Belinda Botzolis on What a Bank Valuation Is Really Measuring

A vendor's agent quotes a price guide, buyers add 20% to it, the bank orders a valuation and the number comes back 80 grand lower than the agreed purchase price. Someone in that chain got it wrong and the buyer is the one sitting with a shortfall on settlement day.

The question that moment forces is one most buyers never think to ask before they sign, who actually determines what a property is worth and on what basis? Belinda Botzolis has seen this from two different angles as a certified practicing valuer who has assessed more than 15,000 properties and as a registered tax agent.

In this conversation, we get into how bank valuations really work. Are they really conservative or not? Where the tax implications of property decisions catch even experienced investors off guard and the thing that almost no one talks about, how rarely buyers understand what a valuation is actually measuring and what it isn't.

Welcome to the elephant in the room. This is the podcast where we love to talk about the big things in property that never usually get talked about.

I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of Foxtel's Location, Location, Location Australia, author of Auction Ready and co-host of Your First Home Buyer Guide.

Hi, I'm Chris Bates, ex-financial planner and mortgage broker, currently ranked number three in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, everything we talk about today is not personal advice, and we recommend you engage the services of a licensed and experienced professional.

Belinda Bozzolas, welcome. I don't think we've had enough valuers on the podcast over the past eight years, so it is really great to have you here. Thanks for having me. It's an absolute honour. Thank you.

Belinda, valuations, it's been a real issue, I would say, the last couple of years where I guess people are sort of getting them from banks and now believing their properties are worth certain numbers. And while they're typically more conservative, I reckon some banks have been quite optimistic.

And as someone who's been in the industry for so long and has

you know, valuing as a profession, how does it make you feel when you sort of see these things floating around? And I guess what's the danger of sort of thinking like that?

A lot of people think that if you stay with your existing bank, you're going to get a different outcome if you were refinancing with another bank, if you got a desktop valuation versus an in-person valuation. So there is a lot of misunderstanding.

People think they know the secret formula around how each different valuation works. will come back.

But I mean, I'm more than happy during this podcast today to kind of break down each one, but there is no real behind the scenes conspiring where we kind of, you know, tap our little fingers together and like, are we going to undervalue this one by this much because they're refinancing and therefore increase this one because they're staying with their existing bank.

So there's none of that in the background at all.

Yeah, I think what I was alluding to is that there's just been a rise of the banks moving down sort of desktop valuations and not actually going through and inspect properties and the cost to save for the bank and the speed at which they can happen sort of allows sort of refinances to happen much quicker.

I mean, what's the... I mean, for me, they give me a lot of fear, really, because I do sort of see them with clients and I see the valuations come back. I think that no way that thing would sell for that price.

And I guess when you're a value, I mean, is that are you OK with that? I mean, does it does it feel like it sort of doesn't give the respect to the industry that it and the importance that it plays in terms of the sustainability of the whole property market?

say you hit the nail on the head. Only because I can say this now because I don't work for a large major valuation firm. So, I'm giving you guys like the scoop because I'm not censored by anyone, right? I kind of work for myself. Good. That's why you're here.

I hate the way the industry is going. It's one of the main reasons I got out of mortgage vows when I did. I've been out of my own three years. So, that was 17 years of like the churning through the Bank works seven, eight a day, all day, every day. I hated it.

It didn't feel like I was valuing. It just felt like I was just running through the process, right? The way it works, I'll just give you a little bit of a background. Valuation companies go out to tender to the banks. And value firms just keep undercutting each other.

Okay, I can do it for cheaper, faster. I can do more for cheaper. And then the banks are like, oh, okay, fine. So when I first started valuing 20 years ago, we were doing $250 plus GST for a report. Fast forward now, it's $180 plus GST for a valuation.

And I used to do three or four a day. Now you're doing like seven to eight a day. So you can see where the problem's happening.

Then all of a sudden it was like, wow, with AI and all these sort of ways to make it faster and tablets on site instead of writing everything down, let's make it even faster and do things on desktop.

Now, a lot of the time you have desktop valuations when it's a lower LVR, all the bank assess there's a low risk one for whatever reason.

Usually when this happens, the valuer has, from the point of appointment, from the bank sending the instruction, valuer getting that instruction and then under a time restraint and pressure to return that report, they usually have a very small window

So, the value is like tapped on the shoulder or a phone call and like, we've got a desktop, needs to be out in an hour, drop everything, bang, bang, bang. So, I can see how sometimes they can feel a bit rushed or forced or perhaps the attention to details that not there.

I'm not here to throw my industry under the bus and say that the valuers aren't doing a – of a job.

It's just that the restraint of the pressures of the banks that they're putting on valuers to be faster and cheaper, and it can get a little bit disheartening for valuers because they're like, well, I'm getting $180 for a report that I could potentially get sued on. I'm not sticking my neck out.

And that's where sort of that misconception of, you know, they're undervalued. They've got no reason to be like the – A little bit, what's the opposite of conservative? You know, a little bit bullish or optimistic. Aggressive. Thank you. A little bit, yeah.

And we've got to remember, Chris, when we do valuations, it's as at the date of inspection, okay? So, it's exactly how that home is presented. That home is not presented for sale. It's not dressed for sale. The yard probably hasn't, you know, the grass hasn't been cut.

So, it's like that home is going for auction that afternoon and the values walk through and go on. in its current state as is right now, what is it worth given the evidence in the market? And based off that, based off the sales evidence, they do their analysis, they send the report off.

The report is for mortgage security purposes. It is not a marketing appraisal. It is not what it could potentially sell for. Valuers know it can sell for more. That's not our job on the day.

The job on the day is to secure that asset as a loan security to the bank. Okay.

Which leads me to something that's always intrigued me, and that is, and maybe it's a misconception, that the auction price, so when a property actually gets to auction, that is so readily accepted as the property's value when really only one buyer was prepared to pay that price.

So, the way I kind of, I speak for myself, Veronica, only because I don't know how other valuers see it. I always saw it as innocent until proven guilty. Because in my eyes, it's been exercised into the market. That's where the willing buyer and willing seller sort of married up.

And that sort of represents market. So, in my opinion, whenever I would analyze that sale, I would sort of go, okay, well, it's been exercised in the market. That's what the market has paid. I want to try and find evidence to support that. And then sometimes you just – something's a bit off.

You know, it's a bit too high. This is always a bit tricky when the market is moving week by week, month by month. And that's really tricky for a valuer because we know it's a strong buy right now. But in three months' time, it's going to be cheap.

We just don't have that foresight there. Sorry, if anybody's listening to this, I'm using my hand. That difference between the sale price and then perhaps the next sale after, the value just doesn't have the foresight to see that. So it can get a little tricky.

That's what I mean about innocent until proven guilty. If I find that there is sales a lot lower than that, it's almost like saying to the bank, this is a really strong sale. We just don't have evidence at the moment, in this moment in time, to justify it.

We do acknowledge that it's a booming market. It's almost like you can lend against it, but we just fortune. Yeah. Yeah. Back in 2021, we started indexing all sales that we use.

We're not valuers. We're buyers agents. And we apply appraisal methodology. So recent sales, comparable sales. And... When markets are moving up or down, like basically if you – because my understanding is that valuers can't index.

And so what that means is if the market's rising, you can't adjust a sale from three months ago and say, well, three months since then, the market's moved 5%, and therefore that property, you know, all well and good probably would sell for 5% more.

Or if a market's gone backwards 5%, it would probably sell for 5% less. So in a rising market, valuations are always low, and in a falling market, valuations can always be high because you're not able to index those prices. Is that reasonable to say? I think it is.

I think, yeah, it is definitely reasonable. You've also got to remember that that valuation, again, is at that specific date, okay? And because you're literally, it's a sworn document, you're almost putting your name on a legal document telling the bank,

This is, it's almost like, I always say it's a bit like mafia type, you know, when you're like, I vouch for him, you know, that that person's good. And if they're no good, you can come at me.

It's almost like that with the bank report saying, for instance, I guarantee this home, I guarantee it $2 million. Okay. Now, what we're essentially saying is to the bank, if you will get, we guarantee you'll get your two mil back.

Now, let's say in six months time, for whatever reason, you've got a default. Somebody just defaults in their mortgage, bank repossession, they sell it. And in six months' time, they sell it for $1.7 million. But there's a $1.8 million loan on it.

And the bank's like, hang on a minute, I've now suffered a loss because I relied on your valuation at $2 million.

It's not selling for $2 million. And because we hold indemnity insurers and we're an easy target, we'll see you in court and let us know why, as at that date, it's not worth that.

Now, there could be a sale next door the next day that got $200,000 or $300,000 less because it was the day after the budget announcement, day after, you know. The hummus straight was locked forever or something like that.

So, this moment in time, I have vouched that's what it's worth and I have to justify that in a court. So, that's what I'm saying.

That value is not wanting to stick their neck out on an adoption that they're getting paid $200 for where they have to guarantee something that they could get sued over.

Yeah, and then I think the issues that, and we've seen it from a broking point of view, is that sometimes when the valuer does potentially maybe underprice something, you know, like we think, hang on a sec, that's just not really what it's probably worth, that the valuation really matters.

It's not so much when people are buying. Like we haven't really ever had that many issues, if I can think of a, you know, 12 years in broking where evals come in low on a purchase. Like it's very, very rare we've had that, but we've definitely had it off with refinances and stuff.

And it's really hard to sort of overturn the value sometimes because they've kind of put their view out there, right? And you sort of get yourself in loggerheads and you sometimes just got to move on. Is that because there's also like the challenge is that

you know, they've just got to sort of move on to the next vowel and they haven't got time to sort of go deep on every single vowel. So a lot of clients will say, let's challenge the vowel.

And I sort of say, well, it's kind of a bit of a, you know, a wasteful exercise because it's really hard to overturn sometimes. I would say with a physical valuation, the one where the value physically comes out, you've got Buckley's chance, I'm being honest. Yeah.

If it's a desktop, there is a section in a desktop valuation that says if you're not happy with this, you know, the value didn't go out. You can push it to another one. Yeah, always, always click the I want the valuer to come out.

And if the valuer does come out, have a chat to them. Just straight out tell them what you want it to be valued at. Have a chat, you know. I don't shut up if you haven't noticed. I'll just talk underwater.

But I would have a chat with the owner and I'd be like, look, you know, what do you think it's worth? Yeah. it's always intriguing to me. And then I will try my best to kind of justify as close to that as I can.

And when I say justify, I can't fabricate sales, but I can definitely try to get as close to that as possible. So that would be my, I get a desktop first and then you can easily challenge that. But once they physically come through, it's,

Again, it is because of that can get sued factor. So imagine sitting in front of a judge and then you're getting cross-examined and the barrister's like, well, you put $2 million on it and then somebody challenged you and you put $2.2. So what is it?

You were unsure at $2 million and now you're unsure at $2.2. Yeah, so all of a sudden your credibility comes back. The best way to challenge it if you're adamant, you must come back with supporting evidence, not just, I think it's worth more.

It's like, I think it's worth more because you missed this sale or you disregarded this sale in your report. Here's the evidence. Please reassess based on the new evidence provided. That gives us a little bit of protection in the back of the report.

Due to new sales evidence provided that weren't available to the value at the date of valuation, we have now reconsidered our valuation based on this. Therefore, we can justify a bit more.

But I guess if you paid $180 plus GST, can you be bothered reviewing it? I mean, you know, like no one's going to pay you to revise it, are they? I mean, I know in my buyer's agency, which, you know, I've been buyer's agent now for 19 years.

Firstly, we used to go and always meet the value with a spreadsheet of our comps, of what we've based our price on. Right. But very few of them, like, had the attitude that you do. They were mostly like, yeah, thanks. You know, we've, you know, we know how to do this.

And I'm like, well, God, I know you've probably only been paid 200 bucks. So if I can save you a bit of time, knock yourself out.

You know, we've spent a lot of time working out what our clients should pay, not just because we don't want the value to come in short, but because we want to make sure that our clients don't overpay. Right.

But, yeah, so there's been very few times when we've had to really go in hard. I've had the odd one, though, where we've had to go in hard and the brokers had to find another bank because the valuer dug their heels in.

And, in fact, even in my own home, when I bought this property back in 2012 or 13, it had sold –

the year earlier to some couple of young guns and thought they were going to redevelop it and couldn't right and so the vow came in low lower than i paid i had all evidence to you know i'm not going to overpay on a property you know like i'm in the industry for god's sake um

So I was really shocked it came in so low. And then when I went back and questioned the valuer, the valuer, this is what they said. They said, well, I valued it the same last year and I was right last year and I'm still right.

And so he valued it less than the people a year earlier had paid and less than I had paid. And he was still digging his heels and saying that it was correct. And I'm like, that is just nuts. But anyway, there was no fighting.

Luckily, I didn't have an issue because I was at enough equity. But But still, you know, sometimes you can just get that old dinosaur. I don't even know how old the person was. I felt like he must have been a very old school valuer.

But, you know, when a valuation does come in short though and it deals at risk of falling over, how does the buyer deal with that? So, I'll tell you just a little bit on the valuer side. I'll just spend a second there and then I'll tell you as a purchaser.

So, with the valuer, Veronica and Chris, and you guys might know this but your audience don't, we know what bank we are getting the job from, obviously, because some banks have slightly different requirements for different things and different risk ratings. They prefer us to put a little bit more weight on.

Yeah, you might know about this. We know the client's name. We don't know how much they're borrowing. We don't know if it's a refinance and we don't know if they're staying with the existing bank. That information is private and confidential between the owner and the bank. We are a client of the banks.

We've engaged in our contract with the bank. It's our duty of care to deliver the valuation to the bank. It is not our duty of care to produce that valuation to the homeowner. Even though I'm valuing their home, even though they've paid for it.

They paid for it on behalf of the bank who's engaged us directly. It is addressed to the bank for their purposes. So, sometimes there is this misconception where the owner's like, oh, can I have a copy of the report? And the value is like, no. And it's not that we're rude.

Hopefully, we're not rude about it. But it's just that we are obligated to the bank and contracted to them that we can't give you the report. They don't like you shopping around.

So then a homeowner feels that they have the right to talk to the valuer, to challenge the valuer and say, well, this is my home you've valued. And I can understand the frustration sometimes that the buyer feels because, you know, it came to my home. Can we just distinguish here for a bit?

Because you're talking about the owner commissioning evaluation, the buyer there. So an owner would get a valuation if they wanted to refinance their home or maybe they want to do a renovation, get a renovation loan. But a buyer needs to get a valuation in order to complete the sale.

So there are two different scenarios. So it's just that there's a bit of interchangeable there and our listeners might not realize that there's two pathways, if you like, to valuation.

I guess whoever is ordering the valuation, whether it's the buyer or the homeowner, but if you are a buyer and your valuation has come in short, it is unfortunate. It's really hard to get that valuation changed. Again, like I said, I would just work with your broker.

I would probably talk to your broker once. before you engage in a purchase price because you've got your pre-approval. And I would say, look, what would happen if the valuation did come in short? What are my options? Do I have a buffer?

Can we work something around, maybe have some cash on the side? I think that would probably be the best is have those conversations before. And also, if you're not working with a buyer's agent, and you know this, Veronica, I think sometimes

people get a little bit emotional in an auction or in a purchase and they're like, it's five grand, isn't it? They know in their gut that they're probably paying a little bit over.

But I think it's about having a reality check before you go in because it's about understanding, again, in a moving market, The property might be worth a certain amount. I'm prepared to go over a little bit because of my own personal circumstances. What would be the outcome? The value is of no help.

I'm sorry, because they're not going to change their figure on that. So it's just about being quite open to your broker before you go out.

Yeah. I mean, we've definitely seen that. It really is rarity. Like it really, really is. You know, if we think about, we said over 3 billion of loans, like it's like, it's so rare, but I mean, you're right. I think the buyer is really pushing it. They're setting new records in a suburb.

They're just, they know they're emotional and they know that they're just loving a property. They can probably in their head go, actually, I know I'm pushing this and I'm just really want to secure it. And it's such a hot market. And

you know, they have to know that they're taking that risk when they're doing it a little bit. And so I think they, the ones definitely should be on the front foot with their broker.

I mean, the off the plan space though, and the sort of the low vowels, and I don't think people really understand the risk they're taking on. I mean, we're starting to get to this new build phase, you know, post-budget, Buy new, buy new, buy new, right?

And, you know, it's just such a fraud for down. I'm not even talking about, valuation's one risk, but like, are you even working there? What are you earning? Like, that's a huge risk in itself.

So, but this valuation risk, I feel like it's just brewing another storm a little bit where investors are just going to get signed up and they just don't, I understand that it's, you know, X amount of years down the line and who knows what it's worth.

And what have you seen over the years and some of the disaster stories and how can people protect themselves? Veronica, you mentioned that you've been in the market for a while. Chris, I don't know how long you've been, but I started valuing in 2005.

And I'm going to go back really showing my age here. I was working in a real estate agency in 2003. The telephone was ringing off the hook. This is before, like... My boss. Online. Yes. And they would basically call up and I was the receptionist. And it was like all day, all day.

It was 2003, beginning of 2004. Then I think I picked up the phone twice in one day, come about April, May in 2004.

And so, you can imagine a lot of people were buying brand new and off the plan while the market was hot, okay? And we had a lot of foreign investors. So, this is prior to all that kind of capping and stuff that the government put in. So, market was just going and going.

Then it was crickets and silence and not just per state, just Australia-wide. I was valuing a lot of brand new and off the plan and I was valuing a bit of a depressed market and I would be like,

Why would you be paying such a premium for these products when you could get a bit of a bargain hunter, when you could get a really great secondhand product? There'd be less and I would be just constant and I felt like I had to detach emotionally because you were just undervaluing.

I was valuing a lot less than what these purchase prices were and I was like, well, in a very respectful way, It's not my problem that you paid this premium. Again, my obligation is doing that valuation to the bank.

So, I was exposed to this brand new and off the plan premium from very, very early on in my career.

It's okay when you kind of buy in a little bit of a depressed market and then all of a sudden, it's sort of like buying in 2018 and then all of a sudden come 2021, 22 and the market's picking up after COVID. Luck of the draw, right? You've lucked now.

But if you're buying in, you know, 25 and then the market goes down and you've got to settle here, it can be quite a bit scary. There's a lot of premiums being paid. It's like a brand new car. First owner, tax incentives, builder incentive, fancy, you know, marketing brochures, fancy sales office.

All of these people don't really realize it.

It's built into the price. And commissions, referral commissions for accountants and financial planners and mortgage brokers and spruikers. There's a lot built in. There used to be two contracts issued, one to the valuer and then one to the buyer and one to the valuer left out. You get a new car.

There was a holiday. There was cashback. There was all sorts of stuff in there.

Oh, yeah. Gotcha. Yeah. These are the cowboy days, Chris. These are the days before we had the Royal Commission. Yeah, the guaranteed rent. Yeah, it was all sorts. Yeah. It was all in there.

And I don't know if either of you have read an evaluation, but there's a big fat clause in the back that basically says, we do not guarantee this purchase price. This purchase price is a reflection of a brand new product only. Was this product...

enters exchanges it is considered no longer brand new therefore the premium of a brand new product the government incentive you know depreciation all things like that are no longer benefiting this apartment and should other apartments flood the market it

then can suffer a little bit of a market pullback. We caution you to lend against this property at the full market value that we put on the report. Well, that's right. And then you've got the banks themselves, like the LVR restrictions. And so you get a double hit, right? Yeah.

You know, you thought your Brisbane apartment was going to be about $550,000. The value comes in at $440,000. This was just a very common scenario probably eight years ago. And then the bank would say, well, it only lends you 80% on $440,000.

And, you know, the shortfall, we've saw quite a bit of issues in the Sydney market. market as well, the 2015 to, well, 2013 to 17 boom as well. And, you know, a lot of investors in there, but there's also a lot of home buyers that got burnt. We weren't helping them.

They were coming to us after they'd sort of purchased and they're saying, oh, we want finance on this. And we're like, oh, it's a real issue, right? Because if they can't settle, the bank can sort of come at them for the shortfall.

You know, technically they can sue them if they lose money, like not the bank, but the developer. Like it's a real danger that A lot of people don't really realise just what they're signing up to when they sign the contract, you know, with a five grand deposit. Yeah, I think as well we've...

Since... I feel like we've kind of forgotten what a normal property market was like prior to COVID because it really has just been one speed and it has rewritten the books in terms of normal market behaviour, you know, supply and demand and, you know, cost of...

It just flicked everything upside down. So we... I kind of forget that the market, because we've only kind of seen it increase and then down a bit and then just increase again. And that just hasn't been the case, you know, through the years.

There was a huge period of almost 10 years where the market did barely anything and, you know. Australia-wide, we saw Perth did nothing for 10, 15 years. Brisbane did nothing for 10, 15 years. And all of a sudden, it's just a booming market at the moment.

And it's almost like you've lucked out purely of no skill of your own. It's just that the market has just really increased. It's

I think Sydney, Melbourne's been a bit flat, but Sydney's a brutal city. I've valued here. I've seen how quickly it can turn both ways, how quickly it spikes and then you miss out because you just didn't get in quick enough.

And then I've seen it drop so fast where a homeowner's like, oh, I should have sold because now I've missed the boat. So, it's quite a brutal city and I think people kind of forget that the market isn't just one speed. Yeah.

And that's where they think, I'll buy a brand new app, the plan, I'm going to make money on it. It's not always the case. Not always the case.

It's also true that there's been booming markets when people have lost, people who bought off the plan have lost money when the rest of the market's booming. So I started tracking this.

probably about 10 years ago, and certainly around about 2016, there was research that was done back then by Bushracknell, I remember, and it was something like 60% of Melbourne apartments at that time were reselling. So the first time resale after purchase, something like 60% were selling for less than they were purchased for.

And 2016 was in the middle of a boom in Melbourne. And you just go, well, so everything else is going up at a rapid rate of knots, and these properties are going backwards. in the same market. And do you know what?

I know quite a number of people have bought apartments in Melbourne that still, after more than a decade, are in negative equity. And then you're trapped. You can't get out of it. If you're able to settle, so then there's a special kind of

panic, a special kind of anxiety for somebody who purchased a property off the plan two years earlier. The market hasn't done what you thought it was going to do.

You thought you were getting a discount because a lot of buyers think they're actually getting a discount when they buy off the plan because they're helping the developer out. It's like, no, you're not. And then they come to settle, their circumstances have changed or the market's gone backwards. They're struggling to settle.

There's a particular type of panic for somebody, I'm sure Chris, you dealt with it before, where you're trying to find the money to to settle on something.

And I know sometimes I've encountered people in this situation and I sometimes think to myself, if you can get, in fact, I did a strategy session with a couple, only a few months ago on this, they bought two off the plan that had gone backwards.

They were yet to settle on the third one. all through a spruiker that had made money, made a lot of money each time, right? And they were yet to settle.

And I'm like, my advice to you is to do whatever you can to try to get that developer to on-sell it someone else, if you can. It's hard, though.

And it's a shocking asset, like shocker. It's already worth way less than they paid for it. And it's terrible. And so what are you going to do? They're still going to do their best to settle on it. And I'm thinking, how do you get out of something like that? It's almost impossible.

Yeah, give yourself a good lawyer. A lot of people don't realize, but when you're going through the process of purchasing, sometimes they bring you to their head office and they have the beautiful 1 to 100 scale. Yeah, they have the little display. I always think of Zoolander and it's like, a little building.

If you know what I mean, you know what I mean. But what they do is they say, oh, and they have little stickers and they tell you, oh, everything on level three sells for this much, level seven.

So, they are basically creating a 2T market where they're insulating their sales evidence in that building and they're going, we've sold them on level three. So, in your mind, you're like, well, if other people are buying a level three for this much and then other people are paying way more for, you

then obviously this looks like it's good buying because you've isolated your market to that particular building. Now, a value is under clear instructions from the bank to not consider any sale that has not confirmed that it's sold and transacted with the land titles office and you cannot use any sales within the building.

So, the value is then forced to use sales outside the building. And then this is where a lot of the confusion is because you're thinking, hang on a minute, level three was X, level 10 was X, I'm buying on level seven.

It works perfectly within the building, but instructions from the bank tell the value do not use any sales within that complex. So, that can then be quite a shock to people because they didn't do their due diligence to look. All they had to do was just see whatever, yeah.

I know, and they don't. Because when you're looking at brand new, and this is going to get worse now that we've got this budget passed, if it goes through legislation as it is proposed, it's going to get worse because you're going to get all investors going, well,

A very large percentage of investors are going to go for brand new. They're not even going to be looking at established properties to compare it. And who's the secondary market? That's another issue. But you've got this bubble. You're looking at a silo.

And also, I've heard stories of developers selling the more expensive apartments in the building to related entities. I've heard of developers selling to RITs and Cousins and all that sort of stuff.

And in order to set a price and settling on those, in order to set a price to say, look, dollars per square meter in this building, we've just set a record for the suburb. And then pitching that as social proof to all the other unsuspecting buyers coming through the door.

So there's a lot of smoke and mirrors in this space. And what you just said there just alarmed me even further. I wasn't aware that the...

I knew that a valuer couldn't use a sale of a brand new property when they're comparing to something else, but I didn't realize that when they're trying to value that particular property, they couldn't look elsewhere in the building. It makes perfect sense, but I hadn't even thought about that.

And I was going to say that the developer gives us a beautiful brochure of everything that's sold, and we're like, thank you. Yeah. It's not the same as in my spreadsheet that I give you. Yeah.

The budgets obviously come out and, you know, let's just assume it goes through as is. You know, they said, oh, a lot of people are like, the winners of this are the valuers, et cetera.

You know, because every, you know, in July next year, it's going to be the new date for, you know, tax. But I think it's going to be a minefield, right? Like, it's like, you know, do you use the bank valuation? Do you pay for your own valuation?

Do you use a automated valuation model? Yeah.

So can you use the market appraisal from an agent?

Can you? Yeah, exactly. So there's so many different ways of, I mean, what's your sort of take on just the complexity of, you know, this challenge for the government and I guess how to, you know, individuals potentially, you know, is it more in a tax question or is it?

I think it's just such a key moment if this is a line in the sand. And I feel like it'll be a line in the sand that also makes people question their decisions to hold property. It's like, okay, I've done the valuation. I've got to then understand my tax.

I've got to understand whether I should keep it. It sort of pushes this on someone's decision-making just by this having to get the valuation. There was a similar precedent for a date, except it only affected if you were an Australian resident living overseas. Oh, yeah.

Just an example, just give an example. On the 8th of May, 2012...

We were extremely busy because we had a lot of people that were selling. And even every now and then, I get someone saying, I need a back data to this date. I need a back data to this date because I need that line in the sand.

I think even with stamp duty, when it's related party and there's no agent involved, you need a stamp duty valuation. I know the ATO are really cracking down on agents. appraisal letters only because they are not really a certified document per se.

How they go about everyone getting one, I would just say don't rush out. Don't panic. It's not that you need one as at that date. I wouldn't be making any kind of rash decisions on whether you're selling

you know, just because of this date, because it's the old rule that 50% ends indexation after that. I would just get one if you want, get a certified valuation. I know with my clients,

circle of trust, we'll hug in. Because it's my business, I can talk to them or not, you know, with a large company. I say, do you want it valued on that? And it's not, okay, it's not valued on the higher end or the lower end.

I have some parameters that I can work with the client. With this date, however, like stamp duty, they always want a little lower and higher, but it's almost like I've got the evidence.

With this particular date, Chris, the problem is you will need to really value it straight down the middle because if you value it too high, then they're going to be paying sort of more tax on this end.

And if the indexation method is better for them, because it can, then you have the gap here meant that you might be able to save more on the other side of that July date. So, I think it's really important to perhaps, to think about where you want that property value.

There is that loophole now that you can have your principal place of residence as an investment property. Again, get a valuation done as at the date you move out from that line in the sand and you're paying your tax from here to here, you know.

The other advice is don't wait too long for that valuation because retrospective hours can get a little bit expensive. That's when your value has to backdate it. Usually five years is okay because any moment in time I can pick up the phone, call an agent and go, hey, that's a strong sale.

You know, talk me through that sales campaign. What happened? It's friends for them. Yeah. Where if I find a sale from five years ago and it's extremely strong, I'm like, well, pick up the agent. He's like, I don't even work there anymore. I don't know what's going on. I can't remember. Yeah.

So, yeah, so that's why it can get a little bit tricky. I just think the whole indexation is going to be really problematic for a lot of people because it's hard to forecast, at least with a 50%, right?

You knew whatever growth you had, cut it in half and you can work with it.

That's why they brought it in though, wasn't it? That's why they brought it in, just to simplify it all. But it was a little bit generous, let's face it, because inflation isn't, even in our higher inflationary environments, not as high as it was back in 1999.

But, you know, you can see there was a good reason to bring it in and simplify it. But hang on. Is it possible that indexation could be better than 50% discount? Because the 50% discount at full tax, right? Now, you're the tax expert.

That means that you're going to pay a maximum, what, 23.5% tax. Is that correct? Yeah.

Yes. So that's your maximum now. Yeah, at the 50%, yeah. But they're saying with the indexation, the minimum tax you're going to be paying is 30. So you're not going to be better off. It doesn't matter what happens. You can't be better off indexing.

It's 30% of after indexation, though. So it's 30%. So the gain gets discounted for indexation. And then you pay 30% of that. So it can be, it can actually.

So I think REA did a sort of an article last week off topic here, but 20% of the sales would have been better off under indexation. So still 80% would have benefit under the discount, but there is a cases where it can be. but it, it,

I think you made a really good point there, Belinda, around the predictability of what you are going to pay, because that comes into your decision to do something. You know, like if you really go, okay, if I, and people aren't, you know, they're trying to do the mental accounting, right?

If I'm going to lose this money on a negative cash flow, which is often going to be the case now, I need to sort of be confident around what I'm going to gain. And I have not, and at the moment it's really unattractive at current levels.

You know, unless I hold this for a long time, right? Because I've got to pay so much in CGT. And I don't know if I'm going to comfortably hold it because I have no idea what the CGT is going to be.

And so I think that just really does make people feel really nervous because they just have no idea of what tax they'll pay in the future, right? And I see for a lot of women too, I put my hand up, I worked specifically for this strategy.

I was on maternity leave, so I knew I wasn't working a full, you know, getting taxed for a full wage one particular year. And I strategically knew how to sell and I knew that we needed to sell within that financial year because I wasn't mat leave to get the lower tax rate.

Now, if you're a female or male doing a strategy like that where you want to kind of slow down and work or whatnot, even into retirement, and you're going to get smashed with a full 30%.

So, even if you are in a lower tax rate and you are relying on a little bit of, you know, extra income to help you and you're going to get smashed at 30%, I think that is really unfair.

And this is the planning part that gets quite difficult because if you're planning on, okay, well, you know, when we're on mat leave, we're going to have extra kids and we don't have any more money and a bigger house, so we'll sell the investment to upsize and these decisions come into play and you just can't forward plan like that as much anymore.

Yeah, interesting.

It goes out all those portfolio models.

Yeah, I think the reason they're doing that is to stimulate the property market. They have to encourage all the older Australians to sell down their sort of properties. And they have to sort of, I feel like this valuation in July next year, it's like, hey, hang on a sec.

I know you didn't think you were going to have to pay much tax, but from every day on now, you're going to pay at least 30% of your gains in tax.

And so it's kind of like forcing them to say, hey, from this date, you're going to start paying a lot of tax on your capital gains. And, you know, whereas before they were like, I'm just going to sit here and keep getting my CGT discount for the next, you know, 20 years.

And I feel like it's... Because it kind of restarts the cost base, right? Like, I think it sort of recreates this decision. And they want a lot of them to sort of sell down because they want the next generation to sort of move into these and start to create some transactions.

But, yeah, I think it's an absolute nightmare for people because they have no idea. It's all unpredictable. It's just created an unstable property market because people are like, well, do I sell now? Do I wait till July? Do I not sell at all? Yeah.

And when you've got like 3 million investment properties, it's 3 million sort of, you know, 2.5 million households that are thinking, you know, do I sell or what do I do?

There's always been a number of decisions people should take or a number of factors people should take into account, and often they haven't. And so this actually forces them to go and get advice, at least from their tax advisor. So that's not a bad thing.

But another misconception around values sort of leads into it because there's land tax too, which we haven't even talked about. And land tax and our council rates are based on land value. And so that's the value of generals assessment of the unimproved value of your property.

Now, again, you often get that as being, well, that's low, that's low, you know, my land's worth more than that. But do you know much about that process of what they use, their process versus what a valuer would do in your situation?

Yes, for quite a few years in my career, I used to do land value objection work. So that's when the everyday person would say, that's value too high, I need to get a value lower so it doesn't affect my land tax. If you think your land value is low, zip it.

I was going to say, yes, don't be saying anything. Do you have it increased? Yeah, shut up. Do not pass go. Just keep walking. A lot of the time, it's been tough. You guys would know you're dealing with a lot of finance and buying.

The last couple of years, because the market's gone up, they have... been, the land values have been adjusted and it's always at the 1st of July for that financial year. Okay. So, that year has been assessed a little bit higher than the year before, obviously, because the market has moved.

I can't really talk for the other states, but I know in New South Wales, they brought all the, so they used to contract out, fun fact. So, I was a value-added firm that got a contract. So, I was a value-added land valuation work. Now they brought all the valuers in-house.

They're like collecting them like Pokemon cards. And now they're like, come children, come work for the value general's office. And it is, I must admit, it is a bit more streamlined because different firms will have like different, I was told independent valuation.

Forget what we think, you know, it's worth, put it on that. And we need to have an objection. Say it was the land value was at a million bucks. I'd be like, oh, it's closer to 950. And they were like, No, it's near enough, it's close enough, just accept that firm.

They don't really like it unless you can prove a 10% variant either side, okay? I'm just telling you guys straight out, if you can't justify more than 10% either side of that, don't even bother. Yeah, really.

And it's hard because if you're in an established area, you have no vacant land sales. So the value has to do a summation method a little bit, which works out what the improvements are, then they depreciate them and then they minus them off the site to then get an unimproved value.

We all know it's not, you know, one plus one equals two though, isn't it? I mean, it's never the land plus whatever you plonk on it equals whatever the whole thing's worth.

And it's tricky because sometimes we really like it when there are development sales or a knockdown rebuilt because somebody purchased that to knock, the house was of no value.

Yeah. Yeah, that's a real true land value, right? Yeah, exactly. Very close. There's a little bit of an adjustment for the improvements, obviously, unless it's a complete dilapidated home. But they're usually the closest to land value as you can get.

So in your area, if you think your land value is too high, comparing apples with apples, if you can try and get a gauge of, okay, well, that was a knockdown site and that was way under what mine is, that might give you a little bit of backing to go, okay, yeah, leverage, thank you, to go to the land values, the general's office and say, hey, I think you might have been a bit, you know.

Belinda, can we just finish with a property dumbo? So I was thinking about this. This is fun. This is a good question. I have valued multiple times where maybe sight unseen, maybe don't understand the market. Usually in apartments, I walk in and it's advertised and everything and valued.

And I mean, so purchased as a three bedroom apartment and they put a wall in. And I'm like, where's the lounge room? Where's the dining room? And they completely partitioned it off. And it looks legit. And I'm like, do not buy an unimproved apartment bedroom.

So, if you have a space that's a two-bedroom apartment and they thought they're really tricky because they're going to put three students in there in a space that's designed for two, the valuer will flag it.

risk rate it, undervalue it and also we value it at, let's say it's a million dollar apartment, we then devalue it by an extra 50 grand because that's what we say it's going to cost to rectify and bring back to its original value. Original condition.

So, you've paid 1.1 or 1.2 for a three better. The valuation comes in at 9.50 because it's worth one, but we took away 50 because you have to rectify it back or bring it back to its original condition. That is such a gold dumbo. Yeah.

Because people do, they think that bedrooms add value. And I'm like, not necessarily. Like I was talking to somebody whose girlfriend bought what really is a one-bedroom apartment, but it looked like a two-bedroom, but the second bedroom didn't even have a window. And it's like, well, it's got no window.

It's really a storeroom. And I went, did she at least pay like for a one-bedroom price? And then she got a storeroom as a bonus? And she said, no, she paid like for a two-bedroom. I was like, what? Well, somehow the valuations seem to stack up, seem to make it work.

But, you know, yeah, I kept thinking to myself, oh, that sounds terrible. But I've seen that. I've seen people, Craig, turn houses into, you know, four-bedroom houses and the kitchen is the living room. It's like...

Yeah, the garage is the room, underneath the house is a room. Yeah, it just keeps going on and on. It's funny you say that about apartments. I was renting an Airbnb in Melbourne once and, you know, it was two beds and we got there and we're like, yeah, okay, there's a kitchen.

So like you say, where's the lounge room? And we literally walked around. I went around three times. And then I realized that actually the second bedroom was the lounge room. And then I was like, oh, my God. And I looked at the photos and I was like, ah, yeah, there's no lounge room.

And so, yeah, it's quite funny you mentioned that. Please inspect your properties before you buy them. Don't just rely on the marketing brochure. 100%.

Thanks so much, Paulina. That was an awesome chat. We appreciate you coming on. Thanks for having me, Darius. Thanks so much. Thank you.

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