How is house valuation arrived at?

[roland]

Question for any EA's on board. How does the EA arrive at a valuation of a property? I'm thinking of remortgaging and need to guesstimate the current value of the house for my own calculations to ensure LTV suits me before I progress. If I am paying the EA for this valuation do I have input into how they arrive at the valuation or the valuation itself or are they also in someway working for the lending institution?

Hypotetically (sp?) What is there to guarantee the lending instiution that the LTV of >60% is correct? Is it possible to get an EA that will overvalue your property?

Thanks in advance.

In theory the value of an asset should be arrived at by looking at the return it can generate. For a property, in the first instance this is the net rent after costs, tax etc. So, say it generates a net €10k income. Then the valuation is a multiple of that. The multiple will vary but anything over 20 times is probably getting a bit crazy. If something is generating €10k income, would you pay more than €200k for it?

In reality, the value is dictated by how much people are willing to pay for it which in turn is dictated by how much banks are willing to lend people. This is because most people probably are blind to or ignore the theoretical value.

This is probably a simplistic guide, as there are no doubt lots of other factors that can affect prices, but that's how I would look at it.

 

[gearoidmm]

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[gearoidmm]

In the US one of the bigger lenders is facing a huge class action lawsuit alleging the company committed fraud by causing over-inflated home appraisals. (The higher the appraisal the greater the loan the more the profits etc.)

The difficulty in these cases is proof. However, in this case some emails surfaced in which the bank is alleged to be putting pressure on an appraiser to increase house values. All fine when the bubble was being inflated but now angry homeowners are left with homes that are worth far less than they were led to believe.

Here in Ireland evidence has emerged in recent days that some EAs may have been exaggerating reported sales prices to the IT by as much as 20%.

You must remember that the situation in the US is different because the value of a property directly affects how much tax they pay so when appraisers were over-valuing properties, adjoining properties' taxes were rising also. Thankfully we don't have to deal with that here too.

 

[MrMan]

Banks don't simply accept the valuation, if they feel its inflated the valuer will have to prove how they came to that price. There has been alot of correspondence from banks in recent times to valuers which basically highlight the need for conservative valuations rather than the 'optimistic' ones that would have been in place during the rising price years. The principle remains the same, a good valuer will value at the price that it should sell for if put on the market that day. People have no problem at all in asking a valuer to push up the price to make the LTV percentages etc, in fact its quite a regular occurance but like I've previously stated why would I put my career on the line so that joe public can save €50pm. I presume these are the same people that call EA's con men, rogues etc etc

 

[Lobby]

Exaclty MrMan.

I've a situation where a client wants us to "up" a valuation so that it matches the purchase price of a house they're hoping to buy. The madness of that attitude rather than trying to get the developer to reduce his price is crazy!!!!

And yes, EAs do have insurance and can be held liable for any shortfall in the value if they can be shown to have been negligent.

 

[moneygrower]

It's a very scientific process. They see a similar ad on Daft and ring the person and ask them. I know because that's what happened to me a couple of weeks ago.

 

[John Rambo]

It's a very scientific process. They see a similar ad on Daft and ring the person and ask them. I know because that's what happened to me a couple of weeks ago.

Yes, it's called the 'Comparable Method' believe it or not...there's probably a whole chapter dedicated to it in 'An Introduction to Auctioneering' by S.Poofer.

 

[MrMan]

there's probably a whole chapter dedicated to it in 'An Introduction to Auctioneering' by S.Poofer.
I'll bet there's a whole chapter on the Comparable Method in EA101.

Quite the literary mind you have there, I don't believe i have heard any EA state that valuing standard residential property is rocket science.