Kylie Davis: (00:00)

Welcome to the Proptech Podcast. It's Kylie Davis here, and I'm delighted to be your host as we explore the brave new world where technology and real estate collide. I passionately believe we need to create and grow a sense of community between the innovators and the real estate agents and property owners, and sharing our stories is a really great way to do that. The aim of each episode is to introduce this news to a Proptech innovator who is pushing the boundaries of what's possible and to explore the issues and challenges raised by the tech and how they can create amazing property experiences.

Kylie Davis: (00:35)

My guests in this episode are Chris Spanos and Mike Thanos from IDS, a company that specialises in conducting high calibre, automated property valuations at scale for government agencies with technology that is likely to impact how our cities are planned. Now, Chris and I used to work together at CoreLogic. In fact, we sat next to each other for over a year as co-workers on the solutions team. So we'd love a chat, but we kept it together in this episode with minimal in-jokes. Chris is a General Counsel and Executive Director at IDS and is a finance and valuation industry specialist with a double-degree in law, economics, and econometrics.

Kylie Davis: (01:18)

While Mike is a founder and director at IDS with an extensive career as an entrepreneur in the lending industry. And this includes involvement with LIXI, which promotes data standards for lending an LTI, a mortgage documentation e-signing, and workflow business. With residential property ownership being one of the most valuable assets in the Australian economy, it's absolutely critical for governments at all levels to have accurate insights into property valuation. Chris Spanos and Mike Thanos, welcome to the Proptech podcast.

Chris Spanos: (01:51)

Kylie, thank you.

Kylie Davis: (01:52)

It's great to have you here. So look, I can't wait. You know me, I'm a bit of a data geek, and I can't wait to talk about data and property valuations with you. So before we kick-off, though, we always ask, what is the IDS elevator pitch? So who's answering that.

Chris Spanos: (02:09)

I'll take that as short and sweet-

Kylie Davis: (02:14)

Sweet and short, yes.

Chris Spanos: (02:14)

... which is, our focus is on the future of property valuations in Australia. We understand how they are currently used in the market, and we want to drive how there'll be used in the future.

Kylie Davis: (02:23)

Awesome. Okay. Now, what does IDS stand for? Because there's a lot of IDS businesses out there if you Google them. So I want to make sure people can find the right one.

Chris Spanos: (02:33)

It originally stood for Insight Data Solutions, but that's kind of not particularly specific to property. It's just a generic site. Everyone just knows us as IDS. And if you want to find us online, it's just, IDS.IO is the easiest way to find us online.

Kylie Davis: (02:51)

Awesome. Okay. So what's the problem that we're solving, what's wrong with property valuations, and how they've always been done?

Chris Spanos: (03:00)

Historically there are a number of issues, but mainly time and accuracy across the board. So a physical bio would need access to a property, et cetera. So the problem we tried to solve is automated valuation models already sort of started tackling that problem. So we're looking at what we would call next-generation, market-leading AVMs. There's always a better way to build the widget. And also, at the same time, when you look at statutory valuations, what the government is trying to do is the land tax purposes for council rights purposes is what's known as mass appraisals. So they're not obviously physically visiting every property in Australia just couldn't possibly do that.

Chris Spanos: (03:47)

So they have what are known as computer assisted mass appraisal platforms. So we've developed a suite of AVMs and market analytics, and we also have acquired what was the leading computer assisted mass appraisal platform, also known as CAMA, from Thomson Reuters. And that's been now two primary focuses. So they are the solutions we're working on how do we improve valuations for the corporate sector of finance industry, and how do we improve statutory valuations.

Kylie Davis: (04:19)

Okay. So there's a lot of misunderstanding though about evaluation, though. It's like, why do I need different sorts of valuations? Isn't my valuation, my valuation? What's wrong with the way that they're... I mean, apart from the physical side of its older valuations, what are some of the problems that have existed with them to date, and how are you fixing them?

Mike Thanos: (04:38)

So Kylie, in terms of the difference, the reasons that there's no one valuation fits all use cases. The best way to think about that is to think about the party, the organisation who's using that valuation. So probably the thing that most people would understand the best would be when they want to go to an auction or make an offer on a property, they are located there to make sure that they don't overpay, but they also want to make sure that they're going armed with enough financial firepower to win if they really want that property. So, in that case, they're very interested in the market value of the property before itself.

Mike Thanos: (05:16)

A bank, on the other hand, is very interested to understand that if that loan ever gets into trouble and they need to enforce their security against it, that they're going to have sufficient headroom, that they're going to be able to get the money they've lent plus any interest or fees they bought back by selling the property.

Mike Thanos: (05:34)

So that's more a risk management sort of view. And then for the government, for example, doing mass appraisals, they're not just valuing an individual property. They're valuing every property in the jurisdiction. And their driver is one much more or much less about getting exactly the right answer for every individual property, but more making sure that all of the valuations looked relevant to each other, sorry, relative to each other, a fair and equitable so that when you have a conversation with your neighbour over the fence about your latest rates notice, you're not both getting a shock about the relative values of your property. It's because the reality is you probably both have a pretty good idea of what your own property is worth.

Mike Thanos: (06:16)

So the use case very much drives the methodologies that are used, and also what it costs to do these valuations because some need to be very, very fast and almost real-time, but others it's okay to wait longer and to spend more time on them because of the problem or the risk of getting them wrong is the loss that somebody would incur or the costs they would incur is very much, very much higher.

Kylie Davis: (06:42)

So this whole use case, and I guess it's also risk profile, too, isn't it? So you could get a different... if you ask St. George Bank for valuation of your property from St. George, and then you also ask NAB or ANZ that's very probable they would come back with something different based on their risk profile. Is that correct?

Mike Thanos: (07:01)

To some degree, I think that when you think about the sorts of products and information that we and others like us serve yet, you're right. In addition to the value itself, which we wouldn't give a different value for a different lender, but they may be more interested in different information about the property. That means that they're kind of black and white. Will we lend against this property type or a property with these risks full stop. That's typically where the differences come.

Kylie Davis: (07:30)

But when a property buyer or seller is sort of going onto an online website and looking for their property valuation, that's kind of the vibe. It's not necessarily the constitution, right?

Mike Thanos: (07:41)

Yeah. Well, I mean, the thing is that, and this is, I think one of the real challenges is that analytics and automated valuations have suffered from is that because in competing for the eyeballs of the customer, everybody has started giving them away. I think that's undermined their value in the eyes of the consumer. So yeah, I mean, people tend to think free stuff is not worth very much. What's interesting is that there's a lot of effort and a lot of data, and a lot of investment goes into producing those numbers. And they are models. So the fact that we've all got an anecdotal example of where one of those estimates was clearly wrong, even though it said that the confidence of the model was very, very low. I mean, that's completely expected from the point of view of the way those models work, and lenders use them like that. So if the confidence isn't sufficiently high... And there's a garbage truck backing up in the background. If the confidence isn't sufficiently high, the lender won't rely on them then they will get another form of valuation.

Kylie Davis: (08:48)

Right. Okay. So AVM came in with a low confidence. We're going to send someone out to go and do it properly and take in some of those vagaries.

Mike Thanos: (08:57)

Exactly. Or get a valuer to look at it from their desktop, which is that kind of mid-model that's in the market.

Kylie Davis: (09:02)

Okay.

Chris Spanos: (09:04)

Moving back to what you said before. That's not always the case either, right? If you have what Mike was talking about before, because of the risks and risk rules that every lender has, it may be if you have the right deposits or your LVR is low and they have a preexisting relationship with you, they will have a high tolerance for an IVM that has a large error rate, what we call FSD industry. And I'll say, "Okay, it's close enough within the ballpark that it's all a giant black box," as far as they have the mortgage applicant is concerned, but there is often a very complicated system of rules.

Kylie Davis: (09:48)

So random question with the rural property market, I mean, rural properties are often more problematic, aren't they? Or properties in country areas where the data there's not as much data as there is in most suburbs in the city. Is the rural property, boom making it a bit easier to get higher confidence around?

Mike Thanos: (10:10)

That's a good question. I mean, what we did see through COVID was that because volumes held up out in rural areas, even in Victoria and I think balanced also by the fact that there was just an increase in inactivity in those markets, as people fled to the CBD and brought forward the tree change or the sea change. It was interesting. Yeah. We saw what we saw and the way we measured. This is how confident does the model still thinks it is overall? And we really only saw the model claiming or recording itself to be less confident, typically in Metro areas. So you're right. That is what we observed for sure.

Kylie Davis: (10:54)

Yeah. Okay. So, how big is the issue of property, data, and valuations in Australia and globally? How big is this as a market? How much of it do we need?

Mike Thanos: (11:04)

I mean, it's a huge industry. So I mean, we all know that real estate is the biggest asset class in Australia. And so you would fully expect that they afford the products and services, and the money spent on understanding the value and the risks associated with that asset class are in the hundreds and hundreds of millions of dollars. And I mean, a good example too, as Chris mentioned, we now provide technology platforms information to government. So in Victoria alone last year, $2.5 trillion worth of property was valued on that platform.

Kylie Davis: (11:45)

Wow.

Mike Thanos: (11:45)

So every property in the state of Victoria and three values for each of those properties. So in effect, it was approaching 10 million estimates were produced on the platform. And the government spends tens of millions of dollars per annum on doing that. And the reason they do that is that it underpins at the moment, nearly $10 billion of state revenue, which is 20% of state revenue. So that's council rights and land tax in particular. And for example, if New South Wales is successful in the initiative that's been put forward to replace transaction stamp duty with a broader-based property tax, that 20% in New South Wales will become 40% of the state government revenue.

Mike Thanos: (12:31)

So, it's only growing in importance. And as the size of people's loans is growing overall and in an environment with very low-interest rates, again, for the banks to get the value of the properties they're lending against right, it means that spend and budgets and the volume of transactions, and the volume of data that's being ingested is increasing year on year.

Kylie Davis: (12:57)

Fantastic.

Chris Spanos: (13:00)

And if you look globally as an example, Zillow alone last year during the pandemic, its market cap has gone from 10 billion to 20 billion. If I check-in Black Knight and Call Logic US, and First American, you're talking about something like 35 to 40 billion in market cap. And that's with companies that are doing a relatively small amount of property data and analytics. I've got nothing like complete coverage of the US alone. So if we're talking about globally, what is property data and analytics worth? It's just if one company could do it all, it would be an Apple or a Google or an Amazon you're talking about. A very, very large total addressable market. And now let's hear a word from our sponsors.

Announcer: (13:51)

For almost 16 years, Direct Connect has made moving easy for over 1.2 million renters and homeowners by arranging connections to a wide range of services from electricity and gas to internet and pay-TV. With a national team of local account managers who are experts in the industry, Direct Connect are there to support your real estate business with competitive rewards for every successful connection. Plus an industry-leading rewards programme.

Announcer: (14:18)

The connection process is simple and Direct Connect, always on guarantee ensures your customers will be connected on the day they move in. Direct Connect offers a range of market-leading suppliers, and Direct Connect has now made it even easier than ever to send connections directly integrating with MRI Softwares property tree. So in just a few clicks while processing your tenancy, you can send the connection details through and get your customers connected. To make the right connection and find out how Direct Connect can make moving easy for you and easy for your customers, visit agents.directconnect.com.au, or call 1300 558 169.

Kylie Davis: (14:58)

So how did IDS happen? Tell me the background of the company. Who came up with the idea, and how did you guys come together?

Mike Thanos: (15:08)

So my co-founder Louie Psaroulis and I founded the business in 2013. Louie and I had known each other for at least a decade before that because we both worked around, in particular, the mortgage finance industry, Louie, with his own business, which he sold to CoreLogic in the 2000s. And me with my own business, which wasn't in the valuation and property data space but in mortgage processing and technology and documentation.

Mike Thanos: (15:38)

So yeah, we said to each other, as we'd known each other and sort of becoming colleagues, that it'd be good to work together one day. So yeah, 2013 gave us both that opportunity. And so we founded IDS really based on the idea that firstly there was a reduced amount of choice in the market for those sorts of solutions. And we saw and heard from banks in particular and clients that there was an appetite for a challenger. And I guess also, when we think about the journey into the government space we'd seen for some time, it felt to us like the way that government did valuations in 2015 was very much the way that banks did them in 2000.

Kylie Davis: (16:27)

You think government was behind the hack?

Mike Thanos: (16:29)

They did. Yeah. So we could really see the way that would play out would probably be the same way it had played out with the emergence of the platforms like Murex, the emergence of AVMs, the broader use of data and analytics. So I guess what we are hoping we are doing is bringing our experience in doing that in the corporate space to the government space as governments need to do this more efficiently and more effectively. And the reality is there's an ageing population of municipal value was out there, who are all going to all be retiring in the next 10 years. And the industry it's not particularly sexy or interesting for young people coming into the industry. If it doesn't get into that space of data and analytics and modern technology. So we're hoping to be part of, I guess, that modernization process.

Kylie Davis: (17:23)

I guess too, if governments have a better idea of the valuation of every property, some of the stuff that we've seen over the last five to 10 years where infrastructure's gone into and valuations around, how much is it actually going to cost us to put in that freeway road, train station, underground tunnel, that's going to require X number of properties to come out for us to purchase. It gives you accuracy around predicting some of that costing as well. Doesn't it?