DIY website property valuations mostly askew

Buyers and sellers placing belief in free online web valuations 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 value estimates by real estate portal OnTheHouse.com.au were askew 67% of the time.

Of the 80 auction results analysed, 54 valuations 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 valuation band.

Valuations are rated by accuracy as “good”, “moderate” or “rough”. There is a 20% difference between highest and lowest limits of “rough” estimates.

Managing director and chief executive officer of Onthehouse.com.au Michael Fredericks says the valuations should only be used as a starting point.

“We call it a guesstimate, it’s not a valuation service. It’s designed to be a useful tool to be played with and utilised by members of the public and industry to try and get a better informed view on property prices and values. But it is a work in progress,” he told Property Observer.

“What we seek to do is to provide some transparency to the public around real estate prices and values where it’s a largely uninformed audience, unlike other industries like equities.”

The valuation tab on the website encourages users to “use Onthehouse's Property Profile Reports to determine the property value for an individual property, or properties in a particular suburb”.

However the fine print underneath reads: “Displayed guesstimates, agent opinions and user-generated guesstimates are not a valuation of a property”.

According to Google Ad Planner, the website is the sixth most visited Australian property portal for unique users. In March figures showed more than 1 million unique visits to the site, a 850% jump between February 2011 and February 2012.

Free property valuations is one of the main services offered by the ASX-listed company, in an increasingly competitive industry offering real estate data to property consumers.

The founder of property commentary website propertyportalwatch.com, Simon Baker, looked up his house on the website and was shocked to find it 55% undervalued based on his estimates.

“Either I have massively overpaid for the property and the bank has no idea, or the Onthehouse.com.au database is not as accurate as it could be when it comes to my property,” Baker writes.

“If you are going to build a business around property valuations, much as Zillow and Zoopla has done, you have to get it right. Not 100% right, but at least in the right ballpark. You only have one chance to impress a user, and if the information provided is questionable, the chances of them returning are low.

“If you say you have property valuations – make sure they are accurate (or as accurate as possible).”

Fredericks concedes that tool isn’t perfect, but he says it provides a starting point for people to start their valuations.

“It’s a broad challenging task, which is a process that can’t be achieved overnight,” Frederick says.

“It’s a tool using available information to be used by members of the public and property professionals to empower them and provide informed views around values.

“The appropriate behaviour for a buyer looking to form a view on what they should pay for a house is go and talk to real estate professionals.”

“The key point to understand here is, particularly in the Australian market, there are holes in the market. There isn’t sufficient aggregated market data to expect accurate estimates across the whole market.”

In Sydney a survey of 44 auction results shows just 14 sat between the valuations given, while 19 sold for more than the highest valuation and 11 sold for less than the lowest valuation.

The most over-valued Sydney property was 5 Dwyer Avenue in Blakehurst, which sold for $700,000. It was valued between $964,400 and $1,228,400. This is a difference of $264,400 from the lower valuation, or 27% below the sold price. The difference from the higher estimate is 43%.

The most under-valued Sydney property was 44 Womerah Avenue in Darlinghurst, which sold for $1.7 million. It was valued between $1.15 million and $1.22 million. This is a difference of $480,000 from the upper valuation, or 39% higher. The sold price is 42% higher than the lower valuation.

Agent Chris Chung who sold the house says people need to use other sources.

“Buyers need to look at what else has sold in the area and take other things account. But everyone has their own opinion of what a house is worth.”

In Melbourne a survey of 36 auction results showed 12 sat in the valuation range, 12 sold for more than the highest valuation and 12 sold for less than the lowest valuation.

The most under-valued Melbourne property was 26 Grace Street in Malvern, which sold for $1,815,000. It was valued between $1,040,200 and $1,172,200, which is $642,800 or 55% more than the highest valuation. It is 62% higher than the lower end of the valuation range.

The most over-valued Melbourne property was 39 Reed Street in Albert Park, which sold for $940,000. It had been valued between $1,127,400 and $1,197,400, a difference of $187,400  or 17% from the lower valuation. 

Onthehouse Ltd was listed on the Australian stock exchange in June last year, consolidating the Onthehouse.com.au website and software companies PortPlus and Console. After the listing the company purchased a 50% stake in data company Residex.

According to a June 2011 RBS Morgans report available on the website, the site’s “core expertise is the collation, cleansing and linking of data from multiple sources to provide customers with a reliable, convenient and freely accessible means of obtaining extensive property and valuation information”.

“In our view, OTH’s competitive advantage is derived from the size, depth, scope, accuracy and timeliness of its database, which is offered free to consumers.”

Fredericks says the next stage for the website is to encourage more user interaction in the valuation process.

“The next phase is far more engaged tools where property owners and agents can interact and submit content and improve and enhance the guesstimate tool.”

“We’re building windows underneath for owners, estate agents and valuers to provide content from their own view.

“And in the future releases we’re putting education requirements into it with some more explanation around what the product is and how it’s generated.”