In defence of valuers

Whenever a crime is committed, the top on the list of suspects for any investigator has to be the party that stands to gain the most. So why is it that valuers are the first to be targeted for most of the blame whenever property owners, buyers and sellers do not get their way.

As most valuation professionals will readily attest, their fees for housing appraisals cost only a fraction of what a socialite would spend on her Birkin bags or Manolo Blahnik shoes.

I am moved to write on this topic as there has been a lot of feedback about valuations recently from readers and the glaring discrepancies they have noted. Ironically, the worst complaints are from those who hold themselves out as property professionals because they do the most damage to the reputation of valuers.

Are they so naive to believe that an appraiser’s issuance or withdrawal of endorsement can make or break a deal?

If that is truly the case, valuers would be the among the best paid in the industry. Is that the case? Far from it.

Lenders will issue loans if they feel there is an almost 100 per cent chance of getting their money back with interest or when they feel the intense heat of competition. Valuations are just a polite excuse of refusing loans to their customers, particularly those with whom they have a long-standing relationship.

If you are putting pressure on valuers – to find fault or get them to disclose their valuation methods, let me say that you are barking up the wrong tree.

If many people today think of themselves as property experts, I am sure an equal number also consider themselves valuation gurus.

Like everyone else, valuers also need to put food on their table. They are also susceptible to strong pressures. Some will succumb, which brings me to my next point.

The Monetary Authority of Singapore (MAS) last week announced that all local banks and significant insurers must have a dedicated risk management committee at the board level in place following their annual general meetings this year.

This is timely news and can only be good for Singapore. The pressures of competition in an open market mean that the effectiveness of lenders to police themselves – particularly at the middle and lower levels – will wane with the heightened level of competition and we all know our banks are flush with liquidity. The sub-prime crisis in the United States is an excellent example of where the finance industry has failed miserably to police itself. We will have learnt nothing if we believe that such an event will never recur in the US or elsewhere.

In Singapore, some banks are already charging at cost for the first year of a housing loan, that is they earn nothing for 12 months. Soon, it will be negative if they start giving out furniture vouchers or discounted renovation loans.

Today, Singapore is a top financial centre and we may boast that all our banks apply the “best practice” in all their dealings. Sadly, this does not seem to be the case in the way some banks in Singapore hand out property loans.

In some cases, sales staff are responsible for handing out valuation jobs. They will scour the market to get the highest valuation. Which valuer do you think will get the job? Why do you think there is such a huge gap in the indicative valuations?

By the way, let us not call them indicative valuations. They are merely an indication of market value. They are not valuations at all. Period. As pointed out by the Singapore Institute of Surveyors and Valuers, these desktop jobs are not a subscribed practice.

Other lenders may have stronger internal credit assessment teams but, due to the shortage of manpower, they become little more than rubber stamps. To be fair, some teams are doing their best within their means but when other banks are getting away with it, the team also does not want to be the major obstacle to greater profits for their own banks.

Many years ago, when the HDB allowed private banks to finance public housing flats, valuations shot up overnight so much so that it had to take the task of handing out valuations away from the banks. Today, the HDB is the only body that hands out valuation jobs to its panel of valuers. That is true independence for you.

Maybe the lenders and the MAS, with the advice of SISV, can come up with a similar system for all private property valuations, and not just for residential properties.

By Colin Tan, head of Research & Consultancy at Chesterton Suntec International.

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