The real estate industry has expressed concerns that inaccurate automated valuations are having an adverse effect on the market.
Real estate groups have opposed the labelling of computer estimates as “valuations”, with Coopers principal Paul Cooper claiming they can only legally be called an “opinion of value”.
“Without a human element assessing it, I can’t see a computer valuation being anything other than an ‘opinion of value’ and they should not to be relied on,” says Cooper.
Cooper has heard many tales of potential buyers debating valuations with his agents and attributes this to online property valuation systems.
He believes these systems have greater impact on the consumer than the agent as they give false hope to buyers that they might be able to afford a property.
“People will go out and see a property and they’ll say ‘I love this’,” says Cooper.
“They will then go to the online valuation system, which will tell them the property is worth ‘x’ amount of money. They then go to an auction and compete, only to be not the number one bidder, not the number two bidder, not the number three bidder, but likely the fifth, sixth, seventh bidder.
“They must understand the computer isn’t right all of the time.”
Cooper acknowledges that online property valuations are a cheaper option for banks, but does not believe they will ever tell the full story of a property.
REINSW CEO Tim McKibbin also questions whether these tools should be allowed to use the name ‘valuation’.
“While there’s a degree of sophistication with online solutions in this area, online property valuations can never be a true valuation because a valuation requires some human assessment and intervention,” says McKibbin.
According to McKibbin, the valuation will take into consideration a litany of items that the online system, because it’s a computer program, will not. He added that the valuation will give specific weighting that a computer program cannot.
“That’s what makes it part art and part science,” he says.
“REINSW is not trying to discredit or have these online valuations banned from consumer consumption, but what we are trying to do is make sure consumers realise an online valuation is not, in our view, a valuation.”
McKibbin believes it is important to educate consumers as to the limitations of these online tools.
“Properties are very much like fingerprints, they are all unique in some way,” he says.
“These online tools have their place, but I think it’s dangerous to rely on them heavily. They are simply a guide.”
REINSW has also become increasingly concerned that consumers’ lack of understanding of online valuations are having an adverse impact, he says.
Alarm bells were first raised for Jennifer Aaron Real Estate Principal Jennifer Aaron in 2011, when a property in her portfolio was valued significantly lower than expected by an online system, which placed the value of the property at $1.211m. A qualified valuer was later despatched, but the initial damage was already done.
According to Aaron, the property in question eventually sold for just under $1.5m, but four potential buyers were lost in the meantime. She lays the blame squarely at the feet of online valuations, which she feels are not fully representative of the true value of a property.
“It has a huge impact on an agent’s ability to sell,” says Aaron. “If someone wants a property badly enough they won’t care what these systems say, but there are people who are very influenced by what they read on the internet.”