have experts in those areas. So it becomes in essence, a volume game. So they might have somebody working in Paddington in Sydney or Paddington in Brisbane and that's their area. And so they might be, you know, valuing don't be doing a desktop assessment on a property one day. They might be doing you know, a physical inspection in the afternoon. And, you know several other evaluations sort of either side of that.

Shelley Horton: So that's why, you know, technology, the process and innovating becomes critically important because time is of the essence. Yeah, the nature of the work that most valuation companies are doing is for, for mortgage finance purposes and banking, finance sector, want to take that borrower out of the market as quickly as possible. So speed is important. But there, there are a lot of efficiencies that can be gained through, you know, route optimization as an example. So working out who's best place to, to value a property you know, serving up all the information that evaluate needs and putting it at their fingertips CoreLogic's desktop product, as an example does exactly that it basically provides imagery and data and as much information on a POS on a property as possible, so that all the Valley we're really needs to do. Being an expert in that area is approximate what they think that property is worth. And, and that assessment you know would be relied on by a lender and would be appropriate in certain circumstances where a lender may may be comfortable relying on a a less comprehensive valuation assessment but not necessarily a more conservative one,

Veronica Morgan: I guess, AI is going to be a big, big factor in this market, as it, as it progresses. And AI basically looks for patterns in data, right? And we've got quite a bit in some areas you've got very homogenous stock. Very, that will be a lot easier than say in older, more established areas where there's a lot more variety in, in the stock or the property types, I guess. Is that, is that what you're talking about here? Is it you utilizing AI to deliver some of these tools to valuers

Shelley Horton: It's one aspect? There's certainly been advances and some studies that have been done in the U S that I'm aware of where they sort of model AI is used to model why properties are deemed to be comparable for a property in terms of what properties are assess and use to determine value. So you can kind of follow what are the patterns? Is it, you know largely, you know, we talk in the valuation industry about comparing apples with apples. So, you know, four bedroom, two bathroom home sells then to compare, to compare that with something else as a baseline, you're looking at a four bedroom, two bathroom home. So that's one way it sort of modeling, well, why is something more comparable than another? And then looking at data around what side of the street to you know, is something flat effected, or we've got some sort of impairment to the property, and therefore, what impact does that have on value?

Shelley Horton: So over time as CoreLogic's database and probably universe gets more comprehensive we're all always looking at improving our depth and breadth of property coverage so that we know as much as we possibly can around every single property in Australia but also from a data and technology point of view around sort of desktops as an example. So that's where a value is involved, but they're not physically inspecting a property. So it's using whatever imagery might be available. So for instance, if a property has been listed for sale listed for rent over the last couple of years, or if evaluation company has valued that property previously, and there's a history and knowledge of that property they should be able to provide a fairly accurate assessment on that property without going through it. So it's, it's opening up all those data sources and working out well, how do we, how do we put people pretty much in the property without physically going through it?

Shelley Horton: And then with the onsite valuations, if you think about the process much like a buyer's agent might go through when they're sort of researching properties, you know, the websites that you go on to look at what you can do with the property town planning, implications what else has sold again, if you're using, for instance, CoreLogic's probably research products, all that information is in the one spot. So the time efficiencies that can be gained for instance, by going into one platform to basically fulfill all your property needs for research purposes can save a lot of time and shave off a lot of time off the process, rather than going in and out of multiple platforms and systems to be able to get all the information you need to be able to assess the value of the property.

Veronica Morgan: I want to talk about AVMs as we sort of move on and beard, but not quite yet. Because I, you know, I see out there a lot of information that is, is available for consumers and obviously that same information and more would be available for values well, and, and you've actually written that the wide range of those home price research tools is shifting the role of value as away from the, I think what you call it, the traditional and skill, foot art of the valuation itself and that it's actually taking the value as role towards expectation management exercise. And I know you wrote that some time ago, but I'm curious to know what you meant by that.

Shelley Horton: Well, I think there's a, there's a time and a place I think for different valuation service types. And I think it's important for, you know, the end users of those reports to understand that you know, you can get an approximate online assessment from, from many different sources online free today with, you know, and brokers and lenders might use that as a lead generation tool, for instance, hi, my customer comes to them thinking about buying a property in the area. They might sort of serve up a property profile report or you know, kind of a line estimate to someone saying, Hey, this is what sold in this area. And, you know it's, it's, it's something that needs to be sort of treated with caution online estimates you know, can be quite accurate in some cases, but in some circumstances you know, they're not, and there are a number of factors behind that.

Shelley Horton: And one is you know, the uniqueness of the property. It could be the value of the property. And so AVMs, you know, should be used carefully and only in the appropriate circumstances. And have you think about the end-user of that report? What a buyer proper prospective property buyer wants to see and what a lender might want to rely on as an example, if you're providing finance on the property two very different things. So you know, again, the volatility you know, there's, there's volatility in every valuation service type. I can, I can certainly assure you of that. You know, there might be perception that online estimates are a little bit sort of broad, but in some cases they can be quite accurate. And that's something I think over time, we've with again, AI and other sort of means revisiting and looking at what makes them a little bit less accurate.

Shelley Horton: And in some cases makes them, you know, pretty much spot on it's, it's understanding the why behind that. But getting back to, I guess, the end use, I think that's important. So expectations are, if a bank is going to rely on an AVM, it's highly unlikely that it will be an AP particularly high loan to value situation. And so that might be something that is, is deployed or use if they have a history on a property, for instance, or probably has been valued previously. And it's more an update as opposed to a brand new purchase where they don't have any any knowledge on the, on the borrower and they don't have any other prior knowledge on that particular property. So probably more, a lower risk type situation, if that makes sense. So low risk, low risk property. And then if you go up to the next level desktop again because you're not physically going on site with inspecting the property you know, we've found we, we do regular benchmarking on our, all our valuation products.

Shelley Horton: And one of the things we found is that because people don't go through a property, there's probably an inherent bias in that and sort of a level of conservatism and that needs to be accepted by the industry. It'd be like, you know, you going out and telling a client that as a buyer's agent, you, without going through a property and kind of putting your neck on the line of what you think it's going to sell for. So, you know, you might tend to sort of you know, build that into your approach and assessment is you know, cause you haven't physically been through it that you don't know exactly what that probably looks like. But based on what you do know, you know, you, you put a range on that. And then, you know, curbside might be just driving past the property again, you know, that it's physically there.

Shelley Horton: But you haven't been through the inside and, and again, hopefully you can kind of see that and people can understand that, you know, there is a place at a time for different assessment types, as you get to I guess a scenario where maybe it's a particularly high to value situations, or maybe it's the first home buyer. It might be a 90, 95% lender as an example, or the property might be fairly new. So it's under construction or off the plan, those kind of scenarios and situations aware a more detailed onsite inspection is absolutely valid. And more often than not used, I like that

Veronica Morgan: Explanation that it aligns with risk because a few years back I was doing a refinance on one of my properties and my broker came back to me with this, this sort of list of percentage that the bank would loan me on the property based on how I elected to have valued, which is, I thought it was first time I've seen it like that. And, and it was, yeah, it was definitely a lot higher if if we had a, an onsite or an in-person physical inspection versus an AVM, I was like, well, that's the first time I've actually seen that risk really spelled out that way. But obviously on the flip side of that, of course, is that, yeah, the bank sees themselves as taking more risk on, then obviously they're going to want to have a more detailed evaluation to mitigate their risk. But I think what's important to, to understand, and this is something that my head struggles with to a degree, is it really a valuer comes in and puts valuation on a property? It doesn't mean that's what the property is actually worth because two valuers might put two different values on it. Right. and then the value of the property can actually really depend on the actual purpose of the valuation in the first place. Can you tell us a bit more

Shelley Horton: Volatility and ranges in valuation is very common. And you're absolutely spot on. Quite often we would see examples of property being valued and then another property may be subsequently, or same probably was subsequently valued and comes at a different opinion. Sometimes, you know, might, may have seen it two or three times on the same property and it's just inherently built in that it's a professional opinion and three different people going out to the exact same property likely to come up with a difference of opinion on what it's worth as are three buyers that go to an auction on a Saturday. It's exactly the same sort of scenario. So I think the industry and the end users of reports probably need to revisit the approach to that. Typically there's probably been a historical view that taking the most conservative position is the best approach.

Shelley Horton: So the lowest of the valuation now that doesn't necessarily work when somebody is trying to borrow a certain, certain amount of money. So I think maybe an adjustment or a rethink of that needs is something that's quite topical in the industry at the moment. The fact too, that there's a single figure assessment on a property as well, makes it very hard and rigid. And I think there's a distinct difference between precision and accuracy. Precision for me, implies exactness and valuation is not an exact science. And, you know, getting back to the, you know, again, that example of people bidding at auction, or, you know, putting in offers on properties, you do have variation and volatility on exactly the same property and value is, are effectively doing a similar thing, looking at other evidence in the market as a property buyer does to go out and say, well, I think in my professional opinion, this property is worth X.

Shelley Horton: And so I think a little bit of leeway you know, might be a good way to potentially revisit that because as soon as you put a single figure there, he gets to the point of you know, someone, for instance, if I was a valued property and someone said to me, Shelly you know, I think you're a little bit conservative on that $1 million assessment. It makes it very hard for me as a valuer to then maybe say, actually, yeah, you might be right. I probably, you know, it probably was worth 1.1 or 1.05 mil or whatever, whatever the case might be. So because there's that rigid approach and that single figure assessment and I guess people more sort of thinking of that valuations are precise when they really just intended to be accurate. There is, there is no black or white answer.

Shelley Horton: It is very much a professional opinion and to solve for that. I think there needs to be an acceptance of end-users are those reports that maybe there is I guess a level of volatility or range that could be that could be sort of entertained in that space and sort of suggests that you, you know, that it's a free for all and, you know, you're trying to get the highest figure, but, but it is, it's just a fact of the matter you know, even a real estate agent, if they're going out and appraising a property to list it for sale, they don't know exactly what that property is going to sell for in their local market. That they'll have a fairly good idea. But even the real estate agent, they're a little bit closer to what the circumstances are of that particular buyer, why they need to sell what's their motivation to sell.

Shelley Horton: Have they already got their eye on another property? Therefore there might be a bit more flexible in terms of the price they're prepared to accept. On the other flip side of that, you send a value out, you've got things like level of experience you know have they valued property before? Is the property particularly unique and difficult that no matter what level of experiences of value you've got, that probably is just going to be inherently hard to value because there's something quite bespoke and unique about the property. So there's a whole range of things on either side that that can impact that. And I, and for me, that was probably one of the biggest things that I learned from sort of, you know, moving into the real estate where we'll price it in my current role and seeing things in terms of the market dynamics. So I can probably hand on heart say I learned more about the market in that period of my career than I ever did, even as a valuer.

Veronica Morgan: Yeah. Because I guess what you were exposed to as buyer's agent is the fact, and I refer to it as luck that, you know, there's in any sale there's element of luck and it can go for the vendor or for the buyer, you know, in, when it goes for the vendor. And I've been to auctions where the highest bidder sort Thursday night before the auction, just miss out on something else and goes in there and just blows everybody else out of the water. And you think, Oh my God, where they come from. And if somebody had made an offer in the week prior, that person would not have been in the fray and they could have bought it for less, but we only know this stuff in retrospect, because there's no parallel universe. And then, you know, and likewise for the buyer on the flip side, that the luck lies in the buyer, in the situation where, you know, that buyer might've been on the property the whole time, they're the hottest thing. And then suddenly they're offered an off market in the final week and they go off and buy that. And they're no longer there, you know, so, or if the vendor's circumstances suddenly change and they're the only buyer that can meet the conditions. So, and that's the thing, I guess that's the, Oh, the alchemy of it all, isn't it? I mean, that's the thing that no one can predict. No one can actually factor in.

Shelley Horton: It's true. And, you know, getting back to that definition of market value and, you know, a willing buyer, willing seller type concept you know, that might sort of go to sort of answering that element of the definition, you know, was someone particularly anxious to purchase that property. Therefore they pay probably a little bit more than what, you know, what could be reasonably expected, why don't, why didn't value in valuation industry sort of handles that really well is there's typically an industry standard report the Australian property Institute sort of mandate that that their members should use. And that, that has, I guess market risk factors, property risk factors, and in the current market, what you might see is a valuer, basically calling out, look, there's there's, there might be one sale. There's not a lot of sales evidence to support this purchase price, but they'll put it on there.

Shelley Horton: And then they adequately, I guess managed for that risk or balance that risk by calling out that it is really at the upper end of what can reasonably be supported. And, you know, the potential for that price to be achieved again is almost unknown at the moment. So they can kind of say, well, look, yes, it did transact in the open market and on the face of it, it looks to be market value, but I don't have a lot of evidence to support that. But you know, that said it still ticks that box of market value. And and I can sort of, you know, I guess deal with that market volatility in other rights, otherwise, but sort of risk profiling the property. So that, that's sort of one thing that the industry does to sort of counter for those scenarios. You know, and, and in a, you know, in a, I guess, a falling market as well, you know, luck, luck plays it, you know, you could be there right time, right place, everybody else falls out of the way. And you become the Steven Bradbury of property buyers who goes over the line and gets a property for, for a good price,

Veronica Morgan: That analogy. We talk about Bradbury moments. It might be sorry. It's usually when the client, you know, look on the face of it, it should be within your budget, but the way the market is right now, probably not. And you're going to have some faster, harder speeders, you know, speed skaters. They're probably going to outrace you, but you never know. They might all fall out. If you're lucky, you're lucky you got 10% chance of winning that property. So you've gotta be in it to win it. So think it's actually the compensation we have is some, if you like what you're hearing here, please share this episode with others, you feel would benefit. And while you're at it, why not leave us an iTunes review five stars, please. Every review helps make it easier for other people to find us and hear what our amazing guests have to say.

Veronica Morgan: We love hearing your questions and we're planning more listener Q and a episodes. Please send your questions in. You can send them via the website, which is the elephant in the room.com today. You or directly via email to questions@theelephantintheroom.com.edu. So how does the pedal work? Because we hear it hear about these panels of value. Is can, can you give us a bit of an insight into the, the back end of it? How does it go from when, at what point does the bank say, right, we need a valuer and then, and then who is on the panel and how they get chosen and how does it all happen? So

Shelley Horton: My background experience panels lenders would typically get to tender or issue a request for a proposal or something along those lines, calling for interest from valuation companies to provide valuation services for their business. And they would go through a process of submitting a proposal you know, for the valuation work that they can provide. The lender might carry out due diligence on those suppliers and narrow down. And that, that could be, you know, they get to, I guess, a preferred panel list of people they're prepared, prepared to do business with. One of the things, you know, they might be looking at professional industry standards experience in the industry time in business the breadth and coverage of suppliers. If you think about some of the big banks that they need, somebody pretty much in every corner of Australia to be able to come in, whether it be a regional town and so forth.

Shelley Horton: So got a bunch of things I look out they'd also then probably look at cost and turnaround times and, you know, so that customer experience. So once I go through dealer due diligence, they would narrow it down to I guess, a preferred a list of suppliers. And then based on that. So if they were a customer of CoreLogic, they will update us on who that is. And then we have a technology platform that basically provides a client to be able to order a valuation, instruct the valuation, allocate that to the panel, and then distribute that work and manage the workflow of the valuation. So be thinking about it, valuations ordered as an appointment be made, has the property been inspected? Where's the valuation reports back and everything that happens basically in between there? So quite a lot. And as a saying, we, we, we manage in excess of a million valuations every year, so quite a lot.

Shelley Horton: And, and that could be everything from ABMS to desktops, to drive by assessments, to onsite physical inspections for residential property, commercial property and rural properties you know, in every state and territory right across Australia. So it's quite a, quite a large job in an important job that we do. And we, we take very seriously. But it's you know, it has a lot of challenges that come up with like local market dynamics, you know, evaluations not coming in at what people thought they were going to come in at, you know, challenging and querying that valuation and current market there, there are cases where you know, valuation suppliers, established valuation suppliers are really struggling to meet demand universally across the board, just because of the volume of particularly refinance activity over the last 12 months with COVID. And obviously finance rates are particularly low, I say, have been you know, in, in memory and what that is doing is driving a flight to refinance and you know, and that doesn't, that doesn't sort of distinguish in terms of where you're located.

Shelley Horton: So if that means looking at a property in regional Victoria or South Australia, or you know, or a Metro location that needs to be done. And so the industry at the moment is probably struggling with keeping up with, with the workload and, you know, getting back to data and technology you know, we're trying to help the industry and constantly looking at ways to help the industry solve for that. You know, you can't just find 20% more value for instance, the service, the work we've kind of got a finite resource. And if in, in the market demand made may dissipate at some point in time. So we're always looking at ways of, you know, are there other other ways or better ways of doing things to sort of help speed up that process? But it's a real challenge at the moment, just getting to the, to the quantum of that, but hopefully that explains, you know, the orchestration process, every lender again, might have a different panel. So then there's other complications involved with, you know, or not complications, but you know what I mean, it's not just one panel fits or many complexities. Some people might, you know only have regional requirements. And so the nature and the construct of a panel might look very different to, you know a major lender as an example,

Veronica Morgan: Cynical, but the proliferation of brokers that we have, and I'm a supporter of brokers you know, people dealing with brokers versus dealing direct with banks for lots of reasons. But I do know anecdotally talking to a lot of brokers throughout the lockdown period, you know, a year ago that they basically what, right when I was going to be borrowing to buy home right now, because there's always fear in the market. So let's really massive push let's keep ourselves busy working on rain financing because then they can make sure they continue to get paid. And, and they're providing value obviously for their clients as well, but that's sort of been interesting and quite a unique moment in time. Would you think to, to drive that refinancing piece is, is that sort of where a lot of that volume come up because you say that sales transactions are down, but that doesn't mean, so therefore the actual evaluations being done on properties that have exchanged or, or post purchase would be down, but the volume required, although the amount of valuations is going up, is that, is that purely due to COVID do you think

Shelley Horton: There's a couple of things we've seen now that are probably to stand out. So I think in the last 12 months, a flight to regional areas across Australia so even, even though nationally transaction volumes are some of the lowest we're saying in regional areas as being quite heightened activity. So that's one thing the governments stimulus supporting first-time buyers and construction, we've also seen a number of valuations increase associated with, with first home buyers and also new builds. Just again, given the stimulus has been pumped into the economy. So we've seen a real increase in construction well, above sort of again kind of recent historical norms for us. And then the balance is refinance activity. So about 70% of all of our platform activity is just for refinancing and then when the date will come, but you'd have to think at some point because every everyone's refinanced, right.

Shelley Horton: So, you know, so but it's still record volumes. We're seeing even into the beginning of this year you know, we last year for the first half of last year in particular so probably about June, I think, you know, the market sort of adjusted, nobody really knew what was happening, but, you know, slowly kind of middle of last year, but particularly the last quarter of last year, we saw activity you know through our platforms and the needs for evaluation requirements increase exponentially. And I think it is just a unique period in time. You know, if right refinance, activity dissipates, some of the sale results we've seen recently might see you know, people think about listing their property for sale, if they, they think, wow, okay. If my neighbor got that for their property, maybe I might put my property on the market and see, but it's it's, it's not sort of, you know, it's not eventuated to any material extent at this point in time, although, you know we do keep an eye on CMA activity and like pre-listing indicators that demonstrate that somebody might be about to list and kind of looking for those lead indicators to suggest that things might be shifting.

Shelley Horton: So probably too early to tell at this stage but it does feel a little bit unique for the time I would suggest given you know, extraordinary, low rate interest, low interest rates that we've seen

Veronica Morgan: Freaked out when you said that CoreLogic basically is involved in a million evaluations per annum. So that would give some amazing data that you would have that you would be able to pick through coming. I mean, can you just give us some, some, I mean, you've alluded to some there, but are there some sort of aspects or some data points that come out of that, that, that will, I don't know, interesting to you that you're actually working on or that CoreLogic's working on that provides different insight into the property?

Shelley Horton: Yeah, there's a, there's a we have a early market indicators report that people can subscribe to, and that really covers that whole property life cycle. If you think from you know, agents sort of getting on our platforms and going out and doing appraisals so that pre-listing activity. So we look at that and then we look at does that then eventuate and, and move into you know, actual listings. So then we look at listings activity, both rental and sale activity and that gives us an indication of, you know those early signs does it, invigilate into actually somebody doing something about either selling or renting their property. We look at vacancy rates in terms of the rental space. We look at sale prices and auction clearance rates and sort of measure and monitor, you know, are they, are they going up?

Shelley Horton: Are they going down and at you know, at all levels, right? So right across Australia, regional Metro locations and so forth. And then we look at through our valuation platform. So those properties that then sell you know, do they get valued and then how do they get valued? What's the type of valuation that, that is deployed and you know, the price points of properties that are being valued and sold, et cetera, et cetera. And you know, is it refinance or is it purchase activity that behind that and is it a new build for instance or an established property? So there's a whole raft of things that I guess that we look at that kind of cover that whole, whole life cycle of a property. And it's it's quite interesting, the insights you can get out of that.

Shelley Horton: You know our research team puts a lot of information and does a lot of reports. It puts a lot of information out the market. There's a lot of reports on market activity and you know, emerging trends that, that might be ventilating in certain markets. As an example, you know, if the Perth market has sort of lagged for quite some time and in the last six months, you know, there's, you know, signs that it's finally sort of reached a bottom and, and maybe, you know, after a considerable period of time, it's starting to turn around. So, you know, and just doing that analysis across, you know, house price movements, historically particular States and regions, and kind of, you know, who's leading the way. So it's quite it you're right. It is quite rich. You know, even getting down to the, you know, one of the initiatives that we have internally, we've heard it was our core seven, which is making sure that, you know, core attributes of a property such as bedrooms, bathrooms, car, accommodation, land size living area, and so forth age of a building as an example that, you know, we, we sort of working away at making sure we've got the most comprehensive database of property in Australia.

Shelley Horton: So making sure that the percentage of that core seven attributes that we have in a property you know, we're always looking to, to work out how we can get more information into our universe so that whether it be property buyers, whether it be buyer's agents, whether it be real estate agents, probably valuers brokers whoever is interested in the property market and let's face it, it's pretty much a national sport. Isn't it talking about the problem that, you know, that, that they're armed with all the information they need to either do their job or to, to sit back and review the market in terms of what industry you're in and and how that might impact you in your space. And if nothing else, it's just keeping an eye on what the neighbor's property sold for relative to yours you know and that sort of thing. So very much a national sport and and we'd like to be at the front and center in the forefront of that. So make sure, yeah.

Veronica Morgan: Do you have an open house in the first open house for any property is full of, you know, half full of neighbors? It's interesting. You talk about the core seven, so that's sort of seven attributes of a property that you have each property that you're trying to build. I'm gathering sort of reading into what you said there, that you're saying, if you had a database of every single property in Australia, and you had those seven attributes in your database that you're, you know, your ability to do a whole bunch of, you know, predictions or whatever it is, or, or make assumptions around that would be ADA or be better. Is, is that sort of the yeah.

Shelley Horton: That day? Yeah, yeah, absolutely. And, you know, obviously what we might want to do, but also just, you know, those core attributes that help is there anyone involved in that, whether it be professional who are operating in the real estate market or the banking finance sector or just be homeowners and consumers who were thinking about renting a property or selling a property, or, you know anything like that, the more information I think that property owners or potential property buyers have to educate themselves on the market is, is a good outcome for everybody.

Veronica Morgan: Well, we put that, which is precisely why we do this podcast. Now, Shelly, do you have a property Dumbo for us this week?

Shelley Horton: I sort of touched on sort of an example a little bit earlier on, around the differences in evaluations. There's an example I saw recently where somebody's done a desktop valuation on a property and the property had sold you know a week earlier and all the information was available online, and it was clear for events at the sale night. They pulled it back by about $300,000. And it then triggered off this wonderful process of getting another valuation done, stressing out the bra, the you know, the, a property buyer adding to the cost and the time, and look, two weeks later, I think they got the result that they, that they needed, and it was the right result. The property was worth what they paid, but that was probably my best example of a recent,

Veronica Morgan: I think I might have heard other that story or a similar story from somebody else. And it was the, there was some missing data that in the actual sole property is that what contributed to that? Like they had the land size wrong or something like that

Shelley Horton: In this particular, Casey, I think it was probably just a little bit of laziness on the part of the, the person that was looking at the property. The, you know, the, the, the property had been valued previously by the same valuation company same office. And it was just a case I think of probably wanting to go out Valley was sometimes remunerated based on fees that they write. And so going out to the property, might've, might've meant getting a little bit of extra in the pay packet. So that was just yeah, I think just professional laziness and, and, you know cutting corners rather than doing what should have been the right thing to start with. Yeah.

Veronica Morgan: D I know that, you know, it's, it's rare that it happens sort of in my world, but it has happened where the valuation does come in significantly less than what we anticipated. And we do our research very thoroughly. So, you know, when they come back with comps that are completely not, you know, it's just like they don't even relevant, but then you've got to go through that whole process of, of challenging. It's not an easy process, and there's a hell of a lot of defensiveness that comes back at you. Does it, is it often successful a challenge? 

Shelley Horton: It's hard to sort of put numbers on. It can be, I wouldn't say often more often than not probably differs to the expert has gone out to the property. And for the reason I was, I was sort of mentioning before about why they're reluctant to change their, their figure. It can be quite what might happen instead is another evaluation might be done. And then, then you've got the issue of, well, you know, he said, she said two differences of opinion, which, which triggers another thing. I think it's important. One thing I do want to highlight stresses the valuation industry is a very important sector of the economy. It supports a number of industries, whether it be banking, finance, government you know, the private sector and so forth. And, and for the most part, you know, they do get it right.

Shelley Horton: It is just a matter of in their professional opinion, which might be different to someone else's opinion. And so trying to try and sort of mesh that common ground, I think is sort of an important thing to, to be mindful of, but like in any industry and you know, just the inherent nature of people is, you know, you might have somebody who is more conservative in their demeanor and, and their personality, and they might be more conservative when they value properties. As opposed to somebody who you know might be deemed to be a bit more commercial. So you know, it's the same, as I said before, it's the same as property buyers. You have people who really stick their neck out because they really want a property, or they just feel a bit more confident in their persona. And then others that are a little bit sort of shy and sort of are on that conservative side.

Shelley Horton: And it's no different with the valuation industry, probably much like real estate agents as well. Right. So you've probably got people in terms of listings err on the conservative side, you've got the ones that buy the listing and effectively blow it out of the water and they get the listing and you've got that range. So you know, that the valuation industry is not dissimilar to, to a number of others in that, you know, that there is there is there is a range and you've got different personalities and a whole bunch of things, you know Marta dynamics at play that, that all feed into that, that, that sort of ultimate assessment and why it might come out at a particular figure and it's the elephant. So the elephant being our biases, our individual behavioral biases. And it's that back to that concept of luck, you know, that in property, you just want to hope that the, the elephant, you know, rampaging in other people's minds that might impact on where your ability to buy that property at the right price

Shelley Horton: In your favor, not against you, Shelly, that's been a very interesting chat and I really do appreciate you coming along. You know, congratulations on your role. And it's been nearly a year now, I guess, as you've been at CoreLogic, but it's a, you know, it sounds like a very interesting role very much had a very dynamic time in terms of what's happening with technology and digital digitization of so much of our lives and certainly the data that you have access to, to make value as lives easier as well. So thank you for your time. Great chatting to you again for joining.

Shelley Horton: The market is hot. You're out there. Your, you know, you pretty well facing the fact that you're going to have to a premium if you're going to

Veronica Morgan: Buy a property. And you also realizing that there's a good chance that evaluation might come in lower than what you paid, which is not going to make you feel very good. But also if you're selling a bit close to the wind in terms of the amount that you're borrowing your LVR loan to value ratio, then obviously the valuation is far more critical for you as a buyer than it is for somebody else who has loads of equity. And it might be they're upgrading or might be that they've just got lots of money. So if the valuation for you is really critical, you are in a bad spot or in a tough spot. Should I say when you're trying to buy a property in a rising market, because if you go super conservative, you're not going to buy anything. Because you're going to keep missing out or you're going to buy something that is easy to buy.

Veronica Morgan: And in this market, if it's easy to buy, it's usually because it's really poor quality property because even the sort of B minus property is getting competitive now, even C grade. So if you're looking at a D grade that's super easy to buy, then be super careful because you know, you, you might have a short-term pain that you're solving in that you can buy now without having to worry too much about the valuation being coming under, what you're paying, but your long-term gain pain is going to be in that you've bought yourself a data asset may well go back in value, may not grow in value over time. So that's a, that's a very short term solution. So, so what do you do? I mean, what do you do obviously, if you are in that situation where you're selling very close to the wind?

Veronica Morgan: Well, the first thing I do is go to my mortgage broker and I'll be saying, right. If, how far can I push myself if I have to pay lenders, mortgage insurance or LMI. And that might be that you might have a 20% deposit now, but clearly as market prices go up, that's eroding. You're either going to have to look at something less expensive not exactly what you need and it might not last you, you know, the distance we might have to look in a different suburb or you might need to actually go back to the bank and borrow more as a proportion of the value of the property that you're looking at. But I guess what this bootcamp is all around is understanding the risks that you face there. Get advice from your broker, definitely about your risk at different price points and don't muck around. Don't go buy digo property cause it's easy, but don't muck around taking the long way to work this stuff out because time is money in a rising market.