Bank valuation just above land + construction costs

[oracle]

Hi all,

I am in the process of applying construction loan for my next IP. The bank ordered a valuation for both land and building (based on the builders plans). The valuation came $5K above the total cost of land+building (excluding stamp duty and other costs).

Do you think there is any cause of concern? My mortgage broker said it should be valued a lot more once construction is completed. He said, usually valuers estimate conservatively before construction and keep it to total of land+construction.

Cheers,
Oracle.

 

[Rolf Latham]

Hiya Oracle

Id expect a normal val to be exactly that.

A target on completion valuation might be different

ta
rolf

 

[Sheryn]

Hi all,

I am in the process of applying construction loan for my next IP. The bank ordered a valuation for both land and building (based on the builders plans). The valuation came $5K above the total cost of land+building (excluding stamp duty and other costs).

Do you think there is any cause of concern? My mortgage broker said it should be valued a lot more once construction is completed. He said, usually valuers estimate conservatively before construction and keep it to total of land+construction.

Cheers,
Oracle.

Oracle
Currently building a duplex and lenders valuer valued land and building plan at 3K less than the cost to build. They said they would revalue once built which doesn't mean it will be a higher valuation.

In the current market valuations are very conservative.


Regards
Sheryn

 

[oracle]

Thanks both Sheryn and Rolf.

I wouldn't have predicted the current downturn at the time I purchased the land (Nov '07). I suppose I would need to wait bit longer then I would have liked to generate a decent equity. But hopefully rising rents would provide some compensation to the delayed capital growth.

Cheers,
Oracle.

 

[Rockstar]

Hi Oracle,

I recently had a land + construction val done on my duplex development of 720k which is basically rubbish. It's exactly the cost of the land + fixed price contract.
We expect the end val to be more than 900k. The valuer is just playing the game - we aren't concerned. Good luck.

 

[Ausprop]

it's still cause for concern, what does your own research tell you? if you can crunch a vendor that has a new house on the ground it may be cheaper to buy that and just let your block sit or flog it. The new outer suburbs of Perth are full of tales of woe regarding housign selling way below replacement cost.

 

[oracle]

it's still cause for concern, what does your own research tell you? if you can crunch a vendor that has a new house on the ground it may be cheaper to buy that and just let your block sit or flog it. The new outer suburbs of Perth are full of tales of woe regarding housign selling way below replacement cost.

The problem is my block of land is large compared to the rest of the blocks. Mine is 777 sq m compared to majority being between 405-550 sq m. So it's kind of hard to compare directly the prices of similar properties. Also, due to the larger block I decided to build a 5 bedroom house compared to majority who are building a 4 bedroom house.

Although, I have seen a few 5 bedroom houses in the region and the prices have varied significantly based on the quality of house. Again, I can't make a direct comparision due the size of my block and house.

I can't sell the block easily since the ACT government prohibits such activities as it wants people to built houses on block of land rather then just buying and selling land at higher prices. Which doesn't help affordability or rental crises.

I will continue to build on the land and rent it out. I should be able to afford the holding costs due to the added benefit from higher then normal rents as the property will be new, and also decent depreciation for the same reason.

Cheers,
Oracle.

 

[Aaron Sice]

my construction costs + land are $930k, my val was EXACTLY that.

its for construction purposes only, so if the bank has to reposses and sell they can finish construction and move on.

one finished with floor/window treatments, landscaping, paint etc it'll be worth substantially more - in any and all cases.

a place the same size as mine with a lower build spec has just been listed for $1.1mil, so there's already at least another $150k equity there.

 

[Land]

My valuation last week was perfect!!!

Hi all,

I seem to be getting a much better deal from the CBA for our dual occupancy.

We bought the land in March with a crappy house on it, with a standard investment loan, as if we going to put a tenant in the house.

Just spent 6 months getting all the approvals etc and applied for our construction loan a few weeks ago. Anyway, got a call from the valuer asking what I thought the two new dwellings would be worth on completion, he seemed a bit more conservative then me, but when the valuation came in it was exactly what I had asked for!! (For the record, what I thought they will be worth is pretty much what the comparable sales are telling me).

So his valuation was what the end value will be. The cool thing is, out total LVR (based on the valuation) will be just over 80% and so we're barely paying any Mortgage Insurance, so I'm extremely happy absout that!

Anyway, there were no tricks, just a standard construction loan with the CBA in Sydney......

 

[Rockstar]

Hi all,

I seem to be getting a much better deal from the CBA for our dual occupancy.

Actually my first duplex was through CBA and I discovered down the track that they had valued the project more realistically when initially presented with my plans. The latest one which was just valued basically "at cost" is through St George. Maybe they all have different policy on land+construction vals?

 

[oracle]

Actually my first duplex was through CBA and I discovered down the track that they had valued the project more realistically when initially presented with my plans. The latest one which was just valued basically "at cost" is through St George. Maybe they all have different policy on land+construction vals?

Mine valuation is also through St George. So it does seem consistent.

Cheers,
Oracle.

 

[PrimeCommercial]

Our valuation done before construction commenced was contract price + land price. 6 months after we moved in we had it re valued which came back at $60k more and we have just sold it 8 months after the last valuation for $80k over the previous valuation. And thats in a flat/declining market.

 

[oracle]

Our valuation done before construction commenced was contract price + land price. 6 months after we moved in we had it re valued which came back at $60k more and we have just sold it 8 months after the last valuation for $80k over the previous valuation. And thats in a flat/declining market.

So does that mean $140K above the original valuation before construction? And 14 months after you moved in?

Cheers,
Oracle.

 

[PrimeCommercial]

So does that mean $140K above the original valuation before construction? And 14 months after you moved in?

Cheers,
Oracle.

No, before construction it was valued at what we paid for the land plus what the contract price was. Once the place had been built we moved in June Last year. We had it valued again in Nov last year, the valuation came in at $60k over the previous valuation. We just signed up a buyer last weekend for $80k over the Nov 07 valuation.

Understandably the valuations are coming in rather conservatively.