Wholesale undervaluing of property

As a follow up to my post on the impact of Banks undervaluing properties a friend and Bank owner/manager send me the following note – I think this offers further clarity on the issue of why such downward pressure is being applied to property values. It also provides a platform to identify liability.

Original post : Same sh!t, different bank

“The valuation issue is an interesting one and one that doesn’t directly relate to the banks, but rather to the valuer’s insurers. Over the past few years there have been plenty of cases of valuers getting sued by the banks – in fact, at the present time I don’t know too many of the big valuers, and most of the smaller ones also, who aren’t being sued. This generally relates to valuations made at the height of the boom where the figures have consequently come back. This has made them very gun shy and as a consequence we are getting some ridiculous valuations back on our own properties also. Some retail properties, for example, have dropped 25% even though the underlying income stream has remained sound ! The funny thing with this is that the banks are getting their clients to revalue their properties, the valuations are coming up short so the owners have to sell (in a depressed market and with a fire sale mentality) and then this becomes the new benchmark for the next sale !
So short answer is, the problem you are experiencing isn’t isolated, and it can be valuer dependent (some are better than others), so it might be worthwhile getting another valuation and seeing how it goes.”

For now I am considering the impact of a lowball valuation, framed as general or consequential loss. I am reasonably confident that a lowball valuation can be proved – meaning that can pinpoint liability, squarely at the foot of the valuation firm. Worth pursuing I think.