Desktop valuations mitigate risks rather than costs

Business initiatives often start out with the promise of incurring costs in order to cut costs down the track. Some have the habit of merely adding costs. One energetic corner of risk management in the banking industry - the valuation of property used as security over loans - may be drifting into the second category.

Over recent years a boutique industry has emerged providing automated or desktop valuations to banks. These services are proving their mettle as an additional risk management tool, and a check against more conventional (and human) valuation methods. They are not, yet, however, displacing the work of valuers.

RP Data, one of the key suppliers to this niche (and also busy rolling up competitors) estimates the valuation services market to be worth $500 million a year, fees primarily paid by banks and their customers.

Grant Warner, national director at the Australian Property Institute, said that full property valuation volumes have not been impacted by the adoption by more banks of automated valuation models (AVMs).

"The Institute views them (AVM's) as computer generated assessments," Warner said. "They are not viewed as valuations, because not enough of the valuation process is actually undertaken to warrant a valuation."

Warner adds while it is very difficult to quantify how many full valuations are undertaken each year, the Institute's member base has remained static in the historical medium term, highlighting that valuers are not leaving the industry.

"There will always be a requirement for full valuations. Obviously members' clients will establish their risk profiles as to where they see AVMs, or desktops, kerbside or full valuations, and will utilise these given a particular circumstance."

This view is supported by Gavin Hulcombe, chairman at Herron Todd White, Australia's biggest employer of valuers.

"We certainly haven't seen (in recent times) a reduction in full valuation volumes. We have seen a slight reduction in some of the kerbside valuations, by and large we understand AVMs are being used, but this has not had a major impact on our valuation numbers generally. In the future we certainly see a place for both, (full valuation and AVMs)."

Hulcombe adds Herron Todd White still employs about the same number of valuers as it did two years ago, with the total around 350.

Both Warner and Hulcombe support hubs such as VaLex, which provide a platform between the banks and the valuers.

"Those platforms have certainly provided a lot more uniformity within the industry, and the ability to connect business to business has definitely improved efficiencies," said Hulcombe.