SFO warns investors of 'inflated property valuations' in property development portfolios; Has seen properties valued 500% above market value

SFO warns investors of 'inflated property valuations' in property development portfolios; Has seen properties valued 500% above market value

By Gareth Vaughan

The Serious Fraud Office (SFO) is warning investors to be wary of inflated property valuations when mulling investments in entities with exposure to property development, saying it has encountered properties valued at 500% above their market value and says a "small number" of property valuers are undermining confidence in their profession.

The warning comes after a number of SFO investigations into cases where property values were "significantly overstated" to the detriment of people either investing directly in the over-valued property or indirectly in companies owning property portfolios.

“In recent weeks we have concluded investigations involving property valuations where we have been disappointed to see investors making bad investment decisions based on information which can only, at best, be described as optimistic values. It is imperative that investors are made aware of the underlying assumptions on which the valuations are based,” SFO chief executive Adam Feeley said.

 In most of the cases it probed, the valuations were commissioned by property owner, or property-related company, which had an obvious financial incentive to inflate valuations beyond what was commercially realistic," Feeley added.

500% overly optimistic

"In some cases, the valuations were at the margin of what could be regarded as professionally justifiable, while in a few extreme cases, properties had been valued 500% over their market value."

“Where there is a clear intention to deceive an investor with false information, the SFO will lay criminal charges against all parties to that offence, including any valuer who is knowingly a party to the deceit,” Feeley said. “However, in many instances the valuations fall short of what is required to meet a criminal standard of proof for fraud.”

Feeley said he best protection for property investors was commissioning their own valuations, although this isn't always feasible.

“An important part of our role is to identify alternative forms of redress where the conduct complained of does not meet the criminal standard of proof," he added.

Investigations pending

The SFO is referring some transactions to the Valuers Registration Board, and "further matters" are under SFO consideration.

“There are a small number of valuers who are undermining confidence in a profession which is an important adjunct to investment decisions, and we are determined to work closely with the valuation profession to ensure rogue valuers are not tolerated,” Feeley said.

He had "no doubt" the New Zealand Institute of Professional Valuers was equally committed to dealing with cases where valuers fail to meet professional standards.

"The SFO acknowledges that the cases we deal with are the exception, and we know that valuers generally operate to very high professional standards. Nonetheless, the impact of these few individuals has had a disproportionate impact on the investment market.”

Feeley added that investors wanting advice on property valuations can contact the NZ Institute of Valuers for further information.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


This comes as no surprise...over the past year, I've heard a few examples of valuers asking "so what value are you after?"

Ricardo - I've experienced that one myself. "So what do you want to pay?" 

I'm sure there are plenty of credible valuers, but obviously there are a few shockers out there too

Theres genereally an acceptable range where the value of any property would sit, and there is no exactly right answer in valuation. Putting it at the higher or lower end of the acceptable range to help the client out is pretty common I would have thought.

What if they came in $10,000 too low and there was no evidence to suggest it shouldn't be $10k higher. Not really worth wasting everyones time to have you call them back and complain, then they have to adjust the report and send it out again.

Also not everyone wants the value as high as possible so its good to get an idea of what the client wants, then you can help them out within the acceptable range of evidence.

The problem is that the valuer isn't supposed to be basing the valuation on the whims or needs of the vendor. (Or the buyer for that matter.)

About time these guys were held to account....  Sunlight will be an effective disinfectant against skullduggery in this 'profession'....

Agreed, I would love to see some of the crap cleaned out of this industry.

I can certainly endorse the judge's comments. My Father, as an investor (victim) with finance companies and contribtary mortgage outfits was fed valuations that were plainly ridiculous. The examples used by the valuer bore only a tenuous comparison to the property in question. X sold for $1M so this one is worth $2M - that sort of thing.

No doubt the corrupt valuers were party to the fraud IMHO. Scum!

You have just described the mindset of the property market. "They got X so I must get twice that." You'd think most people would have realised how stupid that is, but they haven't.

Golly! The good news for property investors just keeps coming, thick and fast, doesn't it !

still waiting for that collapse hey Nick A... not going to happen.

You'll recall that my view is that I will never buy a house again in my lifetime. So collapse, maybe not ( but maybe, we'll see !). Just a long slow grind ever downwards, with the occassional ray of sunlight that will allow the trapped to escape...if they're quick.

NA people will believe what they want , it is almost impossible for them to accept things they don't want to understand. What is worst of all is that they make decisions based on narrow information. I shared some links on another thread which in my world makes up mandatory additional reading on financial markets and goings on , the real oil that you may find on page 63 of the average paper , if at all. Let people do what they want in respect of houses , if they can't see reality.
My main concern is that people have lost the ability , if they ever had it to investigate , analyze & logically disseminate varied information. Instead opinions are made and publicized which are naive at best ignorantly dangerous at worst. Sadly those who have an understanding of why there must be change , no matter what , have to live with their lack of understanding. It's why governments continue to get away with murder.

He had "no doubt" the New Zealand Institute of Professional Valuers was equally committed to dealing with cases where valuers fail to meet professional standards. I appreciate the quotes around "no doubt".

As a valuer this comes as no surprise what so ever. There are many good valuers out there but there are some absolute shockers. As for the NZIV or the VRB's ability to deal with the rotten eggs.. lets just say IF a complaint was even laid, it wouldn't surprise me to see it take years before there was an actual outcome. And also be aware that complaints would generally be laid after something went wrong years down the track. So it could easily be 4 or more years from time of valuation to time of result.. and as to weather a complaint is even laid, I imagine most people just want to ignore it and get on with their lives by then.

At a large industry conference two years ago half the people in the room were questioning the speaker as to why one particular valuer who was notorious for catering to the requests of developers through the boom had still not recieved any reprimand what so ever. The problem was that nobody was laying any complaints.

At university we were told valuers were to have a higher morale standard than lawyers and other professions. Now after a number of years experience in the real world I realise that was nothing but a complete farce.

As a valuer I would never trust a valuation supplied by a vendor or otherwise interested party. Always find your own independent valuer and get them to carry out a valuation on the property yourself.

The true "value" is what buyers are willing to pay, EVEN if they are deluded like many have been for near on a decade 

Cant you sue them for professional malpractice like any "professional" , or are they really just prostitiutes selling themselves to the highest bidder ? 

The rateable value from my exerience is relatively accurate, and you can get it reassessed for you particualr house if you object, so that it is very accurate. And at the end of the day, as has been seen in Christchurch, you are only going to be provided with the RV if the government needs to buy your property back. If youa re paying more than the RV you are possibily paying too much. I have put offers on some properites that have had huge independant valuations placed on them, and even the agents were embarrassed by the value and said that it was too high. The main benefit of independant valuations is for sellers who want to get as much as they can for a proeprty.

Found this interesting Bernard, can't find a reference to it on your site so..


nite all. bed time here

Hmm, more corruption in the property world. SFO needs to come down on these people hard.

The biggest rort of all are the "room by room" valuations that dodgy valuers can create.

For example a standard $300,000 house that might let for $350 per week can be packed out  with 12 people paying $150 a week each creating a  cash flow of  $1800 per week or $90,000 per year. 

Then dodgy valuer comes along and and says this is a 10% deal and the property is now worth $900.000.

This is not imagination.

There are houses everywhere being touted in this manner by spruikers and get-rich-quick con men, compliant real estate agents, and look-the-other-way valuers.

And dumb investors who don't get professional advice from experts like Olly, are being caught daily.

Another scandal is in the making. Will they never learn? 

If you don't believe it check out current Wellington real estate advertisements. 


Makes one wonder if the property valuers are the cause of the rediculously inflated house prices?

Probably made thier wealth out of he property boom - poor trustng public.

It's common knowledge within the industry that particularly in Auckland, there are secret cash rebates on the first few sales of a new development. This practice inflates the value of the remaining units. Everyone involved is getting a graft, including the lawyers.

"The Real Esate agent, The Valuer and the Bank" an epic movie.

Trusting victims enslaved with indebtedness whilst advisors incite a property bubble and benefit.

Great viewing Laugh a minute.

As a valuer I say its about time. We see all manner of shonky work come through, some of which is truely terrible, negligent and best and dishonest at worst.

I think it is becoming more apparent to clients who tells the truth and who is a hired gun, unfortunatly our regulatory institute is toothless and useless. This is extreamly frustrating for us who try and colour between the lines. W e cant complain, only the client can, and in the instances I have seen lately, the regulators pretty much dismissed the claim off hand. It seems that you have to do something so utterly hopless to get repremanded that it verges on ridiculous.

As a valuer, you are impartial, independant and have a mandate to do the work and tell the truth. I have clients that have HATED what Ive told them over the last two years, some of them went to valuers who were "tame". I have been asked if I was tame by a client once, I stood up, said I wouldnt be able to do the work and walked out.


At the end of the day it comes down to professional integrity. You get your reputation once and its bloody hard to get back if you dont  be straight up and down. Its that simple. The sooner some of the guys who act in the mentioned manner are rooted out the better for everyone.

"He had "no doubt" the New Zealand Institute of Professional Valuers was equally committed to dealing with cases where valuers fail to meet professional standards"

What I question and certainly brings into doubt the Institutes creditabilty, is this has been going on , constantly for years, and is a major reason for many being over leveraged and the real estate boom its self.

If it takes many years AND an SFO investgation to eventually get the institute off its bloody backside to do what it is primarly designed to do...certainly calls into question the elected officiers intregity its self.....

"At the end of the day it comes down to professional integrity. You get your reputation once and its bloody hard to get back if you dont  be straight up and down. Its that simple"

At the moment in our area, one picks up a low 200K rental, min desposit, well under 'offical' valulation..spend 15 or 20K, quick flick, carpet, kitchen, whatever....in 6 weeks, get it 're over valued', the bank then lends against this over valuation for the next rental, and so on.

One then rents a couple, put the others back on the market, a few grand 'under the valuation' looks good on trademe, and wait for some hard working blue collar sucker who believes in the integrity of the New Zealand Institute of Professional Valuers........

And you think the SFO or even the New Zealand Institute of Professional Valuers will do a damn thing about this....dream on.

Values we can now wrap in with back yard unregist used car salesmen, and pollies.


















































































I see the main issues raised in this article is that a ‘small number of property valuers’, presumably NZIV (New Zealand Institute of Valuers) members, have been identified as not acting with professional integrity and this problem does not seem to be have been dealt with from the professional body itself.  There seems to be instances where ‘a clear intention to deceive an investor with false information’ has occurred and the SFO can lay criminal charges.   ‘However, in many instances the valuations fall short of what is required to meet a criminal standard of proof of fraud’.  Is that then a requirement of the NZIV to investigate or to the individual NZIV members to check and rectify through complying with the NZIV Code of Ethics?  Have the valuers concerned chosen a morally right path of action with regard to professional integrity in their profession?
Perhaps, yes when looked at from an ethical theory viewpoint.  One ethical theory suggests choosing an option that provides the most happiness or well-being as possible and the least amount of suffering, a morally right way to act.  Do these ‘rouge valuers’ believe that they are acting with integrity because they are looking out for their own interests and what they believe to be morally right?  ‘Personal integrity is about upholding one’s own values and standards’ (Open Polytechnic, p.36).  They believe their actions to be right in their own mind.  A few valuers are not acting with some of the values of integrity such as fairness, trustworthiness and honesty.   It is not fair to provide inaccurate or misleading values on property and this deception does not show the honesty expected of the professional valuer.   Is the alternative, to provide an independent and fair value for the property, not the best choice and a moral show of integrity?  In this scenario ‘a small number of property valuers’ have chosen the action they believe will benefit them the most and possibly believe holds their integrity intact in that they are acting honestly and fairly in their own thinking of what is morally right.
Professional integrity requires similar values and moral principles to be shown with constant regard to a particular Code of Ethics of a professional institute.  Why would a professional not display professional integrity in line with the profession they are engaged in if they are already of good personal moral character and personal integrity?  In this case ‘alternative forms of redress’ could be taken via the NZIV through investigation in line with requirements of membership rules and the Code of Ethics of the NZIV.  Could the threat of being struck off persuade all members to act with professional integrity?  Being part of a professional body indicates that you are prepared to abide by the same standards you expect the rest of the members to meet, including professional integrity.  ‘We know that valuers generally operate to very high professional standards’.   
Do we portray to society that we have professional integrity being a member of the NZIV?  Society lets members of the institute create their own rules and therefore it is up to members to ensure the goals of the profession, in line with the codes of conduct, are met.  While misleading investors may seem morally right or ethical in the valuers own actions and personal beliefs, it clashes with morally acceptable behaviour in society and professional integrity under the professional Code of Ethics for the profession.  Therefore I suggest that virtues of integrity need first be in the individual as part of their character as is expected by society as a whole (shown by government law in the Valuers Act) in order to reach what is required in the professional realm.   NZIV Code of Ethics, Clause 1.1.1 “Practice their profession with devotion to high integrity, …..to the institute and in the spirit of fairness and goodwill to fellow members , employees and subordinates”. (NZIV Code of Ethics, p. 1)
These ‘rouge valuers’ are showing traits against what integrity holds as acceptable in society and the professional arena.  The ‘intention to deceive’ with false information, the arrogance that comes through when we look at the ‘financial incentives’ and bribes taken, shows dishonesty and lack of adherence to the expectations of the profession. Therefore the actions displayed by some valuers are not seen as morally right under the virtues of ethical theories or that of professional integrity.
Not all NZIV members it would seem are upholding the values and standards of the profession and therefore not displaying a morally right path of action or professional integrity.  The few valuers acting in an unfair manner with bias and selfish intentions show a lack of professional integrity and I suggest is something the institute may wish to investigate further in order for the goals of the profession to be upheld by all members and confidence in the profession improved in the eyes of the community.
Constructive Criticism received from Kirralee Mahoney, email received 14/1/2012
Open Polytechnic of New Zealand (2011) Module Two 71203 Business Ethics. Lower Hutt, NZ: The Open Polytechnic of New Zealand.
New Zealand Institute of Valuers, Code of Ethics, 12 April 1996 & Valuers Act 1948 retrieved from http://www.property.org.nz
Note: “The New Zealand Institute of Valuers merged operations with the Property Institute of New Zealand in 2000. The NZIV remains a legal entity with its own Rules and Code of Ethics. It carries out statutory duties (pending dissolution by amendment to or repeal of the Valuers Act 1948) and represents valuer members within the Institute” (http://www.property.org.nz, retrieved Jan 2012, homepage)
Rachels, J & Rachels, S (2010). The Elements of Moral Philosophy, 6th Edition. New York: McGraw-Hill
Vaughan, G.  (July 8, 2011).  SFO warns investors of 'inflated property valuations' in property development portfolios; Has seen properties valued 500% above market value. Retrieved 3/1/2012 from http://www.interest.co.nz/property/54265/