Property valuation applications have plummeted, according to an owner of an Auckland valuation franchise.
Rene Mclean owns a branch of property in depth and operates primarily in the southeast part of the city, saying last year that his team might be turning down 20 appraisal requests a day because they didn’t have the capacity.
He said he was getting two jobs a week these days and that appraisers had to work with sellers who had an overly inflated idea of their property’s value and sometimes got upset when told otherwise.
“Some people who are just on another planet think they’re going to get the same value as they did a year ago,” Mclean said.
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With the depletion of demand has come a drop in the price that appraisers also receive for an appraisal.
CoreLogic data shows that the average price paid for an appraisal in August was 8% lower than a year ago, with an average appraisal of $862, or about $74 less than a year ago.
CoreLogic’s chief banker, Alan Gilbert, said the drop in valuation costs was not a surprise, given weak market conditions and reports of fewer valuations driven by weak demand and property sales.
“I expect to see costs decline further, albeit gradually, as property values continue to decline. This is because property appraisal prices typically rise and fall in accordance with property values and market activity,” he said.
Gilbert said a slower market, and one that has gone through a turning point (in this case, from rapid growth to rapid decline) was more difficult to assess.
Mclean is also a qualified appraiser and real estate investor. He employs two other appraisers as contractors, and though the work is slower, he said neither had considered leaving the industry.
said how the market decline continued those trying to refinance their home or get an appraisal before change mortgage provider they were often the most disappointed with the lower estimates, because they limited their options.
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Falling prices also kept more borrowers in the higher interest rates that came with lower deposit loans.
“For people who have only deposited maybe 5%, 10%, 15%, they may have low margin capital,” he said.
“If the market goes up, they can generally have a larger amount of principal and pay a lower interest rate.
“But in a down market that’s not going to happen, so it’s a little bit more difficult.”
Developers were particularly bad at holding unrealistic expectations and refusing to drop prices.
“Some properties are still there after nine months and not selling, which must be an economic burden on them (developers).”
Mclean said last year that there were many more buyers paying for appraisals.
Many sellers relied on the automated estimates provided by websites like Homes.co.nz, but these were behind the times and could be out of date.
“People can have unrealistic expectations, and there are headlines all over the place, and they’ll pick the one that suits them best and think it’s reality.”
He said prices had been falling in his areas about 2% a month, and are now about 15% below the market peak.
In real terms, taking inflation into account, Mclean’s estimated values have fallen by around 20% in the last nine months.
Property Indepth director Steve McNamara said appraisers were focused on providing an estimate of a property’s value on the day.
“We cannot predict the future. We can look at trends and provide feedback on whether or not that trend will continue, and part of our report, the risk section, is dedicated to that,” he said.
McNamara said big data firms providing moving averages of house prices often failed to realize how the market downturn was playing out in specific areas, using the Auckland apartment market as an example.
“The average price in Auckland could have come back 15%, the average apartment could have come back 20% or 25%,” he said.
“A vacant section in Auckland could have gone back 30%, down here (in Havelock North) could have gone back 20%. Wellington is likely to have returned even more because Wellington has had one of the largest declines in New Zealand.”
“It’s not very constructive to talk about averages.”
On the other hand, Canterbury prices remained strong as more people moved there to afford a home.
McNamara said appraisers were suffering the most from those building new properties.
“We’re distraught over properties where we valued them off-plan six, nine, 12 months ago, 18 months ago, and now they’re completing development and some of them are back 15% or 20%.”
He said that if the new, lower valuation meant the buyer couldn’t get financing, he could lose his deposit or be sued by the developer for the difference between what he said he would pay and what the developer could sell.