The narrative of what we are being led to believe about property valuations Is very questionable, based on old, way out of date methods and technology.
There is a new narrative which is based on modern technology and can stand up under scrutiny.
In accounting details matter. In property valuations details matter.
It is indeed troubling when the value of an asset is determined solely by comparing it to other similar, yet not identical, assets. This is the world of residential property valuations. Comparative valuing is the prevalent belief held by most professionals and organisations in the industry, including real estate agents, valuers, accountants, auditors, superannuation fund specialists, and even the ATO. These “experts” often assert that accurately measuring and calculating the value of an individual property is impossible – that comparisons are the only option.
That is a surprising point of view. Accurate measurement is common practice in all important areas of our modern society. Yet, with such an important and expensive asset as property, it is astonishingly left to comparisons, estimates, personal experience, and subjectivity. These loose methods would not be tolerated nor used as a preferred method of determining value in any other aspect of the community, business, government, engineering, education, or healthcare (imagine having your blood pressure or cholesterol determined by comparison to other people, or education results determined by comparing to other students rather than to a standard rating like ATAR. Do accountants prepare a company’s financial results by comparing them to other companies? That would be unheard of and considered gross incompetence in any professional field).
This quote about engineering aptly highlights what is lacking in property valuation:
“You can’t have modern engineering unless you have accurate methods for measuring things.”
The current method of valuing property, comparative market analysis (CMA), relies on comparing properties to each other despite the fact that no two properties are the same.There is no measurement against a standard scale thus creating a huge space for gross inaccuracies.
What is CMA?
CMA provides an appraisal price range for a selected property by using several indicators to form a value assessment. These indicators compare recent sales evidence (not proof) of properties with similar features, but this is often restricted to the number of rooms and cars, and sometimes the size of the land, but not the size of the building itself, the size of rooms,renovations or the precise location relative to the subject property.
The Flaws in Comparative Market Analysis (CMA)
A Flawed Approach
- Oversimplification: CMAs reduce complex assets to a few comparable features, ignoring unique characteristics. Important variables such as the age and size of the building, views, waterfronts, renovations, size of rooms, granny flats, pools, landscaping, and the quality of the building, appliances, and fittings are not measured.
- Lack of Precision: Most houses in an Australian street are very different. Valuations based on simple comparisons to other properties based on the number of rooms do not reflect the true individual features of each property. These differences, which have significant value, are ignored in monetary terms.
- Historical Data Limitations: Comparable sales data is often outdated or irrelevant to current market conditions, e.g. Brisbane, Perth and Adelaide are increasing at around 2% to 3% per month adding say $10,000 per month to the value, while Melbourne and Hobart are static or going backwards.
Consider Australia’s largest, most used, and trusted property data supplier, which includes this as its disclaimer on its property reports:
“An Estimated Value is generated (i) by a computer-driven mathematical model in reliance on available data; (ii) without the physical inspection of the subject property; (iii) without taking into account any market conditions (including building, planning, or economic), and/or (iv) without identifying observable features or risks (including adverse environmental issues, state of repair, improvements, renovations, aesthetics, views, or aspect) which may, together or separately, affect the value.”
How can we trust a property valuation that does not consider all the facts about a property, including its specific features and the market conditions of supply and demand? This disclaimer essentially admits,
“Please don’t rely on our valuations as being accurate because we don’t know how to properly measure individual properties on their distinctive features, so we just use computer-generated numbers to crunch average data to give a broad estimated range or a value which is in the middle of the range.”
Current property valuation methods hardly instill confidence for the individual or professional, yet they are mostly accepted without question. Where is the explanation of how the value was determined? Where is the supporting evidence? No one in the industry can explain how they calculate property value as an asset. There are no non-monetary measures (i.e. a rating scale or an index) or monetary measures. There has been no development of a standard scale or index to which a property can be measured against.
THERE MUST BE A BETTER WAY TO VALUE ONE OF LIFE’S MOST IMPORTANT ASSETS!
Property Pricer: The New Standard in Property Valuation
Property Pricer has rapidly gained recognition in the industry for its comprehensive, accurate, and highly reliable residential property market valuations. Unlike traditional methods that rely heavily on comparative data, Property Pricer has pioneered a new valuation method that goes beyond mere comparisons.They have developed a points measurement scale creating a standard or benchmark from which all properties can be measured and then valued.This points measurement system is the only valuation method that allows for ALL of a properties individual features to be calculated into the final valuation figure. Over 55 property features are assessed in Property Pricers valuations including the size of the building, not just the land, the style and condition of the exterior and interior of the building, the quality and condition of any outdoor entertainment area, including lawns, gardens , pools, any renovations or other updates that will impact on the value, aspect, proximity to facilities like shops, schools, cafes and natural resources like parks, beaches ect. Refined after years of rigorous research and development, this sophisticated method evaluates the distinctive features of each individual property to produce a precise market valuation.
How Property Pricer Works
Each property is assessed using a proprietary scoring system that assigns a total property points score as a non-monetary measure. This score is then applied to the standard Property Ranking Level (PRL) scale. By integrating the PRL with a special adaptation of CoreLogic sales data a Suburb/Town Value Level (SVL) is calculated, to generate a specific market valuation figure in monetary terms.
Unmatched Benefits of Property Pricer’s Method
- Accuracy and Reliability:
- Personal Preparation: Valuations are meticulously researched and manually prepared by our team members using our proprietary calculation tool (they are not generated by an automated computer system). All client reports are peer reviewed as a quality assurance check.
- Comprehensive Reports: Our detailed reports are universally accepted by auditors and provide a single valuation amount, (not just a middle figure of a broad range) indicating a thorough individual property assessment.
- Fast and Affordable Service:
- Quick Turnaround: Valuation requests are often completed and returned to clients within the same day, or at most, within three days.
- Competitive Pricing: Current date valuations (within the last three months) are available for $79 plus GST, while retrospective valuations are priced at $179 plus GST.
- High Level of Confidence: Valuation reports always come with a high level of confidence, otherwise they would be redone before sending to the client.
- Commonwealth Government Approved Innovation:
- Our research and development has been partially funded by the Commonwealth Department of Industry, Science, and Resources for the past three years, underscoring the innovative nature of our approach.
Conclusion
Traditional methods of valuing residential properties, which rely on flawed comparative market analysis, are not always reliable. They lack the precision and accuracy demanded in today’s modern world. Property Pricer offers a new solution, providing a comprehensive, accurate, and reliable method for property valuation that adheres to the highest standards of contemporary measurement. By choosing Property Pricer, you can avoid the pitfalls of outdated valuation methods and obtain a valuation that truly reflects the unique features and market value of a property.
