Valuation is everything — Ray’s Proptech Weekly #37
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Friends, Feudal Landlords and Commoners,
I’m going to preach to the converted, but please do read below: it’s fascinating.
You all understand how essential and effective valuations are in generating leads.
Estate agents use ‘free valuation visits’, Zillow pioneered valuing every property automatically with their Zestimates (which I personally have issue with for essentially being randomly generated numbers) and more recently Opendoor has been buying homes at their online valuation.
I ordered the list above in terms of accuracy: estate agent valuations are the worst, because they’re trying to win your custom, not value your home.
But what about professional surveyor valuations? You know, the ones that banks rely on and the ones that you see on Property Partner.
Before we look at how property is valued by ‘professionals’, let’s clarify that: the value of a property is what someone will pay for it.
So, by definition, the market is what prices property. And professional valuations are trying to guess what the market will do (at that point in time).
I’ve written a lot about Property Partner, and not all of it good (I’m grateful Dan hasn’t blocked me from using the platform).
But I have to say it is by far and away the best property crowdfunding technology that’s ever been created.
The unique selling proposition is Property Partner’s secondary market for each property: shares in properties can be offered for sale transparently.
I’ve included screenshot examples of this secondary market below.
Now that Property Partner has been going for almost 2 years, and has almost 8,000 investors on the platform, the secondary market is coming into its own.
And I mean this literally: the secondary market valuations differ wildly with the professional surveyor valuations.
The two examples below show a block of flats being undervalued by the market (vs professional valuation) and a 3 bed period house being undervalued by the professional valuation.
You can look up on Rightmove to see what comparable properties are selling for. There isn’t a house in Croydon being sold for less than £350k, vs the Property Partner valuation of £260k.
What’s going on here? Is the market wrong? They can’t be, by definition. So what is wrong with the professional valuation? Indexing.
The UK House Price Index is based on ‘average’ prices.
Now listen carefully, as I’m the only one saying this (and it’s the basis for my advantage when valuing property at The Unmortgage): no-one buys the average home. They buy cheap or they buy luxury. Or they buy desirable while others buy undesirable.
And I have Propterty Partner to thank that I can now prove my hypothesis: the period property, the one you’d want to live in, appreciates faster than the average. And the flats in the block obviously have less mortgage money chasing them, therefore surveyors using the House Price Index overvalue these (vs market expectations of value).
There are a whole host of start-ups across the world basing their businesses on their ability to value property accurately: RealAs in Australia, OpenDoor in the US andNested.com in the UK.
Each collects enough data to disregard ‘average’ prices and dive deeper in the nuances of their local markets.
And that’s what it comes down to: local information/knowledge.
I do hope that Property Partner revert to valuations weighted by their secondary market more than indexing to the House Price Index which is and always has been derided by trustworthy people like Henry Pryor as inaccurate at valuing homes.
If you are working in the valuation space, email me on rayhan@wigwamm.com.
I’d love to put together a video on different methodologies, approaches and views on valuing property. It’s not only a fascinating topic: it’s fundamentally the most important thing in real estate.
Please feel free to relay news, tips and comments @RayhanRESI
Rayhan’s PropTech Weekly XXXVII
Upcoming Events
German Proptech Meetup — 11 Jul — Link
SPD Insights — Internet of Things — 13 Jul — Link
Built Worlds ‘Tech in Real Estate’ Livestream — 14 Jul — Link
Inman Connect SF — 2–5 Aug — Link
PropHack — 15 Oct — Link
Me pitching The Unmortgage at Imperial College Business School
Including this is less about showing you what I’m working on (feedback appreciated) and more about the value in talking widely about what you’re working on. The questions following the presentation were spot on. And that’s why I take the anti-stealth approach because it ensures focus on things that the market cares about. There’ll hopefully be a write-up and videos of the other three start-ups available next week. For now: Video and Slides
Trulia upgrade allows you to search for homes near transport (TechCrunch)
Incredible that this is newsworthy. I included this to show that the state of Proptech is still a long way from impressing the general public: Link
Q&A with ResiModel’s Elliot Vermes (BISNOW)
Big data really is a boring topic: Link
20 US Real Estate Tech Leaders to follow on Twitter (Real Estate Tech News)
Click link, click 20 more links, follow them all: Link
Proptech Podcast — Partnering with Corporates (Soundcloud)
The next instalment of Eddie and friends: Link
PSInvestors interview with me
My thoughts on Proptech as a sector. Interesting how much someone can get out of you just because they asked: Link
What3Words raises $8.5m to overhaul the world’s addressing system (CNBC)
Big funding for big ambition. Well done Jack Waley-Cohen and co: Link
Office Hours with Zillow CEO Spencer Rascoff
The guy everyone goes gaga for speaks: Link
