Bank val above contract price

[JDM]

Hi All

I have an OTP unit under contract with settlement expected around September 2015.

The purchase price is $439k (about $30k below the developer's valuation). I am in the process of changing the unit to convert it from a 2 bed plus study to a three bed. This is being done as a variation and will be done by the developer as part of the construction. Expected val for the three bed unit would be $500k - $530k.

Unlikely that it is relevant, but this will be a PPOR.

Given the above:

1. Is there any chance a bank will lend on the value at completion of $500k - $530k?

2. Is it likely that the valuer will see the purchase price and just bring the val in at the purchase price regardless of comparables, buying under market value and the variation to value add?

Thanks in advance.

 

[Jamie M]

Some lenders will go off the val if the contract was signed longer than 6 months ago.

Just done one for a Syd client where val came back $50k higher so she was able to dodge LMI

Cheers

Jamie

 

[Peter_Tersteeg]

The lender will get a valuation done when the property is completed and they'll lend against that valuation - for better or worse.

Given there's more than 6 months between signing the contract and settlement, quite a few lenders would recognize the higher valuation.

Also be aware that there's plenty of off the plan apartments where the valuation is below the purchase price after a couple of years. In this case you need to contribute the difference. I say this because a 'developers valuation' is completely irrelevant to the market.

 

[JDM]

Thanks for the quick response guys.

Would I be right in saying that it will be a battle to get a valuer to bring in the val above the purchase price regardless of it being justified? My experience with OTP vals tells me that they are generally a lot more conservative than established properties.

 

[Jamie M]

If there's been a decent upswing in the market since exchange and settlement then that's usually enough justification. Supporting your argument with comparative sales will help too.

Cheers

Jamie

 

[Rolf Latham]

Thanks for the quick response guys.

Would I be right in saying that it will be a battle to get a valuer to bring in the val above the purchase price regardless of it being justified? My experience with OTP vals tells me that they are generally a lot more conservative than established properties.

Being able to valuer shop is an important component of of the justification.

Amazing what differences of opinion one can have on the same piece of real estate in the same week.........................

ta
rolf

 

[Marty McDonald]

With OTP valuers pay much less attention to the contract price than with a normal sale. Fair enough.

 

[JDM]

Thanks again for the responses.

Two follow up questions:

1. Is it possible to get upfront vals with a few different lenders (preferably through a broker) then submit the loan application based on the best val? Will this usually result in different valuers?

2. I understand NAB (and presumably others) will lend based on an internal val rather than a formal valuation, is this only on 80% LVR loans for established properties or can this be used for an OTP purchase that is likely to be 80% - 90% LVR?

 

[Peter_Tersteeg]

1. Yes, you can get valuations done by more than one lender and take the best one.

2. In my experience the NAB internal valuations are usually more conservative and far less accurate than independent valuations. You also have to lodge an application to get them to order an internal valuation (which means a credit hit).

 

[Mick C]

1. Is there any chance a bank will lend on the value at completion of $500k - $530k?

^ some banks allow for this...i had a few this year ( 1 Burwood road, Burwood...Marrickville ...the new Macquaire Park that will settle next month all valued 10-20% higher,) all valued higher than the purchase price so the client didn't have to put a single cent in

Rare market for OTP to be higher but it does happen in certain areas and market- i stress RARE! i dont want ppl go off buying OTP expecting not to put a single cent in ...

 

[JDM]

^ some banks allow for this...i had a few this year ( 1 Burwood road, Burwood...Marrickville ...the new Macquaire Park that will settle next month all valued 10-20% higher,) all valued higher than the purchase price so the client didn't have to put a single cent in

Now that would be nice!

In today's market I think a realistic val would be around the $530k mark ($500k being ultra conservative) based on comparables. This is using comparable properties that are a few years old rather than other OTP sales so there should be no issues with a valuer recognising these. Now let's hope a valuer agrees when the time comes.