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Parliamentary Joint Committee on Corporations and Financial Services
16/02/2016
Impairment of customer loans

WATERHOUSE, Mr Paul Antony, Chairman, Australian Valuers Institute

[10:11]

CHAIR: Thank you for attending today's hearing. Would you like to make a short opening statement before the committee proceeds to questions?

Mr Waterhouse : Regarding what? We have been invited here. We have no idea what the committee is wanting. We are just here to answer questions.

CHAIR: Mr Waterhouse, having been invited, you would have seen the terms of reference that the committee is inquiring under. I take it you have taken the trouble to read those.

Mr Waterhouse : Yes.

CHAIR: So you do have some idea of what the committee is inquiring into.

Mr Waterhouse : Yes.

CHAIR: If you do not have anything constructive to add, we will proceed to questions.

Mr Waterhouse : Very good.

Mr RUDDOCK: I would like to ask, if you have nothing to say, whether you would be quite happy for us to make whatever recommendations we like about the way in which valuers working for institutions would undertake those roles independently and without any question as to whether or not they have been compromised by having all their work coming to them from one side.

Mr Waterhouse : Yes, valuers should always—

Mr RUDDOCK: You may have no view about that.

CHAIR: Thank you, Mr Ruddock.

Mr Waterhouse : I have a view.

CHAIR: Mr Waterhouse, in the code of conduct there are a number of statements that I would like to get your view on in terms of how things have worked in practice. Rule 1.3 says:

Members shall not accept an assignment that is contingent upon or influenced by any condition or requirement for a predetermined result where the exercise of objective judgment is required.

Then it goes on to talk about independence et cetera. It says members shall not:

… allow the performance of their professional duties to be improperly influenced by the needs or preferences of a client or other party …

I would like to go to the issue of instructions from banks. One of the things that this committee has seen consistently is that, when the banks are looking to win business, properties are valued according to one methodology. So a property developer may get a valuation that the bank approves which has the sale of 20 units at an individual value. But as soon as the bank wishes to consider its risk around that particular loan their credit risk management group—or whatever the name is—will often issue an instruction to one of their panel of lenders asking for market value, but with some caveats that drive a much lower valuation. Can you explain how common that is and how that aligns with your rules of conduct.

Mr Waterhouse : I will have to take that question back and find out an answer for you.

CHAIR: Mr Waterhouse, you are the representative of the Australian Valuers Institute.

Mr Waterhouse : I am indeed,

CHAIR: I thought you are therefore the person who can speak to the professional conduct of valuers.

Mr Waterhouse : Yes, I can.

CHAIR: I am inviting you to do that then, sir.

Mr Waterhouse : Valuers get a whole range of instructions from the instructing parties—

Senator WILLIAMS: Give us an example. Give us some examples of the various range of instructions, then.

Mr Waterhouse : From banks. You get instructions from a lawyer when someone is getting a divorce and they might instruct you to value it at a certain point in time. So then you value it at that certain point in time. That is an example of an instruction.

CHAIR: If that certain point in time or the particular method of instruction gives a distorted view to what the reasonable man in the street would say that the true market value is, how is that not allowing the valuer to break your rule 1.3 sub para B, in particular—that is, being influenced by the preferences of one party?

Mr Waterhouse : In the example I gave, if somebody wants a value at a certain point in time—a retrospective value—that is how you would value it. You would value it at that point in time, and that would be the value.

CHAIR: But in the case where you have two parties—the owner of a property and the bank which holds that property as security—and the owner of the property is paying you for the valuation, surely their interests and perspective must weigh equally as heavily as the person who has you on their panel and chooses you to do the work. How is providing a valuation that is not in the interests of the owner of the property consistent with your rules of conduct?

Mr Waterhouse : I am not aware of any situation where a valuer goes out to do a job—you know, he is going there to value the property and the value of the property is the value. He goes out there and he values it at that price. In the valuation industry 80 per cent of the time you have people trying to sway you one way or the other. In a divorce situation where the husband is buying out the wife, he wants it at a certain price and the wife wants it at another price. As a valuer you are constantly under pressure from one side or another to lean it one way or the other. If you are doing a stamp duty job you are under pressure to make that value conservative to reduce the stamp duty for the person. On a capital gains job the instructing parties want it the other way. It is up to the valuer to resist those pressures and simply value the property as it is valued.

If you are saying to me that certain banking institutes are narrowing that situation down and almost forcing the valuer to value it the way they want it valued, that is not correct and that should not happen. I can look into that and speak to some of our members that do work for banks. There are basically two types of valuers: there are ones that work for banks and lending institutes, and there are ones that do not. Most of the members I asked to come here who do work for banks did not want to come.

Senator WILLIAMS: Why?

CHAIR: That does not surprise me!

Mr Waterhouse : About 10 years ago, one of our members attended a similar Senate inquiry in Canberra. He made various statements, and one of the institutes that he was in—it was not our institute—actually kicked him out.

Senator WILLIAMS: Why?

Mr Waterhouse : They were not happy with what he said.

Senator WILLIAMS: Why?

Mr Waterhouse : Because they were not happy with what he said in the Senate inquiry.

Senator WILLIAMS: Explain why they were not happy.

Mr Waterhouse : He did not go into great detail on it. I can find out the detail, if you like. But he said, 'The upshot was that cost me $60,000 in legal fees to force them to let me back in.' He was promised that, whatever he said at the committee, there was some sort of privilege; he could not be sued. Well, he was not sued. They just kicked him out of the other institute. It cost him $60,000 to come and chat to guys like you. So, as you can imagine, he does not want to come again.

CHAIR: Mr Waterhouse, it is a contempt of the parliament if somebody takes prejudicial action against someone who has given evidence.

Mr Waterhouse : That is why his barrister organised it for him and explained that to the other institute, and he got back in. It cost him $60,000 for that, though.

CHAIR: Can I take you to another part of your code, which says that every valuer must visit a property that they are giving a valuation on. We have had a deal of evidence that properties can be valued by drive-by or by analysis of recent sales of similar properties in areas. Lending institutions have given us an indication that that is an acceptable form of valuation. Would that mean that those valuations are not done by someone who is a member of your institute?

Mr Waterhouse : Absolutely. That is not acceptable in our institute. Absolutely not. I have heard of drive-by valuations or kerbside valuations or whatever they want to call them. That is an extremely unsafe way of doing a valuation.

CHAIR: I have no further questions.

Mr Waterhouse : All you would be relying on, I imagine, would be various pictures online that are collected from various databases. Those pictures are taken by real estate agents. When an agent takes a picture of a property, he takes it in the best light, doesn't he? He is not going to show the railway line next to it, is he? To do that type of valuation, you are relying on pictures from an agent. You have to go to the property.

CHAIR: Thank you, Mr Waterhouse.

Senator O'NEILL: Thank you for coming today, Mr Waterhouse. Given the experience you have just recounted, I can imagine this is a little anxiety inducing for you. If a valuer were being pressured by a bank, what options would they have to raise that as a dispute and report the bank's conduct?

Mr Waterhouse : Could you repeat the question?

Senator O'NEILL: If one of these valuers—some of your members do these valuations for banks—goes out and they come under pressure from a bank to give a particular valuation, how do they raise that as a dispute? Where does your institute fit in the middle of all that? How would you or they report the bank's conduct?

Mr Waterhouse : It has never come up as a problem. No-one has ever brought it up. Our advice to that valuer would be to cease doing work for that institution. Valuers are being sued all the time by these institutions. To cut corners on the valuation is crazy. Many valuers are being sued.

Senator O'NEILL: Okay. Let's go back to that. You are telling us that valuers are being sued by banks?

Mr Waterhouse : Yes, banks or people who insure the loan. Various companies insure loans. Valuers get sued all the time. It is not unusual for the insurance companies to step to one side and leave it to the valuer to sort it out. They lose their homes at times. One particular valuer—he is in his mid-50s—has basically lost everything. Any valuer who is doing work for banks and cutting corners is crazy because—

Senator O'NEILL: Do you actually say that to your members—that they should not work for banks because it is too dangerous and is an occupational hazard for them?

Mr Waterhouse : Absolutely. We instruct all our members not to work for banks or financial institutions, because in this day and age you are almost underwriting the loan. Things have happened over the past five or 10 years. Banks used to have individual valuers on their panels. What they have done, to make it easier for themselves, is engaged more and more larger companies. These larger companies have really turned into almost marketing companies—they are actually just marketing valuation services. They take in the job and then they find a valuer—a contractor usually, not an employee. For instance, for a house—if you go out to value a house, I believe the banks pay about $150 to value a residential house. That is not particularly generous but it is sort of acceptable. But what these—

Senator O'NEILL: Before you go on, do you know how much the normal fee is for a person who is required to get that valuation? I am sure it is more than $150. What do the banks then charge the customer?

Mr Waterhouse : I am not sure what they charge the customer, but the rough, going rate that a bank pays to do a residential valuation is $150. The valuer who does the work receives $75 or $80. That is what the person standing at the curb actually gets. So, of course, anybody with any experience in this business will not do that work. So you tend to get very, very junior young people doing it. When you are talking about pubs, resorts and rural properties, that is completely different. Those are priced individually, depending on the complexity of the job. But a residential house is about $150, of which the valuer gets $75. So you can imagine—he has to do quite a lot in a day. You cannot really do the job properly, because not only do you have to visit the actual house itself you need to find three comparable sales. So you might have to go and visit another eight or nine properties to get those three comparable sales. That is a lot of work for $75. It would be better to be a courier driver.

Senator O'NEILL: Yes, perhaps the courier driver might have more experience driving around the suburbs to give them a better valuation!

Mr Waterhouse : Absolutely! And you do not have the headache of writing the report!

Senator O'NEILL: I would like a bit of an overview of your industry. How many institutes are there like yours? Are there others apart from the Australian Valuers Institute?

Mr Waterhouse : There are three main institutes in Australia: our institute; the Australian Property Institute, which is the largest one; and there is an English one that has come in the last five years called RICS—the Royal Institute of Chartered Surveyors.

Senator O'NEILL: What market share do your members have of the market for valuing in Australia?

Mr Waterhouse : That is very difficult to say. I can go back and look into that. Most of the valuations done for banks in this country are actually done through the Australian Property Institute. They have most of the bank valuers. We have some, but they have most of the bank valuers.

Senator O'NEILL: I am assuming some of yours do work for banks?

Mr Waterhouse : Yes.

Senator O'NEILL: To return to my previous question, if you had one of your valuers feeling like they were coming under undue pressure from a bank, what processes do you have in place for them to say, 'I am experiencing pressure that I think is pushing me away from my professional values. I want to let you know about this and I want to report it to the bank.' What avenues do you make available for your valuers, and what would you do in that instance?

Mr Waterhouse : We have bimonthly meetings which all our valuers are invited to attend, and they can bring up any problems at those meetings.

Senator O'NEILL: Has that happened—

Mr Waterhouse : Well, we have heard the various complaints.

Senator O'NEILL: From your members?

Mr Waterhouse : From some of our members. We have heard various complaints. We are looking into at the moment speaking to a couple of these companies. Obviously, you have to hear the other side of the story as well.

Senator O'NEILL: Could you take me through what sorts of complaints and which companies you are referring to?

Mr Waterhouse : The complaint I have heard recently is about a company called ValEx. They somehow offer a channel into the banks. It is a software package. I have been getting complaints from valuers that the time frames allows by ValEx are way too short. We have not looked into it. The complaints have only started recently. They are a relatively new set up, I believe. I think they have been recently purchased by CoreLogic, who are the people who own RP Data. So these are quite powerful players in the valuation game. I believe they have a portal, and the complaints that the valuers were making were that the time frames are not long enough.

Senator O'NEILL: So the time frames are not long enough for them to do a professional job and the comparisons that they need.

Mr Waterhouse : The fees are not high enough and the time frames are not long enough.

Senator O'NEILL: What about in terms of the directions that they receive? Are any of your members reporting that they are being told by a company or a bank in particular to go out and to give a low market value?

Mr Waterhouse : No. I have not heard any stories where the valuer has been asked to undervalue the property—a valuer that did that would be crazy anyway—or to overvalue it. I know valuation figures move around a fair bit, particularly on rural properties and some commercial properties.

Mr RUDDOCK: Let me be very direct: I know nothing about valuations, but I have heard that banks like valuations to be made when they are anxious to put people into default on the basis that it is a distressed loan. A distressed loan is one in which it is put to sale and people know that it has to be sold. It is not one in which you will have genuine competition in which the highest price might be reached. Are you telling me that nobody ever values on that basis that a loan might be a distressed loan?

Mr Waterhouse : I think in general—just talking in general terms—valuers tend to undervalue properties for financial institutions and banks. Well, that is not right. They put a conservative value on it in order to not get sued down the track. So you know yourself if you have your own house or your own property valued, it tends to be on the low side. But when I say 'undervalued' it is not undervalued; there is a sort of a general feeling amongst valuers that there is a 10 per cent leeway that you are allowed before you get sued. Some lawyers have told me it is 10 to 15 per cent, but 10 per cent is the general figure. So if a house is worth $1 million and you want to put a conservative value on it, you might value it at $910,000.

Mr RUDDOCK: But it is pretty significant if you are the person who has borrowed money in a market that was buoyant and the bank revalues at another time, when they say, 'We think it has come off a bit,' and you get a conservative value that puts the client immediately into default. It is a pretty significant matter, isn't it?

Mr Waterhouse : That sort of thing does not happen.

Members of the audience interjecting—

CHAIR: Ladies and gentlemen, please remain silent.

Mr Waterhouse : I have watched YouTube videos about this stuff in Western Australia. I believe this is the root of this: from what I have seen of those YouTube videos—which I believe were from a television show—those values dropped because it was around about the financial crisis and the values of the properties just dropped. Back in 2007 the prices were crazy. So you can have a property which was worth $20 million in 2007 and it can be worth—

Mr RUDDOCK: And 20 per cent may be covered easily in the loan and the value of the property. But you reduce it by 30 per cent and they are suddenly in default. You are saying, 'We just did it as a conservative valuation.'

Mr Waterhouse : No, I am not saying that.

Mr RUDDOCK: That is the way I heard it.

Mr Waterhouse : I will rephrase it for you again. That situation with that resort over in Perth that was valued at $20 million—after the financial crisis it may well have been worth $15 million or what have you. That is just how it is. All a valuer will do is sometimes move within that 10 per cent range. Maybe $20 million might come down to $18½ million or something like that. That is within the realms of possibility anyway. We have not got crystal balls here; we cannot really tell you 100 per cent what the thing is going to sell for. We can be within 10 per cent of that figure.

When banks sell a property that is in default, if it is a house they have a marketing campaign that goes on for four or six weeks, and then it sells at an auction and that comes out roughly to what that house is worth. But if you bring the same set of circumstances to a rural property or a commercial property and you want it sold in between four and six weeks it is going to sell for a lot less than it is worth because those properties can take a year or a year and a half to sell. The problem, in my opinion, is that they are not allowed to be put on the market for that period of time. That is probably the root of the problem. If a bank is going to sell something worth $20 million and they sell it for $10 million when the valuer said it was worth $15 million, it probably is worth about $15 million. But because it was sold within four weeks there were no buyers—particularly in the financial crisis when people in the street with money in their pocket were all scared.

Mr RUDDOCK: I hear all of that. Let me get down to very precise information that I need to understand the area in which valuers are operating. I assume you study at university to become a valuer.

Mr Waterhouse : Yes.

Mr RUDDOCK: And you then elect that you belong to one or other of the institutions or that you do not belong to any of them.

Mr Waterhouse : Yes.

Mr RUDDOCK: So where do I look to see the appropriate training for ethical standards that valuers need to observe and how they shall conduct themselves to resist undue pressure if they happen to be put under it to produce particular outcomes? Is the consequence only the possibility of litigation—somebody suing them because they go the valuation right or wrong—or is there some supervision of valuers to ensure that they observe the appropriate code of behaviour?

Mr Waterhouse : It does vary from state to state. In New South Wales, for instance, the licence was issued by Fair Trading, you had to do continuous development points on a yearly basis and you needed 15 points a year. There are a whole bunch of companies set up that basically give you ongoing training every year in return for these continuous development points. One of the big areas that is covered constantly is risk management. Valuers are told on a regular basis that they need to manage risk. Every time we have a seminar there is one valuer after another stepping up and telling us some story about how he has just been sued and lost his house. You do not need to convince valuers that we are in a risky business.

Mr RUDDOCK: Who supervises valuers? A valuer is told by a bank, subtly—maybe they do it in writing, but subtly—we want you to value on a conservative basis so that we can put this client into default. Do any valuers get caught succumbing to pressures of that sort? Are there disciplinary actions taken if there is failure? Has anybody ever been disciplined?

Mr Waterhouse : I do not know that any valuer would ever do that. They just would not. For the paltry fee that is paid by the lending institution, why would they want to do that? It would make sense to me. I do not think that is what has happened, by the way; I think the market has moved and the values have gone down.

Mr RUDDOCK: But I go to the question of whether there is any supervision. If we find in the evidence that we receive that some valuations were produced under duress, who is dealing with it?

Mr Waterhouse : The courts and lawyers usually deal with it, because there is a lot of work involved in identifying whether something has been—

Mr RUDDOCK: I will be brutal: they do not get to court. The parties are bankrupted, because they have been put into default, and so nothing is ever questioned. If you tell me that the courts are going to be able to deal with it when the parties do not have the funds to get before the courts, because they have been bankrupted, I cannot see how it can provide a remedy.

CHAIR: We will take that as a comment.

Senator KETTER: I understand your evidence that your organisation does not represent the majority of valuers that work for banks—

Mr Waterhouse : That is correct.

Senator KETTER: but you have some knowledge of the industry. You said that some valuers work for banks and others do not. Would there be valuers for whom the bank represents a majority of their business?

Mr Waterhouse : Yes.

Senator KETTER: You have already talked about some of the financial pressures that are on valuers. How does a valuer who has a bank as one of their major clients resist a pressure to provide a valuation which is in the interest of the bank?

Mr Waterhouse : I am not aware of any cases where banks have put huge pressure on any particular valuer to value it one way or the other.

Senator KETTER: So you have not been reading the newspapers at all in recent times?

Mr Waterhouse : Not really, no. I do not read newspapers or watch TV. I watched the YouTube videos before I came here, because I knew it was about something, but no, I do not read the newspapers or listen to the TV, because it is all rubbish.

Senator KETTER: So this is not an issue that your organisation is seeking to grapple with, in terms of its code of conduct and professional standards?

Mr Waterhouse : We allow each individual valuer to resist those pressures that he will get on any job that he does. On any job that he does, someone is going to be putting him under some type of pressure. I think what you are alluding to is banks and mortgage brokers saying: 'C'mon Bob, I have given you a whole bunch jobs in the past. I just need to get this one through to get my commission this month,' or what have you. It is up to the individual valuer to resist that pressure. We cannot stand there with him on the job and say, 'C'mon Bob, you need to resist it.' He needs to do that himself and he knows that anyway.

Senator KETTER: But valuers have bills to pay and families to support, so how do they resist that commercial imperative to satisfy the major clients?

Mr Waterhouse : The advice we give them is not to do loans for banks and financial institutes and, if you do—

Senator KETTER: Are you saying that you have black-banned the banks?

Mr Waterhouse : Absolutely not, no. We tell them that you should get out of that work as quickly as possible. You should move into other work, where you are not going to lose your house, your wife and your family, because that is what happens.

Member of the committee interjecting—

CHAIR: Excuse me. If you wish to interject I am going to ask you to leave the room. It is disorderly. The committee would appreciate if people in the public gallery were silent. If you do not wish to comply, please leave.

Senator KETTER: Mr Waterhouse, you have previously indicated that the fees your members charge are fairly small.

Mr Waterhouse : What they receive. The fees they are offered are very small.

Senator KETTER: In regard to work done in valuing farms, for example, in one case I have seen, the cost involved was over $3,000. So these are not insubstantial amounts.

Mr Waterhouse : When you are talking farms and commercial properties the fees are far more reasonable. There is no excuse in those instances for the value to be anything other than accurate.

Senator KETTER: How are those fees structured? How they are established?

Mr Waterhouse : These properties are all completely different. The bank just simply contacts the valuers they normally use—

Senator KETTER: Therein lies an issue in itself, I would put you.

Mr Waterhouse : Well, it is just a quote for the job, isn't it? I mean—

Senator KETTER: Okay. Does the bank establish a fee with its preferred valuer?

Mr Waterhouse : Yes. The banks normally go back to the same companies—they are larger companies.

Senator KETTER: That provides them with a fair amount of leverage over the valuer, doesn't it?

Mr Waterhouse : I suppose, in theory, yes. If that company is getting a lot of this work from a bank, whenever you are in a situation where the bulk of your money comes from one particular source then that source and give you undue pressure. I, for instance, do a wide range of clients. If I get a client who wants me to do something stupid I will just say I am sorry but I cannot do the job, and it has no effect on my business, because he is just one of many, many clients. Yes, if I were in a situation where I was getting all of my work from a particular bank, then it would not be a good situation for me to be in.

Senator KETTER: Now that you have accepted that as being a potential problem for professional standards in the industry, how is the industry attempting to deal with that issue?

Mr Waterhouse : At this stage we have not attempted it. We do not see how you can deal with it. How can you?

Senator KETTER: You are the professional industry representative. With respect, I would put it to you that it is your job to grapple with that issue.

Mr Waterhouse : What we do constantly, and what we talk about at all of our meetings and all of our seminars, is risk management, and how it is not a good idea to value a property one way or the other. It needs to be valued correctly. If it is not valued correctly you are going to get sued. And the PI insurance companies in our industry are not household names—it is not NRMA or GIO. A lot of these companies get out of their responsibilities through technicalities and leave the valuer standing on its own with his own assets. So we remind them constantly that if they do work for institutions or banks they are treading in a minefield.

Senator WILLIAMS: Does your industry have a code of conduct?

Mr Waterhouse : Yes.

Senator WILLIAMS: A voluntary code of conduct?

Mr Waterhouse : Yes.

Senator WILLIAMS: I will give you an example: I am a valuer and I am doing a job for a bank. The bank comes back to me and says that you have valued that too high and we want you to value it lower. What would I do?

Mr Waterhouse : Just refuse to do that.

Senator WILLIAMS: When it was worth a lot of money to my business to do constant work for the same bank?

Mr Waterhouse : You still refuse. And if you do not refuse then you are engaging in a criminal act. It is fraud, isn't it?

Senator WILLIAMS: Shouldn't it be the case that if someone calls you in to do a valuation you should do the valuation of that property or that asset to show what it is worth on the day, and not what it might be worth in six month's time or whatever?

Mr Waterhouse : Absolutely, that day.

Senator WILLIAMS: Is that in your code of conduct?

Mr Waterhouse : Yes.

Senator WILLIAMS: So valuers must value an asset on the day?

Mr Waterhouse : That is correct.

Senator WILLIAMS: Do you ever get a situation where a bank might say, 'We want you to value it on a worst-case scenario'? What would happen then?

Mr Waterhouse : I have never done one for a bank, so it has never cropped up for me. I have never in my life done a valuation for a bank.

Senator WILLIAMS: Let me paint the picture. Assume I am a bank and you work for me. You do a lot of work for me and you rely on my business to keep your head above water. If I came to you with a house, a business, a property or whatever and said, 'I want you to value it on a worst-case scenario,' what would you say to me?

Mr Waterhouse : I would just say, 'No, I am going to value it as it is, at what it is worth today—not on a worst-case scenario.' Its value is its value. I would just value it as it is worth.

Senator WILLIAMS: That might be you, but what if there is another valuer who perhaps was not as well-behaved as you, and I said, 'Okay, what is the worst-case scenario. You are looking at a property with three years of drought in a row. Put that situation up and value it at that.' What if the valuer said, 'Yes, I will do that.' That valuer would obviously be in breach of your code of conduct and would be doing the wrong thing.

Mr Waterhouse : Absolutely, and we would have to remove them from the institute.

Senator WILLIAMS: There is no federal watchdog over the valuation industry. You are controlled by the states. Is that correct?

Mr Waterhouse : Yes.

Senator WILLIAMS: But the laws and the standards are inconsistent throughout the states around the country. You said that it varies state-by-state. Could you expand on that?

Mr Waterhouse : I can only speak about Queensland, because I am registered in Queensland. The Queensland situation seems to be pretty much the same. The property has to be valued at what it is worth. If the person ordering the valuation offers this sort of pressure, it should be resisted. They should be told no—just no. If the valuer steps out of line they are no longer a valuer. They are just a facilitator of a fraud.

Ms OWENS: You have said a number of times that the value is what the value is and the valuer has to make a correct valuation. It seems to me that the value of the property is dependent on what the person intends to do with it. You said earlier that the value of a rural property in a distressed sale, if it has to be sold within four weeks, would quite different to the value of that same property if it were allowed to be sold under a more normal arrangement or perhaps even if it waited until the harvest was over. There may be differences. When the valuer is making that valuation, who decides what the process is that determines what the value is?

Mr Waterhouse : That is going to the root of the problem. Assume I am working for a bank and they come to me and say, 'This is a rural property. We are going to sell within four weeks. Give us an idea of what it will be worth if sold in four weeks.' I suppose the term 'fire sale' is sometimes bandied about. You would then have to be pretty conservative, because if you are a rural valuer you would probably know that it is going to take a year to sell and achieve the best value. You would probably be quite conservative. That is up to the judgement of the individual valuer. The thing about rural properties and commercial properties, particularly the larger commercial properties, is that a lot of valuer judgement goes into those valuations, whereas for a house in Blacktown, where houses are all pretty much the same, you might have four houses that are all identical but one has a carport and one has a garage and it is not that difficult to work out the value there as you have plenty of comparable sales. But with rural and commercial properties, if the comparable sales are there, particularly comparable distressed sales that sold in four weeks, it makes it quite a difficult job.

Ms OWENS: Going back to what you said before, which is that the value has to be correct, the value is determined by the strategy of the bank?

Mr Waterhouse : Yes, the circumstances.

Ms OWENS: And the valuer cannot vary from the strategy of the bank?

Mr Waterhouse : If the bank says, 'We are going to sell this in four week's time. It is going to go to auction. Give us a value showing your opinion on what this will sell for after a four-week marketing campaign,' then of course that is going to be a conservative value, isn't it?

Ms OWENS: It is going to be a value based on that path, plus a conservative value, because of the fear of being sued. Is that right?

Mr Waterhouse : Yes. If you said to the valuer, 'We are going to sell it under normal circumstances,' it is going to take a year, because these properties tend to take a year to sell, and they ask you to provide a value on that basis, then it would be a higher value, wouldn't it?

Ms OWENS: Do you know of any valuers who, so that the bank can make a rational decision about whether it is better to allow the loan to run until the property is worth more, are actually asked to provide the range of values—distressed sale, or a year later?

Mr Waterhouse : I have read reports from some of the larger companies where they do that. They will have a value on the property, but somewhere in the report they will have another value, which is the fire sale value. I have seen reports, I think they were from the larger companies, where they do that.

CHAIR: Thank you for your attendance and your evidence. If you have agreed to take any questions on notice could you please provide that information to the committee by 8 March.

Proceedings suspended from 10:56 to 11:10