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Simon Jackson: Will Physical Valuations Ever Be Replaced by Desktop Alternatives?

22.04.2020

It was no great surprise to see an extension of the UK-wide lockdown arrangements earlier this month, and while we might all like to think that in early to mid-May those measures will begin to be relaxed, anyone who is realistic about the situation will probably know that the road to normality is likely to be a long one.

That said, it seems absolutely fair and natural to think not just about a viable exit strategy for the country but what that means for the housing market, and our own businesses specifically. After all, we need a plan as much as the Government does in order to be able to start work from that point.

Of course, the current reality for many of us in this sector, is that we have been fortunate to be able to keep on working albeit in different ways or at a reduced level over the past month. When it mattered, the technology has been our saving grace and, from our perspective, our ability to keep working with our lender partners specifically via our enhanced desktop valuation product has definitely shown the value of all the hard work put into it.

However, physical valuations could never be replaced in their entirety by desktop alternatives, and for every case that has been suitable, there are others currently on hold. It’s an obvious point but these cases simply either sit outside lender criteria or we currently do not have the type of quality data required to run a desktop valuation and for us (or the lender) to feel confident about the result.

That being so, while lenders are likely to have a richer appetite for desktop valuations both during and after this crisis has ended, the notion that these are somehow going to replace physical valuations wholesale is a notion for the birds.

The use of AVMs as well, while used in greater numbers in these periods, are not going to satisfy many lenders’ criteria or be able to cope with market conditions post-COVID-19.

The latter point is certainly one worth considering, especially if we are to believe some of the house price predictions that are currently doing the rounds. Significant double-digit drops over a short period, followed by quick rebounds, do not favour AVMs at all.

The model may not work as effectively with that level of short-term volatility and who is to say that we aren’t going to see two, maybe three, further periods of ‘lockdown’ over the course of the next 12 months while we wait for a vaccine. Again, this could result in some significant peaks and troughs which may render AVM activity particularly unreliable and risky.

Lenders too, if they want to move back into higher LTV lending, will be waiting for physical valuations so they can feel confident in the results they are getting. Plus, as we’ve seen in the specialist lending sector, many participants are wholly reliant on physical valuations in order that they might package up their assets for securitisations. Without them, they simply can’t lend which is why we’ve seen a number having to close their doors to new business over this time period.

So, while we might all agree that the use of technology, particularly desktop valuations, has been vital during this period, we should not think that this begins an unstoppable march towards the digital over the physical. Indeed, our own anticipation is that we’ll have many thousands of cases requiring our surveyors to visit the actual property, as soon as they are allowed to do so.

The positives of this situation are not just around the pent-up demand we anticipate in the near future, but also consumers’ approach to purchasing and moving. For instance, we’ve seen very few consumers cancelling their appointments and the feedback we’ve received is that the vast majority do want to proceed as soon as they are able to.

This bodes well for the purchase market too. I know many, even within our own organisation, are pessimistic about purchase activity, not just in this three-month period but on into 2021. I’m afraid I don’t share that pessimism – for a start, lenders will still want to lend, purchase completions will still need to happen, many will have realised that they want to sell during this period, or the sad reality of those needing to sell the estate of a lost loved one and I therefore think we’ll have significant amounts of stock coming onto the market that ordinarily we wouldn’t see.

Again, once we can move to a point of confidence with physical valuations, we’ll certainly be able to cope with the level of cases we currently have waiting and those that may well be unleashed via this pent-up demand.

There’s no doubt this current period is incredibly challenging and difficult for us all, however we do have available product solutions to keep cases moving where possible, and we have some light at the end of the tunnel to keep focused on. The market will return and, when it does, I suspect there will be a number of opportunities to be grasped.

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