The negative equity crisis is a “very very unfortunate” element of the economic crash, but property valuations were carried out on the basis of a specific methodology, the banking inquiry has heard.
Patrick Davitt, the chief executive of the Institute of Professional Auctioneers and Valuers (IPAV), has been giving evidence on Wednesday afternoon.
Mr Davitt told the inquiry there “isn’t anything different” today in relation to the methodology that is used to value property. He said there is a “standard practice” that is implemented by valuers.
Asked by Fine Gael TD John Paul Phelan whether changes to the system would be pertinent in light of the property crash, Mr Davitt said every auctioneer "would feel it's very unfortunate what happened and it's very unfortunate the property market went the way it did".
“From people’s point of view who are in negative equity, certainly that part of it is very very unfortunate,” he said.
‘We certainly feel for that’
“We certainly feel for that and we’ve lots of auctioneers and valuers who went out of business, had to let employees go and their families themselves were involved with this, but at the end of the day, the valuer has a responsibility.
“If you instruct the valuer to do a valuation for you on the basis of market value, that’s what they have to do.
“They can’t just, because they see property prices fell in 2006 or 2007 or 2008, say I’m going to treat this valuation differently or value it lower or higher. They can’t do that.
“They have to value the property on the basis of market value and there’s a specific methodology there for it.”
Mr Davitt said fees received by auctioneers were – and are – determined by a proportion of the sale of property, and as such they stood to benefit directly from bigger sales. “It is as simple as that,” he said.
‘In the business’
Asked whether auctioneers played a part in driving up property prices in the period preceding the crash, he said they “played a part because they were in the game, and the game being that they were in the business”.
“Auctioneers were caught in a bind between representing their agents and representing their vendors and getting the best price,” he said.
“If auctioneers knew that prices were going to tumble by 50 or 60 per cent, when we look with hindsight, which is a great thing, yes we were part of it, of course.”
Mr Davitt, who was appointed to his position in May 2013, also said there were no national standards in terms of valuations. The valuer has to value property on the basis of open market value, he said.
“IPAV didn’t have to have standards for their valuers as such because there were no national standards,” he said.
In reply to a question from Sinn Féin finance spokesman Pearse Doherty, Mr Davitt said he was not aware of the body having lobbied the government for national standards. He also said "we are and we were quite comfortable" with being a self-regulated body.
Mr Davitt was also asked whether, in hindsight, it had been a good idea for the body to lobby for measures such as the abolition of stamp duty. “I can’t tell you that, I don’t know,” said Mr Davitt.
Mr Davitt also said he did not agree with the Central Bank’s requirement for a 20 per cent minimum deposit on a mortgage. “It is a considerable amount of money for people to get their hands on to buy a property,” he said.
Asked for his view on what caused the property crash, he said “money was too freely available”.
“A lot of European banks and German banks pumped a lot of money into the Irish market and banks here gave it out to different people, which caused people to buy properties and bid against each other, on the same banks’ monies, and drive the price of properties up,” he said.
