KEY POINTS:
The role of valuers is coming under scrutiny against the dramatic decreases in property valuations, with discrepancies between valuation and sales prices on some Auckland apartments being as high as $400,000.
This is leading to accusations of "loose and morally questionable" property marketing - with supposedly independent valuations at its centre.
Martin Dunn, of Auckland apartment realtor Citysales, is selling apartments with valuations of $600,000 for $250,000. He is concerned at the practice of property "finders" on-selling properties "for ridiculous money", having provided a valuation.
"We're encouraging people to go against these professionals because the damage being done is hideous," he says. "It's a huge concern for the valuation profession, because it has made it all just a joke."
President of the Property Institute, Chris Stanley, confirms there are claims of inflated valuations being written for some apartments sold in Auckland. This involves processes in which developers have provided valuations rather than the purchaser instructing a valuer independently.
Stanley warns that when valuations are prepared on the basis of plans and specifications before the building is constructed, market conditions can change, making the valuation outdated.
Questions are being raised about the protection offered by the industry's regulator, the Valuers Registration Board.
Earl Gordon, chairman of the professional practices committee of the New Zealand Institute of Valuers, says while valuers may be struck off or fined, there is no power to order compensation for the complainant.
Mortgage broker Mark Jurgeleit describes some property marketing as "loose and morally questionable".
"Complex and compelling" marketing methods have been used on people with a bit of equity in their homes, who signed off-the-plan apartment purchase contracts for properties with valuations "so extreme in their estimations as to look positively ridiculous now", he says.
These practices have been evolving since 2001, Jurgeleit says, but went through unchecked until this year on the back of a rampant property market.
"You've got to be of an ilk to drive a number on behalf of somebody," says Ross Forsythe, a valuer at Darroch Valuations, which has a reputation among developers for professional independence.
"They're the exception rather than the rule," he says, but acknowledges when a market shifts as rapidly and as dramatically as it has here, "people can feel that they were badly guided - be it by their agent, financial manager, solicitor, accountant or valuer".
Last week, Dunn wrote to a valuer asking him to explain why he had valued an apartment sold without any reference to existing sales in the building.
John Darroch, of Darroch Valuations, says sometimes "valuers get misled, willingly or otherwise, and might put a higher figure on [a property] than there should be".
Gary Brunsdon, director of valuation firm Sheldons, agrees the industry has "some issues". Valuers push ethical boundaries in the profession but ramping up values is not common practice. He says problems are most likely to arise when a valuer takes on a job they are insufficiently skilled to do.
Anyone considering an apartment purchase needs to use a valuer who specialises in this area and is familiar with particularities - such as whether properties are zero rated for, or inclusive of, GST, says Dunn.
"A valuer, who's not expert in the field, could get the wrong idea to the tune of $100,000," he says.
A source, who was a developer for 17 years, says he has been "really concerned" at times that a lot of people buying property in the past six to seven years, particularly "naive mums and dads", relied on registered valuations inflated for marketing purposes.
The source requested not to be named because he is now a real estate agent.
David Whitburn, a former licensee of property investing company Blue Peak, of which Richmastery's Phil Jones is a director, says the company sourced property to on-sell to investors. There was a lot of pressure on licensees to get a valuation as high as possible, he says.
This was because a typical deal worked by the licensee offering to purchase a property needed a valuer willing to rate it as worth more than the price negotiated. The offer would be conditional on Blue Peak being able to on-sell the property at a profit in a "back-to-back" or same-day settlement.
"It recommended valuers on the lenient side who were more likely to give a higher value. The valuers know how the game works and want to get the repeat business."
Blue Peak director Sean Levy says: "Any valuations listed on the Blue Peak website were by an independent, professional valuer." All clients wishing to buy a Blue Peak property enter due diligence and are "encouraged and given time to seek professional, independent legal and financial advice, as well as valuations, building reports and LIM reports".
Mortgage broker Sue Tierney says banks are circumspect about lending on same-day deals when the discrepancy between the two sale prices is significant. Lenders respect some valuers but not others and some banks don't accept certain valuers' reports.
The BNZ has a panel of valuers from whom it will accept reports on high-value lending. Borrowers should ask valuers if their bank will accept the valuation report before commissioning it.
KEEPING UP STANDARDS
Discipline in the valuation industry is handled by the Valuers Registration Board, which is available to anyone concerned about the ethical or professional behaviour of a valuer who is registered.
The Valuer-General, Neill Sullivan, says the board investigated 24 complaints in 2005, 21 in 2006 and 24 last year.
By the beginning of this month, the board had already received 24 complaints, indicating the volume is increasing, which Sullivan thinks may be usual in deteriorated market conditions.
Of complaints lodged, Sullivan says 30-35 per cent proceed to formal prosecution, and 80 per cent of those end up as "guilty" findings.
In other words, about 10 valuers a year face disciplinary inquiry and seven or eight are found guilty.
He notes, however, it is unknown how many complainants bypass the board and instead opt to litigate.
THE LEGAL POSITION
Any conduct that misleads people about the correct valuation of a property could be a breach of the Fair Trading Act.
The Commerce Commission has been aware of this in the past but is not investigating the issue at present.
People thinking of making any major investment should seek independent advice, rather than only relying on information given to them by a property developer or investment company.
A drop in value may not mean that a property was overvalued. Property prices go up and down. Sometimes, changes in the property market - not an overvaluation - is the reason a property decreases in value.
However, anyone who has concerns about behaviour that may breach the law can register their concerns with the Commerce Commission's contact centre by phone: 0800 943 600 or by email: contact@comcom.govt.nz
