Each month, property data expert Greg Dickason answers your questions regarding available property data to help you fast-track your research
DESKTOP VS FULL VALUATION
Question: I’m about to put an offer on a property but I haven’t ordered any valuation on it, although I’ve seen the comparable sales. I’m thinking of just ordering a desktop valuation like the ones RP Data offers, instead of a full valuation. Is this enough? Aren’t full valuations also dependent on the comparable sales that desktop valuation uses?
Answer: There are many different types of valuations that meet different needs. In most cases they all use the same set of comparable sales but also apply increasing levels of professional skill from qualified valuers to refine and interpret the data.
At the simplest and cheapest end, an automatic valuation uses sales data, listings data and property characteristics to establish a valuation of a property. The valuation takes into account known characteristics of all comparable properties, such as size of land, number of bedrooms and bathrooms, and repeated sales of similar properties. These are factored in to a tested model that produces a valuation and, importantly, also produces a measure of the degree of accuracy of that valuation. As a user you are therefore equipped with a report that also estimates its own accuracy through the Forecast Standard Deviation (FSD) it reports.
If the accuracy is not good enough, or you want to get a professional to help, then the next option is a desktop valuation. This involves a qualified valuer evaluating the property and comparable properties, at his or her desk. They use tools such as RP Data’s Electronic Valuer Review platform, which returns all the listings, sales, aerial photography and mapping that they need. The valuer then combines this data with their knowledge of the market and their professional training to produce a professional desktop valuation.
A full valuation involves an actual internal inspection of the subject property. By undertaking an internal inspection a valuer is able to assess the condition of the property in greater detail and therefore apply assumptions in the assessment of value.
As they are a professional and have often seen quite a few of the other sales personally, they are able to accurately judge relative quality between properties valued. And that, in essence, is the difference between the three types: the accuracy of judging comparables, and how much to factor in for each comparable sale.
To answer your question then, the type of valuation you order depends on the property you want to offer on and the risks you want to mitigate. If accuracy is important, and the property is quite unique in its area, or quite expensive, then a full valuation is probably the way to go. You are then making sure the valuer has all the details they need in order to be as accurate as possible.
If you need a faster turnaround and the property can be reasonably well understood through its aerial imagery, position, internal imagery and characteristics, then a desktop valuation will probably suffice. You still have the benefit of a professional valuer at a lower cost.
If you are reasonably sure of the value already, and the property is in an area with a lot of similar properties in similar condition, you might even be happy with an automatic valuation, as long as the FSD shows reasonable accuracy.
Question: What causes wild swings in values? I’ve noticed that some areas can record double-digit changes in value within the quarter, which makes me think the numbers are quite unreliable. What data is a more accurate reflection of median price movement?
Answer: I think you may be confusing median prices with values. Values are a lot more stable than prices. This is because prices reflect ‘compositional bias’ where the ‘average’ of the properties that sold in one month is quite different to the ‘average’ in the next month.
As an example, imagine a suburb with 10 unit sales a month from old unit blocks. The ‘median sale price’ might be, say, $350,000. Then a developer builds a set of classy new units, all big and well fitted out. When they come on to the market, quite a few sell in the first month at prices of, say, $700,000. This changes the new median price if a sufficient number of the new units sell. An outsider will see a median price one month of $350,000, and the next month of $700,000.
Has the suburb suddenly jumped in value? No, not at all. A completely different set of units made up the sales in each month, and there is no way to know how the underlying value has changed.