During periods of market instability, valuations are critical for property and the banking industry. Valuers now face the challenge of navigating uncertainty and supporting the needs of lenders now and in the future.
Recent years have seen unprecedented change in the property space, due to wide-ranging factors like rapid market growth, the increasing prevalence of extreme weather events and a global pandemic. During these times of uncertainty, valuations have proven more important than ever.
While the COVID-19 pandemic was expected to dramatically change the market, New Zealand's property market emerged even stronger after the initial lockdown in 2020. This sudden swell in activity has left many valuers struggling to keep up with the demand and rapid movements in the housing market.
"The property market is coming off one of the strongest growth phases it's ever been through,” Evelyn Saliba, CoreLogic's Head of Valuation Compliance, said. "This can be challenging for valuers who need to interpret the property market on a day-to-day basis.”
According to CoreLogic data, nationally, average property values have increased 22.8% in the 12 months to June, reaching an all-time high of more than $900,000. Meanwhile the total value of all residential property in New Zealand has now streaked past the $1.5 trillion mark for the first time.
The broader effects of the pandemic have also driven major shifts in where New Zealanders are choosing to live and work. Richard Vaughan, Regional Director of valuation firm Opteon, said: "COVID created opportunities for many people to work remotely. We've seen a greater surge in demand for marginal fringe locations than metropolitan centres, since people no longer have to commute to the office five days a week.”
The valuer's advisory role
Amid the challenges of the past 18 months, it's been clear that the role of valuations is just as important as ever. During this period of ongoing uncertainty, lenders rely even more on valuers to keep them informed of the market and risks so they can make evidence-based decisions.
"When the market is constantly changing, there are questions around what's likely to happen next,” Evelyn said. "Valuers can't predict the future, but they can interpret the market data available today. Their role is to give expert, independent advice to help lenders understand and manage market and property risk.”
Evelyn noted that property professionals still need to ensure that every valuation meets all compliance requirements, while providing real value to lenders.
"The quality of valuation reports continues to be a priority,” she said. "But there is opportunity for the valuation industry to leverage new data and technology innovations to improve reporting and detection of any valuation quality issues.
New challenges, new approaches
While there are unprecedented challenges across many sectors, the valuation industry appears to be re-thinking traditional operating models and adopting creative solutions provided by partners such as CoreLogic.
"COVID-19 really proved that the industry could come together and do things differently – such as developing special valuation instructions for virtual inspections,” said Evelyn. "It's a great example of how we can work together to innovate and adapt, which is something we can and should do more regularly to ensure we're set up for success going forward.”
Richard agreed. "COVID-19 drove the need for virtual inspections during lockdowns. The concept was initially quite confronting to a lot of industry parties, but we had to be pragmatic and make that change happen.”
The high level of demand for valuations also poses fatigue risks for valuers as they push themselves to keep up. "There's a lot of pressure on valuers at the moment, and the work needs to be done in a safe and practical way so the team doesn't burn out,” Richard said.
In a bid to help valuers improve efficiency and focus on value-add work, forward-thinking valuation firms are harnessing technology to automate and streamline many of their processes.
"Incorporating technology into valuation services can make things a lot easier for valuers,” Evelyn said. "It can also offer a better client experience by delivering services more efficiently.”
Navigating the future
The current landscape has also highlighted the importance of close collaboration between valuers and their stakeholders, so they can be prepared for any future hurdles.
Richard believes strong relationships between all stakeholders will help the industry better manage the complexities around providing accurate valuations that reflect emerging challenges such as environmental risks.
"After the 2011 Christchurch earthquake, an initial evaluation procedure was developed that has since become essential for all commercial lending,” he said. "Every time there's an event like this, we learn more about the role of valuations from a risk perspective, and we can apply these learnings to climate change risks as well.”
According to Evelyn, the key learning from the pandemic and recent market conditions is that there's an opportunity to collaborate and create a more streamlined, integrated service that maximises efficiencies for valuers and enhances the customer experience.
"Valuation compliance and quality can be seen as a traditional service of just checking a report, but if we work together to embrace technology and data, we drive valuation quality and improve the experience both for lenders and home buyers,” she said.
Evelyn and Richard's 5 tips to help valuers manage uncertainty
- Keep up to date. "It's more critical than ever for valuers to stay informed, even though this can be especially challenging right now,” Evelyn said. "It's important to refresh our understanding of valuation requirements, including standing instructions, and tap into comprehensive research data to truly understand the market.”
- Find new ways of operating. "We need to be prepared to adapt and evolve so we can do things faster and ensure we stay relevant,” Richard said.
- Leverage the power of technology. "Valuers can benefit from smart systems that simplify their processes to help them keep up with demand and focus on leveraging their valuation expertise,” Evelyn said.
- Be a trusted advisor. "Lenders are relying on valuers and valuations to be informed on property value and market risks. To remain a trusted advisor, embracing data and technology can be key to providing quality advice,” said Evelyn.
- Be adaptable. "Just because we've done it a certain way for 50 years doesn't mean we need to do it the same way for the next 50,” Richard said. "Let's embrace change and make magic happen.”