01 Sep Sorting the good Apps from the not so good Apps – Rich Harvey
We take a look at the abundance of free and often useful online tools designed to help homebuyers and investors make decisions about property purchases. But how good are they and how much can you rely on them?
We get the good oil from president of the Real Estate Buyer’s Agents Association of Australia, Rich Harvey.
Kevin: In this digital world, there is an abundance of free and often useful online tools out there to help homebuyers and investors make decisions about property purchases. In fact, you might have a couple on your phone right now. I know I certainly do. But I have to say – and we’ve said this in the past – that you have to be careful about how much you rely on the information you get from some of these.
I want to find out a little bit more about this, because that’s not just my thought; that is also a sentiment that’s been expressed by probably Australia’s foremost authority when it comes to buyer’s agents, and that is the Real Estate Buyer’s Agents Association of Australia. The president of that organization – who has just been re-elected too, by the way – is Rich Harvey.
Good day, Rich.
Rich: Good day, Kevin. How are you?
Kevin: Good, mate, congratulations. How many nominations were there? Just you?
Rich: Yes, it was just me this year. I was elected again, so they’re happy with the job I’m doing.
Kevin: So you drew the short straw.
Rich: I put my hand up, so I volunteered. It’s a hard job, but someone has got to do it.
Kevin: It’s a great organization, and it’s been growing in importance all the time, too. Of course, buyer’s agents are very strong overseas, but they’re certainly getting a bit of a foothold in Australia. I think it was that thing that people had to get used to understanding that they needed to pay for professional advice like this, Rich.
Rich: That’s right, indeed, and a very worthwhile investment.
Kevin: Let’s talk about these apps. You’ve expressed some concern about them. Why is that?
Rich: I think you have to be very careful with these apps. They’re actually quite useful in some contexts, and they provide a wealth of information that can help buyers locate and compare properties, but the key thing is that you do need a human being to provide an interpretation of that data and to give an accurate valuation estimate of a property.
The thing is that these automatic valuation apps may not take into account the outlook, the privacy, or some really specific things about a location that can dramatically impact the actual valuation.
The other thing is if you have an app that’s a predictive app that says “Capital growth is going to be 7.6% in this particular suburb,” someone might rely totally on that one forecast to buy a property in that area, and then the train line doesn’t go through, the hospital doesn’t get built, the bypass is not built, and then that area might actually only perform at 1% or 2% a year. They’ve bought a property in completely the wrong area.
Kevin: Just on that point, too, not only just in suburbs, but we’re even talking about streets within suburbs that can vary. To say that a particular suburb is going to go up by a certain amount, it’ll vary around that particular suburb.
Rich: That’s right. There are a lot of local and very specific factors that can influence the value on a property. You can be one street away from a main road and it can be quite a reasonable value, but on the main road, it’s terrible value.
There are all those specific factors, and that’s where a buyer’s agent’s experience is invaluable, because they know that local market and they take into account all of those local factors. They can then recommend a specific strategy and type of property that’s going to suit that investor’s specific circumstances.
Kevin: A lot of these apps draw their information from data sources like CoreLogic RP Data or APM PriceFinder, but unfortunately with those, they don’t know when a property has been renovated unless it’s resold and then that is updated. This is one of the major flaws I see.
Rich: That’s right. I think it’s definitely a flaw. Some apps will have you believe that if you hold your phone up to the letterbox on the address, it’s going to spit out a number. But that number could be out by 20% or more.
There are two things here: let’s say you hold your phone up and it spits out a value of 800,000, that could actually underquote the current market value, and it makes the person who has that app really excited about buying that property. They then go and spend some money doing a [3:51 inaudible] getting the contract reviewed, and then they start making offers or turning up at auction, but they’re way below the price that that property is going to sell for.
On the flipside of that… That’s the underquote number. It could come out underquoted, or it could come out overquoted. It might actually spit out a number of, say, $1.2 million, in which case the buyer goes “Oh, I have no hope of buying this,” walk away from it and actually find that they could possibly get it for $1 million. There’s a lot of danger in just relying on one number that’s spat out by an app.
Kevin: I was deeply concerned several months ago when I saw an advertisement – a television ad – for a major bank, where they had obviously done… You probably know which one I’m talking about.
Rich: I know exactly which one.
Kevin: They had done a deal with one of these data providers to provide this sort of information, and here are a couple of buyers fronting up to an agent, the agent won’t disclose any value, they hold up the app, and the agent says “Oh, yes. Well, there you go.” It really concerns me that the banks are starting to endorse these, as well.
Rich: One of the key things in doing a valuation, you have to look at comparable properties. The problem with the apps is that it’s all automated, so a three-bedroom, two-bathroom, one-car home in one suburb in one street compared with another one in another street, it’s supposed to spit out a particular value. But it doesn’t take into account the size of the room, it doesn’t take into account the renovation, the quality of finishes, the land size, the aspect, the slope. All of those factors is what a human valuer or a human buyer’s agent will take into account.
I always say that when you look at these apps, you have to overlay a good dose of common sense when you’re looking at the numbers.
Kevin: How much notice do the banks take of these apps when they’re doing their valuations? Do they take into account desktop valuations?
Rich: That’s the thing. Some of the banks, under a certain price, will do desktop valuations or a drive-by. They don’t appoint a formal valuer to go and physically inspect the property. But that’s majorly flawed. A buyer’s agent – and that’s part of our constitution – must go through the property that they’re recommending to the client, to identify all the features and benefits and any drawbacks on the particular property and come up with a proper, comparable analysis.
Kevin: It may just come to the stage where as a buyer or a borrower, you could actually demand from a bank that they get a proper valuation done, because at the end of the day, that’s part of your application fee. That’s what you’re paying for, is a valuation.
Rich: Absolutely, and that’s the bank’s protection, as well. They don’t want to be lending 80% on an inflated value, because then they’ll find there’s no equity in the property, there’s no buffer in there.
Kevin: Okay, the bottom line, the message is “Be aware; don’t be alarmed,” something like that?
Rich: That’s right. Absolutely, and again, don’t be afraid to get help in interpreting these numbers. Don’t just take it as gospel what these actual figures are, because the figures quoted – as I said – are quite inaccurate. Take into account the local factors, and get a professional to help you.
Kevin: Before I let you go, I had heard somewhere that it’s been quoted that online apps are a great way for homebuyers to save money, because they’re not using a buyer’s agent or engaging other professionals. What’s your reaction to that?
Rich: There’s a saying that says there’s a high cost for free advice. If you have a medical problem and need medical attention, you want the best doctor to operate. If you’re going to go to court, you want the best barrister on your side. The same applies when you’re buying a property; you want the best buyer’s advocate on your side.
Sure, people can use these apps and they can get some numbers, but nothing is going to replace having a professional buyer’s agent representing that person throughout the process. One of the things that buyer’s agents do really well is negotiate. Having someone who’s independent in your corner working the agent hard to get it for the right price is really powerful.
The buyer’s agents charge generally a fixed free. It works out to around 2% for the full search or around 1% just to appraise and negotiate, but the full search will dig up both on-market and off-market properties.
It’s a false economy to think that just using an app is going to save you money, because you have to understand the interpretation of the numbers, do the comparable analysis, and really, those apps are a complement for the service, not a replacement for that service.
Kevin: Well said. Rich Harvey, president of REBAA, the Real Estate Buyer’s Agents Association of Australia. Thanks for your time, Rich.
Rich: My pleasure. Thanks, Kevin.