Why you should not rely on property data reports
Property Observer has written a great article on listing website Domain's new property price estimates that highlights several of the pitfalls of relying on data reports.
Some good points have been made, including: "APM stresses the figure does not take into account the potential impact of external influences such as a change in economic conditions, future planned infrastructure and environmental conditions."
This is exactly right, and I don't know of any other data reports that do. The reports also don’t take into account the shape of the block or the slope of the block. If the house is at the front, back or middle of the block.
It doesn’t state whether the property is on the high side or low side of the street and how much natural light it gets. Other unanswered questions include: what does the floor plan/layout look like? How about the size of the bedrooms, bathrooms, lounge, dining or kitchen, all of which will have a significant impact on price?
They also fail to take into consideration the internal condition of a property. For example: is it renovated, partly renovated or unrenovated, and if renovated, has it been done properly or has it been renovated by a DIY Bunnings weekend warrior?
Another thing the valuation tool doesn't take into account is privacy. Are any of the bedrooms or living spaces looked in on by neighbours? How about the backyard or pool area? If there’s a view is it a big view or a small one? What material is the home constructed out of – brick, fibro or timber? The list goes on, and from my decades of experience in the building and real estate industry these variables that data reports don't take into account can impact a price by easily 20% or more. By the way, this is not unique to an APM report or market price guide, as they are often referred to. I am yet to see any automated property data report that can do what a real person can do.
Here’s another quote of interest: "Market price estimate reports are typically bought by buyers seeking some price guidance,"
Yes, they are and people who rely on them are likely to either pay too much or be putting in an offer that has little resemblance to fair value so they will more than likely miss out.
The really interesting/scary thing is that most valuers rely on data services just like APM to assist them in conducting their valuations.
Sure, because there is a human element added to the valuation report they can and do dismiss properties that obviously shouldn't be included in formulating the price estimate provided it’s not a "desktop valuation" and they actually got in their car and drove by some of the properties they used in the valuation report. However, given they can't inspect inside or see out the back of the properties used as comparables in their report they are still likely to be quite a bit out. There are not too many valuation reports I have seen over the past decade that I would have been happy to have relied upon.
I think the last four paragraphs pretty much sum it up: “Property Observer conducted a survey in April last year that concluded that buyers and sellers placing belief in free online web price estimates when estimating envisaged house price values are more often than not being misdirected – with serious over- and under-estimating being given.
"A survey of weekend auction results across Sydney and Melbourne showed estimates by real estate portal OnTheHouse.com.au were askew 67% of the time.
"Of the 80 auction results analysed, 54 estimate were incorrect, with some actual sale prices up to 55% off the pre-auction valuation range given by OnTheHouse.com.au.
"Just 26 sales actually fell within the wide estimate band."
I believe property data reports are helpful when you actually know and have seen inside or out the back of some if not all of the properties mentioned in the report so you can benchmark them against the target property. If not, they can be quite confusing and misleading. This is why you should listen to an experienced real estate agent, be they a selling agent or buyers' agent, as they will have been in many of the properties that are noted on such reports. With their experience they can help you determine whether the property you are either selling or buying is a good comparable and if it is actually superior or inferior (and in what way) to the ones mentioned in such a data report.
Should you rely on property data reports? I wouldn't.
Patrick Bright is a real estate author and founder of Sydney-based buyer’s agency EPS Property Search. Bright has purchased over $500 million worth of real estate for clients. His best-selling titles include The Insider’s Guide to Buying Real Estate, The Insider’s Guide to Saving Thousands at Auction and The Insider’s Guide to Profitable Property Investing.
