Bank Valuation Lower

[keenas]

Hi guys

My step son has just negotiated a deal for a 1 bedroom unit to be his PPR in Westcourt Cairns.

The original asking price was $175,000 and he negotiated it down to $167,000.
He has made the offer subject to finance.

However the bank valuation came back as being valued at $150,000.

I know that the banks can sometimes be a bit conservative with their valuations - but this one seems to be way off the mark.

Does this mean that he is paying too much at $167,000 ??

It is a large unit 80m2 in a small complex of 8. Other much smaller (40m2) 1 bedders in similar condition are selling for around $130,000.

As the bank will only lend 80% of the property value - this means that he will have to come up with a larger deposit.

Is he paying too much ? Can he negotiate further due to the valuation ?

Any advice on this would be much appreciated.

Debbie

 

[Spectre]

It depends on the bank / lender if it can be negotiated and also if there is mortgage insurance involved.
Normally to prove the valuer wrong he has to provide recent comparable sales to justify the sale price - i'd work on a 3 month or less basis. If the agent is interested in this, he will have these to hand. You then deliver them to the bank and they send them to the valuer etc etc.

A lot of the time valuers can be egotistical and wont budge which means you switch lenders (and in line switch valuation firms). Call it valuer logic maybe?

Bank valuations are done on fire sale basis and valuers are tightening up as well

It might be faster to swap to another lender and get them to value it upfront. If the valuation comes in line with "Bank A's" valuation then its tough to argue against it.

But the bank should also lend up to 80 without mortgage insurance - if he goes to westpac or ing then they can go to 85% without mortgage insurance.

Many many issues...

 

[jasperjue]

You could certainly try to use it as a negotiation item. Bank valuations are take into acccount recent similar sales in the area but they do seem to err on the conservative side...especially these days with risk aversion a little higher.

Try a couple of other banks as well and see if they give you a different answer.

i'd do both in parallel. use the first evaluation as a negotiation item whilst trying to get a higher valuation for your finance.

good luck.

 

[Rixter]

Debbie, you have a few options.

Approach the valuer. Put forward your case as to why you think the value of the property is higher and see if they will increase it .

Throw more money in.

Negotiate for a lower price from the vendor.

Terminate the contract under the finance clause.

Hope this helps.

 

[Jayro]

We had this happen to us with our most recent purchase. It wasnt as much a difference as in your case but was around $5k or so. The Owner dropped there price to the bank value and it was a done deal. The R/E informed the owner that we wouldnt pay anymore and that was that.

Cheers jayro

 

[Big Al]

Keenas, this appears to be very common at the moment. Valuers seem scared of their own shadow in the current unpredictable market.

I had the exact same situation with a recent IP purchase, I had done my DD and knew the purchase price was in line with values in the area, however the bank came along and valued it 10% ($31K) under pur price. I was lucky enough to hold the IP subject to finance for 3 months (it was a OTP purchase) whilst I applied for finance elsewhere & built a case to fight the new valuer, luckily..for him his valuation came in spot on value.

My suggestion is if your step son has done his homework & is certain the purchase price is o.k, then look at all options to secure finance & the property such as-
New lender (New Valuer)
Increase the loan amount & pay LMI
Find the extra cash to compensate the lower val (only $3,400).
Ask the RE for further reduction (may be wasting your time, depending how long it's been on the market & how keen they are to sell)

If you think your on a good thing stick with it!

 

[Token Funder]

n the current environment, valuers are extremely worried about getting it wrong and getting sued by funders. They therefore tend to take a fairly prudent (conservative?) approach.

My take has always been that if the valuer won't risk their reputation or money by going above a particular $ number, as an investor you should consider whether you want to.

If so, no problemo. But don't allow emotion to drive you to convince yourself that they're wrong. Remember, they are only worried about potential $ on the line...you have actual $ at risk.

FWIW

 

[Rockstar]

Which bank was it? Maybe you need to stick with the majors that don't hit you up for the val costs.

 

[373au]

I was speaking to a valuar today, & they are conservative but not unrealistic. So i would have some concerns at the low valuation, & would definetly try to re negotiate the purchase price.
If the yeild is good & still makes good busness sense gio for it.

I also asked the valuaer why all my valuations have always come in at exactly what I told the bank I thought they were worth? He told me that banks always let them know what you believe its worth, then the bank will tell you which ever amount comes in lower, the valuers or your valuation.

Spud

 

[stumunro]

This is a perfect opportunity to try and negotiate the property for an even lower price then you thought it is worth... Use this as a tool to further negotiate, personally I've never had a bank val lower then my purchase price but if I did I think I would be happy as it makes me think twice about whether I've over paid.

 

[AgentInParadise]

Hi keenas,

I am an Agent in Cairns, and can tell you that accross the board, valuations are tightenung up as previously suggested. The primary too a valuer will use is RP Data to provide evidence of previous sales in a particular complex or simillar properties in the surrounding areas to justify a valuation. there is a possibility that such a sale has occurred recently that is in the $150,000 range which the valuer is using as a basis for the valuation.

You could try to re-negotiate the purchase price, but as it's been signed off and you are 'Under Contract' at $167,000 I would suggest that the seller may be reluctant to negotiate further (unless they are really highly motivated to sell).

I've noted by doing a property search on realestate.com.au that there are a number of 2 bedroom units in Westcourt for around that price, and I would say that the valuer may have also taken this into account also when calculating the valuation of a 1 bedroom unit in the same area.

hope this helps

 

[Pom]

Hi guys

My step son has just negotiated a deal for a 1 bedroom unit to be his PPR in Westcourt Cairns.

The original asking price was $175,000 and he negotiated it down to $167,000.
He has made the offer subject to finance.

However the bank valuation came back as being valued at $150,000.

I know that the banks can sometimes be a bit conservative with their valuations - but this one seems to be way off the mark.

Does this mean that he is paying too much at $167,000 ??

It is a large unit 80m2 in a small complex of 8. Other much smaller (40m2) 1 bedders in similar condition are selling for around $130,000.

As the bank will only lend 80% of the property value - this means that he will have to come up with a larger deposit.

Is he paying too much ? Can he negotiate further due to the valuation ?

Any advice on this would be much appreciated.

Debbie

This began happening in the UK market 6 - 9 months ago - bank valuations being received for less than negotiated prices. Banks are now more risk adverse and are reflecting downside risk in their valuations which is prudent.

As most people require mortgages to make purchases, this will become a self fulfilling prophecy as the banks loan lower amounts based on lower valuations and lower loan to value ratios - i.e. prices will begin to fall over the next 6 months similar to UK in my opinion.

However, what also occured in the UK is that banks began competing with each other NOT to win new business! (without actually withdrawing from the market as that would have caused panic). It may be that your particular bank has a policy to take very little risk in this climate as they feel over exposed with their current loan book. Perhaps you should try a different lender and have it re valued through them? If it comes in at $150,000 again then I'd renegotiate or walk away.

 

[Sheryn]

Financial institutions are definitley tightening their criteria

We are going to build a new 3 x 1 x 2 (3 bedroom, 1 x 3 way bathroom and double garage) duplex and the Lender's valuation has come in less than the cost to build!!

On reading the report (we didn't say we were going to strata) - the valuer didn't have any recent sales of new unstrata'd duplexes to value against.

Action Plan ( Don't sit back and take this)
Builder added a line down plan and drew up a landscape plan and submitted DA (currently still in council).

Rang Lender and asked for a revaluation since duplex will be strata'd....

Oops... Lender can't revalue until built and strata registered BUT Lender will revalue and increase loan if valued more once built.

Oh and yes Lender says I can talk to Valuer if needed. (Cause I was asking questions that made sense IMHO)

I know I am building value - 100 metres to petrol/grocery outline, 500 metres to entertainment, 600 metres to bus stop, less than a kilometre to school (shorter if they take the shortcut) and about 1.2 kilometres to shopping village. + all new street so set amongst new houses.

Hmmm...

Sheryn