All Topics / Help Needed! / How accurate are online property valuations / estimates?

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  • Profile photo of RobbiePRobbieP
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    @robbiep
    Join Date: 2010
    Post Count: 108

    Hi All,

    I am busy investigating 3rd party software which I can use, particularly for online property valuations / estimates.

    In the last few days I have been trialling out the below software for property valuations / estimates:

    Residex – CMA Reports
    Real Estate Investar – My Valuer

    For those of you who have used this software, how accurate have your found their property valuations / estimates to be? For me, this will be the deciding factor of which service i use.

    Both software mentioned above are pretty much priced the same (per month), but Real Estate Investar does offer quite a bit more in terms of number of states you can search on, searching for listed properties and a few other functions such as deal planners and basic portfolio management.

    Really look forward to hearing from you guys.

    Regards,
    Robbie

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
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    It varies….if it’s in a area with lots of sales then it’s only 5-10% off- as the program has more data to play with.
    However if it’s in an area with average or low sales volume then the value can be off by 10%-20%

    Also when you say accurate, you saying accurate for the Bank’s valuation price? or the market ie selling price? – very different ….

    Lastly the price is based on the average in the last 3- 6 month for simliar size and type; it does not take in consideration;

    1. Material – Brick etc..
    2. Configuration
    3. Original condition or renovated
    4. Looks
    5. Design
    6. Extensions
    7. Pool etc…
    8. Street – main road?

    And each factor will have a effect on the price as well.

    it’s still a useful and neat program to use, but you just need to take in consideration some of the above points.

    Regards
    Michael

    Mick C | Shape Home Loans
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    Profile photo of RobbiePRobbieP
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    @robbiep
    Join Date: 2010
    Post Count: 108

    Thanks for the feedback.

    Lets say my strategy was to buy atleast 20-25% below market value as my intention was to refinance as soon as possible to use the funds for my next investment.

    So I find a property on the market (via and agent or privately) for $220k. I have no idea if this asking price has been inflated by the agent or vendor to get a better price, so the quickest and easiest way is to get an estimate. You run a computer aid estimate / valuation and it comes back as a $200k. I can then compare similar properties in the street or suburb to get a better feel and to confirm this estimate.

    My next step is to try get the vendors expectations to something more realistic ($200k), which is where i’m hoping these online estimates come into play.

    Once both myself and the vender come to a understanding that the market value is closer to $200k, I am now starting at a better base to begin negotiations.

    As my investment strategy is to buy 25% below market value (for refinance purposes), i offer the vendor $150k and depending on his circumstances, will either accept or decline.

    If he accepts, i want to know that i will be able to extract some of the equity from the deal for my next purchase. The online price estimate was partly used in arriving to a market value of $200k, which is why i need to be slightly confident that the banks valuation is close to the online price estimate.

    Something which i thought about last night..

    Lets say i relied purely on the online price estimate, which was $200k. When i put an offer for the property for $150k, would i be able to add the following into the special conditions of the offer:

    “This offer is subject to and conditional upon the banks valuation of atleast $200k”.

    This way I am safe guarding myself and ensuing that the banks do find value in the property. This is also an ‘escape’ clause to get out the deal. What that work?

    Profile photo of grantos_champosgrantos_champos
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    @grantos_champos
    Join Date: 2009
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    Unless I was really desparate I wouldn't sell my house for $150k if the bank valued it at $200k.

    Profile photo of RobbiePRobbieP
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    @robbiep
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    grantos_champos , lets paint a picture for you..

    A few years back you bought your property for $100k and got a mortage of $80k. You loose your job and your debts (credit cards, car repayments, electricty, water, gas) are pilling up. You are unable to service your mortgage repayments and the bank is about to start the process of repossessing your home.

    Time is running out for you. You consider selling your property via an estate agent, but you are advised the average days on the market is 2 months.. you dont have 2 months.

    You know your property has a market value of of $200k, but this is not going to help your siutation. If you wait 2 months to sell your property, the bank would have already stepped in to reposses your home, leaving you with $0 and a bad credit history.

    If an offer comes in at $150k, you have $80k to settle your mortgage, leaving you with $70k to repay all your other outstanding debts as well as some spare cash to keep you offloat for a while until you get back on your feet and the piece of mine of being debt free.

    What would you do in this situation? Its a no-brainer.

    Profile photo of RobbiePRobbieP
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    @robbiep
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    We going slightly off the topic, which was the accuracy of property estimates of Residex and Rest Estate Investar..

    Anyone else found them to be fairly accurate?

    Profile photo of Mick CMick C
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    @shape
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    RobbieP wrote:

    We going slightly off the topic, which was the accuracy of property estimates of Residex and Rest Estate Investar..

    Anyone else found them to be fairly accurate?

    As a investor myself, if you waiting to buy something under the market you have to do it the old fashion way.

    1. Write down all the prices on the current market + right down the size + the specs of the place + street
    then from this figure you can work out what the average are for each street based on size and specs – yes it’s gonna take some time…

    from a investors point of view I use property software for 4 main reasons:

    1. To find last sale date
    2. Sale history and rent history
    3. Prices average /valuation from 1 year ago till current
    4. Graph of medium capital growth in the last 1,3,5,7 and 10 years.

    Regards
    Michael

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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    Profile photo of RobbiePRobbieP
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    @robbiep
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    Thanks Micheal, much appreciated.

    I fully agree in using the good old fashioned way, which you mentioned, but i just feel that an online estimate is a good starting point which will quickly help you from sifting your potenial deals verus deals which are a no go. This rough guidline could save you hours and hours of time by not having to do all that research on properties deals which are a no go. Once you have the deals which might interest you, then you do you due deleignence the good old fashioned way.

    Out of interest, what software are you currently using?

    With regards to the below I suggested, do you think it could work?

    “This offer is subject to and conditional upon the banks valuation of atleast $200k”.

    This way I am safe guarding myself and ensuing that the banks do find value in the property. This is also an ‘escape’ clause to get out the deal. What that work?

    Profile photo of Mick CMick C
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    @shape
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    I have access to all the programs and i use them all – RP data, Pricefinder, APM + all the bank’s valuation software ( ANZ, AMP, Macq etc…)
    but that’s because im a mortgage broker; + im a active investor.

    “This offer is subject to and conditional upon the banks valuation of atleast $200k” – nothing is stopping you from having this in the conditions-As the condition’s is up to each party to decide and agree upon- but i can tell you from experience a lot of agents and vendor won’t accept this sort of condition….it’s will be more “subject to finance” rather then valuation.

    There are better tactics to use to get a lower price- but which tactic you use comes down to the property in question.

    Regards
    Michael

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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    Profile photo of RobbiePRobbieP
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    @robbiep
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    Would it better to say the following? :

    "This offer is subject to and conditional upon the purchaser obtaining satisfactory finance from an institution of the purchasers choice”.

    So once the bank has done their valuation and presented you with an offer for finance, are you able to ask the bank what their valuation of the property is before you accept or decline their finance offering?

    Profile photo of Mick CMick C
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    @shape
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    RobbieP wrote:
    Would it better to say the following? :

    "This offer is subject to and conditional upon the purchaser obtaining satisfactory finance from an institution of the purchasers choice”.

    So once the bank has done their valuation and presented you with an offer for finance, are you able to ask the bank what their valuation of the property is before you accept or decline their finance offering?

    Some times to get your 10% back from this sort of condition you need a letter from the bank to say “finance has been declined or rejected” etc…
    EVEN if the valuation is lower, if you have enough funds to complete the bank can not issue a letter saying it’s been declined…because they haven’t – YOU DECLINED it.

    Regards
    Michael

    Mick C | Shape Home Loans
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    Profile photo of RobbiePRobbieP
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    @robbiep
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    Well thats exactly why i put 'satisfactory finance'.

    What happens if the bank only offer me a 70% mortgage and a interest rate of 8% and a short term i.e 20 years?

    These conditioans are unsatisfactory to me and were not how i have structure the deal, so i'm not obligued to accept the banks offering just for the sake of it.

    I dont expect the bank to provide me with a letter anything, ill just explain to the seller, with reference to the special condtion, that the finance offered to me was unsatisfactory, so i am unable to proceed with the purchase. This happens all the time and is just elaborating on the general 'subject to finance' condition.

    I dont seen anything rwoing with it, do you? You just protecting yourself.

    Profile photo of Mick CMick C
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    @shape
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    Nothing wrong with that; but i have seen cases where the vendor and agent would not release the money back to the buyer unless a letter is presented from the bank that finance was not obtained. So im talking worst case scenario and it happens and i wouldn’t say it’s rare.

    All in all if the contract is not set out in black and white -You could end up fighting the cause of what a “satisfactory finance” is…

    I have seen the ugly side of these contract…and i always try to advise my client the possible risk of each condition even though this is the legal Representatives job; i do it as a precaution.

    http://www.kottgunn.com.au/updates/brokers_beware_subject_finance_clauses

    A famous case, where client placed a 10% deposit subject to finance THEN went to speak to a broker/bank to get the finacne; due to the clients situation the banker and broker COULD not submit the file as the client was not fit for any finance, in this case and in many cases a LETTER was required from the bank to say finance has been official rejected.

    But the cleint did not engage in the banks service to being with + the bank did not and could not take up the clients file for legal reasons- hence “nothing to reject” as nothing was accepted initially to begin with.

    Always engage in the service of a good lawyer who can explain ALL the possible risk.

    Regards
    Micahel

    Mick C | Shape Home Loans
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    Profile photo of RobbiePRobbieP
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    @robbiep
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    Thanks for the advice :)

    So what happens in the scenario (very common im sure) where the banks are only prepared to give a buyer 70% finance, when he was relying on 80 or 90%?

    If financially, the buyer is in no financial position to come up with an addtional 10 – 20% deposit, surely the vendor has no right to hold onto a buyers 10% deposit?

    The deal was subject to the buyer getting finance to purchase the property, which he didnt.

    Profile photo of Scott No MatesScott No Mates
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    @scott-no-mates
    Join Date: 2005
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    As a vendor, I’d be telling you where to get off. You’ve offered 75% of the asking price, you want a val @ 33% more than you are offering…..

    A val is generally what a willing buyer & willing seller will agree in the absence of influences etc – a valuer will not then give you an inflated figure or risk their PI insurance – what if the next buyer sees you purchased cheaply? Aren’t they going to offer a bargain price too – you may risk devaluating the property.

    But getting back to your question – these cma programs are a statistical model. You risk garbage in/garbage out. If there are wide discrepancies between the model & the subject, then you risk greater inaccuracy eg a 5 bedder in a 3 bedroom suburb or conversely a knockdown in a suburb with lots of established well kept properties.

    Profile photo of JpcashflowJpcashflow
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    @jpcashflow
    Join Date: 2007
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    Hi Robbie – Great Post!!!
    There a few things i would like to point out.
    1) When i was agent i used software called RP DATA which helped me valuing homes at a realistic price.
    2) If the home is listed for 220K and you offer 150K do you think they will take that money? If i owed 80k on the house the repayments would not be that bad. Plus they could borrow draw some money from the home to cover bills
    3) Using the Finance clause is great but you have to use it in a way that wont cause you more good them harm.

    I once Sold a home to a investor and he had a finance clause. He seen another home which was cheaper and better so he told me that his finance had been declined. I asked him for a letter from his bank. He was shocked to hear that because other agents never asked for a letter.
    He got his broker to type up a letter i said i needed a letter from the Bank becasue they are the ones who are giving you money the broker is the man they finds you the best deal for your needs.
    He couldnt get a letter from the bank because he never applied for the loan for that home.

    Moral of the story the vendor got to keep the 10% deposit and thats that.

    Jpcashflow | JP Financial Group
    http://www.jpfinancialgroup.com.au
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    Your first port of call in finance :)

    Profile photo of RobbiePRobbieP
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    @robbiep
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    Jpcashflow, thanks for your input :)

    With regards to your points:

    1: I have heard about RP Data, but they are extremely expensive when only using for personal use.
    2: That was just an example, which happens out there. How would a home owner, with no income and other debt, be able to draw addtional funds from their mortgage? Surely they would need to provide the bank that the can afford the addtional funds? Even if they could, this would only be a temporary solution.
    3: Exactly, which is why you need to be specific in what you say and how u use this cluase and prefably get it checked out by a lawyer before using it.

    Profile photo of Mick CMick C
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    @shape
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    RobbieP wrote:
    3: Exactly, which is why you need to be specific in what you say and how u use this cluase

    ” obtaining satisfactory finance” is not specific, it’s a general clause.
    If i had a client who had this finance clause i would still advise them of the risk.

    Because there are plenty, which a good lawyer would advise.

    Regards
    Michael

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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    Profile photo of RobbiePRobbieP
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    @robbiep
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    Thanks Michael, this clause was just a quick thumb suck to try prove a point or an idea i was trying get across with regards to get creating around your contract escape clauses.

    Do you have a good lawyer I can use? The ones I have used back home in South Africa have generally been the smaller firms with less of a big, powerful reputation.i.e you paying for their service and not their name.

    mattnz
    Participant
    @mattnz
    Join Date: 2007
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    The banks use these tools for automated valuations these days. While it may not be a guarantee of value, the banks see it as close enough to the real value that they are willing to accept it in most cases. This is probably actually more important, knowing that the bank valuation will come in at least at the purchase cost.

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