HOW TO MAXIMISE YOUR VALUATION?
There are a few things you can do to avoid a valuation coming in below your expectations.
The most important thing to do is some research into comparable sales. There are internet-based companies that can provide you with listings of comparable sales. Also, speak to local real estate agents. They’ll tell you what they think but more importantly, many agents are happy to print off a list of comparable sales off their system for free. You can then work your way through the list of sales and pick the ones that are the most comparable.
When determining if a property is comparable, you should first focus on the land size, as that’s probably going to be the biggest driver of value. The next thing to focus on is size of the dwelling, number of bedrooms, age of the dwelling and so on.
When undertaking this analysis you must remain as impartial as possible. Don’t “cherry pick” comparable sales results that support the maximum value. You have to give the most weight to the most comparable and most recent sales – even if the sales result doesn’t help your cause.
You could commission your own valuation. Residential valuations normally cost around $300 to $500.
Make sure you tell the valuer that the valuation will be used for mortgage purposes. This will give you an impartial opinion but with more control over the process, as you’ll be able to speak to the valuer. However, it’s very likely the bank will want to order its own valuation.
When estimating the value of your properties on a loan application form, you should provide a high but still reasonable estimate. You don’t want to go too high, because the valuer or lender is likely to totally ignore your estimate. However, there’s no point in going too low either.
Some properties will benefit from a full valuation, particularly if the property is in good condition inside or has been recently renovated. However, sometimes you’ll be better off with a kerbside valuation if the property is in poor condition inside because obviously the valuer won’t see the inside.
Sometimes, borrowers might manipulate the system to order a certain valuation. For example, if you want the lender to order a full valuation, you might apply to borrow more than 80 per cent of the property’s value (remember, lenders will generally order a full valuation if the application involves mortgage insurance).
Once the valuation is completed, the borrower can adjust the loan amount down to 80 per cent. That’s one way to get the valuation you want if initial requests for a full valuation are declined.
The presentation of a property can make a difference to the valuation outcome. Therefore, make sure your property is well presented (eg. lawns mowed, inside is clean and tidy, uncluttered and so on). The appearance of DIY renovations can also reduce valuations.
If you consider the bank’s valuation to be low, you could challenge it. To do that, you need to provide the lender (which in turn approaches the valuer) with new evidence of sales to support your estimate of value.
If the difference between your estimate and the actual valuation is less than 10 per cent, then you’ll probably have very little chance of changing the valuation. If the difference is larger, you’ll need two to three comparable sales which support your highest estimate to have any chance of changing the valuation.
In my experience, it’s very difficult to change a valuation even if the inaccuracy of the valuation is obvious.
Often, the simplest and quickest solution is to approach a new lender so that a (hopefully) different valuation firm is used.
SHOULD YOU BE INFLUENCED BY THE VALUATION?
If you’re buying a property and your lender values a property for less than what you’ve agreed to pay, should you withdraw from the contract or offer?
Recently, we were assisting a client who purchased a property off the plan for $2.4 million. We had the apartment valued three times by three different valuers. One valuation came in at $1.25 million (yes, nearly half of the purchase price), one at $2 million and one at $2.4 million.
Which one is wrong and which one is right? Who knows!
If I was purchasing a property and receive a bank valuation for less than the purchase price, I would investigate further but it may not be enough, in itself, to suggest you should withdraw from the purchase.
BANK VALUATIONS ARE CRITICAL!
Maximising bank valuations is a critical ingredient when building a property portfolio.
Bank valuations could make or break your ability to purchase another investment property. Therefore, you should have clear and realistic expectations of your bank’s valuer.
Do your homework. Maintain objectivity. If you still feel the bank’s valuations are unrealistic, consider looking at other lenders.
Being able to invest in an additional property could make you a lot more money than a refinance will cost you. I know that from my own experience.
Stuart Wemyss is the founding director of financial advisory firm ProSolution Private Clients and author of Smart Borrowers Handbook and The Property Puzzle, available from www.businessmall.com.au