Auction Valuations "market value"?

[SYDB]

Hi all,

First post, thanks for listening.

I'm planning on attending and bidding on an auction this weekend. I am curious as to whether the bank (CBA in this case) will accept the value at auction as the true market value.

I have searched and found another thread where a non auction property had a problem with the val being 5% under and the buyer had to let the property go (lost the 0.25%).

I am extremely tight on my LVR and basically cannot tip in any more equity.

I work for a bank subsidiary so I will get my LMI waived if I am at 90% LVR, hence I cannot seek another valuation from another lender (I don't have the funds to pay the LMI up front and most/no lenders aren't going to capitalise in as it puts me above 90% LVR - plus its a big saving so I'm best to stick with CBA).

CBA have provided me with their valex property valuation system. I can pay $265 and get a valuation. But I don't want to do this prior as surely the price at auction will be factored into their valuation, as it is indicative of market value I would have thought? Or is the valuation done without regard for what happens at auction and hence I should actually get the valex val in order to protect myself?

I'd hate to pay the $265, see a low value, I guess that would mean I just couldn't bid once it got to that point and maybe I should just not turn up at auction?

Thanks alot, I'm a FHB and have absolutely no idea how this works. If it helps, I expect val to be 550-600.

Cheers

SYDB

 

[hobo-jo]

IMO given the size of the purchase $265 is a small price to pay for peace of mind.

 

[buzzlightyear]

In almost all cases, an auction is a true test of market value. I would doubt the CBA or any other major lender would not consider a property sold at auction as not being market value.

So have you compared similar & recently sold property and their prices to the one you are intending on bidding for? That is the more pertinent question. If you know, then knowledge is power.

 

[SYDB]

Thanks for the replies, much appreciated.

Hobo, I would gladly pay the $265, if I knew this was the absolute max value the bank would consider financing. Then I would know my ceiling.

I am wondering though if it is worth it, as I suspect they may consider the auction itself as true value, or as a guide? e.g. pre auction valuer says 540, auction is 570, they accept 570 as there were many buyers competing at auction.

Buzz, I have been looking in the area for a while now and I'm comfortable with the range this property sits in. I am comfortable with my own "valuation". But I don't want to pay say 570 and then the valuer comes back with 540 and the bank wont budge. I don't know how the banks operate, I guess that's my question really. If anyone has prior experience here it would be much appreciated!

 

[Propertunity]

For the most part, I think you can be fairly safe in believing that the winning bid at auction will be taken as 'market value' by a valuer.

The exception would be where the bidding goes:
$500K
$510K
$540K
$545K, $546K, $547K, $547.5K
and you come in with your killer bid of $620K and the bidding stops and you are the 'winner'.

 

[willair]

For the most part, I think you can be fairly safe in believing that the winning bid at auction will be taken as 'market value' by a valuer.

The exception would be where the bidding goes:
$500K
$510K
$540K
$545K, $546K, $547K, $547.5K
and you come in with your killer bid of $620K and the bidding stops and you are the 'winner'.

How can it be a killer bid when you have just paided 120k more then the punter who made the 500k bid,make me wonder who is the winner..
..willair..

 

[Propertunity]

How can it be a killer bid when you have just paided 120k more then the punter who made the 500k bid,make me wonder who is the winner....willair..

Exactly!

BTW I am not suggesting this as a strategy, merely illustrating a case in point where a valuer will not agree that the result of the auction is true market val.

 

[SYDB]

For the most part, I think you can be fairly safe in believing that the winning bid at auction will be taken as 'market value' by a valuer.

The exception would be where the bidding goes:
$500K
$510K
$540K
$545K, $546K, $547K, $547.5K
and you come in with your killer bid of $620K and the bidding stops and you are the 'winner'.

Thanks Propertyunity. I actually emailed the agent tonight with my pre-auction questions and one of them was whether the agent provides the buyers bank with evidence of the auction conduct to "prove" this is the market value.

From the sounds of your post, they do?

Been reading some other threads, I getting less and less confident of picking this thing up. Its inner west and all the talk is of inner west going gangbusters. I mean, I know it is, but I now find myself second guessing my own valuation of the property!

Cheers

SYDB

 

[Propertunity]

Thanks Propertunity. I actually emailed the agent tonight with my pre-auction questions and one of them was whether the agent provides the buyers bank with evidence of the auction conduct to "prove" this is the market value. From the sounds of your post, they do?

They can especially if the valuer suspects something - but only to the extent of the opening bid and number of and value of bids down close to the end. Otherwise he would not be interested. The auction records are to be provided to the OFT if they request it.

So in answer to your specific Q - probably not.

but I now find myself second guessing my own valuation of the property!

Allow 10% over what you think it should go for, based on comparable sales at the moment.

 

[jezza]

Propertunity

We all understand that REA are not the best at getting anywhere close to the mark but when a place is advtised at being between 450 - 500 and the general consensus is it will go in the mid to high 500's and it sells for over 700k and it has gone up consistently from 480k to 700k in bids of 5k's then you would still expect a valuer to come in and agree that the place is worth the amount paid of 710k.

Jezza

 

[Rolf Latham]

Hiya

Tough one, and understand the conern u have

worst case u might have to forgo the no LMI fees to cover yourself if all falls over, and go for a 92 % lend or so with another lender.

In 11 years,I have only had vals come back lower on 1 deal, and that was just because the valuer was a dill and "accepted the agents view that there was a of of interest in the property"

Youd have a 99 % plus chance of auction = val.

As to getting a val upfront.....why ? Unless you need to have it to guesstimate a rent rtn etc, id leave it be.


ta
rolf

 

[StuartW]

I agree with Rolf. I have seen it 2 or 3 times... very rare. If it happens, you have either bidded stupidly or valuer is a clown in which case you'll have to use another lender. Highly unlikely two independent valuers will result in two silly valuations.

 

[SYDB]

Hi Rolf, Stu,

Thanks for the thoughts. I didn't take your advice and got the valuation anyway, for my own peace of mind more than anything.

Will be interesting to see what it is as it effectively caps my bidding on the place!

Thanks

SYDB

 

[SYDB]

Wow, extremely interesting progress today.

Valuation came back at $535. My pre offer bid of $559 was not accepted and there was not even a counter!

I informed agent I would be at the auction.....as a bystander. Certainly glad I ordered the valuation, as the bank has confirmed they only go on the valuation (not the "market" value at auction).

I was prepared to go to about 600 on the property, so I probably would have lost my 5% deposit if I got it at auction.

Suggests to me one or a combination of the following:

1. the agents have some buyers who have done less due diligence
2. the agents have buyers with more equity for whom valuation is not an issue
3. the valuation is very much on the conservative side (to be frank I think my $559 was around the mark)

Unfortunately I wasted $500 on Pest & Building too. I am not too worried though, this has been a huge learning experience. A couple of steps I will be taking to make my search as a FHB less stressful are:

1. I will be making conditional offers upon valuation from now on and will order the valuation once offers accepted in principle
2. I will not do auctions - I may offer early in the piece on properties going to auctions, but if we don't reach agreement I move on, not wasting 4 weeks hanging around - this will cut my sample of potential properties, but I have been turned off the whole auction process

Cheers

SYDB

 

[Propertunity]

Suggests to me one or a combination of the following:

1. the agents have some buyers who have done less due diligence
2. the agents have buyers with more equity for whom valuation is not an issue
3. the valuation is very much on the conservative side (to be frank I think my $559 was around the mark)

It may well suggest all of these things, and probably more of #3 than anything. We run into that occassionally too and commission other lender/valuer combinations that are more realistic (its a very inexact science).

Let us know how the auction goes please.

 

[hobo-jo]

Valuation came back at $535. My pre offer bid of $559 was not accepted and there was not even a counter!
I was prepared to go to about 600 on the property, so I probably would have lost my 5% deposit if I got it at auction.

Really just shows you need to be careful about what advice you take from internet forums. I'm pretty sure I would be able to dig up instances in the past here where the same questions has been asked and it's been more or less 100% answers of "don't worry about the valuation, they will value at hammer price".

Another thing to consider is you could be up for more than the 5% deposit. As far as I'm aware (but I'm no lawyer) you would be legally expected to purchase for final auction price if you won, so if your finance fell through and you couldn't buy it you could be up for re-advertising costs as well as the difference between what you won it for and the amount received when sold the second time. This could have amounted to more than 5% of the price.

It's not a good idea to take anything for granted with today's bubble prices. Make sure you've got your i's dotted and t's crossed before making unconditional offers, that's for sure!

Good to see you are learning from the situation, another thing to keep in mind is that when making an offer on a property that's going to auction they will generally draw up the contract to auction specifications (e.g. unconditional) so watch out for that, make sure you can get your clauses in where required (like subject to finance).

 

[SYDB]

Place went for $630K in an extremely competitive auction. I got my bid in at my limit of $550 and that was it.

Can't believe what it went for to be honest.

Personally, I thought fair market value was between the banks value and the sale price.

There are factors playing on this market that are quite simply unAustralian (Rudd's FIRB rules). I felt very sorry for the local pregnant couple who missed out on the place. It's tough for young Aussie families now.

I suspect this will end in a society of forever renters for this generation onwards, unless the rules are changed. Aussie Dream is over. I think I'm just going to move out of the country.

Cheers

sYDB

 

[MC1]

I'm 99.9% sure the bank valuation will now come in at $630k

 

[SYDB]

I guarantee you it wont, not at my bank. I've checked with multiple sources (including lending and branch managers), it's their new credit policy. They only lend against the valuers valuation.

Doesn't matter for cashed up buyers though.

 

[MC1]

Wow, extremely interesting progress today.

Valuation came back at $535. My pre offer bid of $559 was not accepted and there was not even a counter!

I informed agent I would be at the auction.....as a bystander. Certainly glad I ordered the valuation, as the bank has confirmed they only go on the valuation (not the "market" value at auction).

I was prepared to go to about 600 on the property, so I probably would have lost my 5% deposit if I got it at auction.

Suggests to me one or a combination of the following:

1. the agents have some buyers who have done less due diligence
2. the agents have buyers with more equity for whom valuation is not an issue
3. the valuation is very much on the conservative side (to be frank I think my $559 was around the mark)

Unfortunately I wasted $500 on Pest & Building too. I am not too worried though, this has been a huge learning experience. A couple of steps I will be taking to make my search as a FHB less stressful are:

1. I will be making conditional offers upon valuation from now on and will order the valuation once offers accepted in principle
2. I will not do auctions - I may offer early in the piece on properties going to auctions, but if we don't reach agreement I move on, not wasting 4 weeks hanging around - this will cut my sample of potential properties, but I have been turned off the whole auction process

Cheers

SYDB

Not trying to sound harsh mate, but if you order valuations prior to every auction and stick to the value of the valuation as your limit, I dont think you will everbe successful at auction. Private sale will probably be a better option for you.