Bank valuations

[mcarthur]

I'm trying to help some people who have been scared by a low bank valuation on a property.

I think bank valuers tend to get the property low by about 5-15% (or more) to give the bank room for a fire sale if needed.

How much would you say bank valuers "usually" go under based on what later has become the market price?

 

[Rolf Latham]

I'm trying to help some people who have been scared by a low bank valuation on a property.

I think bank valuers tend to get the property low by about 5-15% (or more) to give the bank room for a fire sale if needed.

How much would you say bank valuers "usually" go under based on what later has become the market price?

valuers are human,


much depends on the property, the sales mechanism, and simply the comparable sales.


If the val relates to a SALE, and an on market contract 90 % of the time the valuers get it right.

ta
rolf

 

[Jamie M]

I'm trying to help some people who have been scared by a low bank valuation on a property.

Hiya

Are they upset because they can't complete a purchase or they're just not happy that their property wasn't valued as high as they hoped?

If the former- than there still might be ways around it - such as ordering another valuation via a different lender.

Cheers

Jamie

 

[mcarthur]

Are they upset because they can't complete a purchase or they're just not happy that their property wasn't valued as high as they hoped?

If the former- than there still might be ways around it - such as ordering another valuation via a different lender.

Hi Jamie,
The house is jointly held, but the two are changing to single owner under "For love and affection".
One of them has done lots of research and believes $680k is about right for the property.
The bank valuer has come back with $600k.
The other party (who will become the sole owner) is worried about paying too much.

My advice has been that the valuation is *always* low (especially when there has been nothing like it sold for years in the area), and that the only true way to find out is put it on the market. They are obviously not wanting to go to market but instead settle internally.

Hence my question was while the valuation is always low, how low could/should it be?
In this case, $600 value from $680 possible is about 12%.
Even assuming the valuer didn't take into account the state of the property and the possibly $20-25k (my guess) to spend to prepare for sale, that would still be
$680-$20 to prepare for sale = $660;
$660 out of $600 is a valuation 10% less than the other owner (and I've done some research too) reckons.

So is a bank valuation of 10-12% less than calculated (hoped for) market value, for a "For love and affection" transfer, usual/common?
Or, does the valuation indicate that the $680 is probably too high?
Or does the valuation pretty much signify nothing?

Thanks
Rob

 

[mcarthur]

valuers are human,


much depends on the property, the sales mechanism, and simply the comparable sales.


If the val relates to a SALE, and an on market contract 90 % of the time the valuers get it right.

ta
rolf

Thanks Rolf.
I've done some research for them too - recent sales, suburb change across years of ownership, change in UCV over time, etc.

When you say "90% of the time valuers get it right", are you saying

1. they are spot-on 90% of the time and 10% of the time they are way, way out, or
2. they are almost always within 90% of the market price

ie. is your 90% time or 90% price?

Thanks
Rob

 

[Brady]

(especially when there has been nothing like it sold for years in the area)

Most common reason for a 'shortfall'

If nothing like it has sold for years, how can you determine it's worth $80k more?

 

[vaughan]

...One of them has done lots of research and believes $680k is about right for the property.
The bank valuer has come back with $600k.
The other party (who will become the sole owner) is worried about paying too much.

That's not surprising at all.

Love and affection only go so far, when it comes to writing cheques.

They are going to have to come to an agreement about how to get to a reasonable value for the property: they can choose the higher, the lower, or the average. IMHO get agreement to this BEFORE ordering another valuation. Then order another valuation (this can be done directly with a valuation company). Valuations are about $500.

 

[mcarthur]

Most common reason for a 'shortfall'

If nothing like it has sold for years, how can you determine it's worth $80k more?

Well, I won't speak for them, but my reason was

1. looking at the old records, when bought, the property was 5th highest in the suburb. 5th highest now is precisely 680
2. the difference in UCV between then and now, added to the original price paid, is exactly 680
3. the percentage growth in the suburb as a whole over the years they owned exactly fits a current 680 price.

So logic and pure numbers say they are on the money.
Of course, this may or may not match the current market one bit!
But in lieu of similar houses being sold (almost none), I can't see any other way to value.

What do you think of getting 3 different agent valuations?
Or would you definitely say another professional valuer would be better?

 

[mcarthur]

Then order another valuation (this can be done directly with a valuation company). Valuations are about $500.

Thx. That's good information about valuation cost I'll pass on.

 

[Rolf Latham]

Thanks Rolf.
I've done some research for them too - recent sales, suburb change across years of ownership, change in UCV over time, etc.

When you say "90% of the time valuers get it right", are you saying

1. they are spot-on 90% of the time and 10% of the time they are way, way out, or
2. they are almost always within 90% of the market price

ie. is your 90% time or 90% price?

Thanks
Rob

90 % of the time they are within 5%, 5 % within 10 % and 5% just silly

ta

rolf

 

[thatbum]

Well, I won't speak for them, but my reason was

1. looking at the old records, when bought, the property was 5th highest in the suburb. 5th highest now is precisely 680
2. the difference in UCV between then and now, added to the original price paid, is exactly 680
3. the percentage growth in the suburb as a whole over the years they owned exactly fits a current 680 price.

So logic and pure numbers say they are on the money.

I don't think any of those lines of reasoning are acceptable methodology when doing a proper valuation.

 

[BMan]

wouldnt hurt to get real estate agents to value it as your "looking at putting it on the market"
or actually put it on the market see what people offer and then dont sell it

 

[mcarthur]

I don't think any of those lines of reasoning are acceptable methodology when doing a proper valuation.

Pending sales of anything that's remotely similar in the suburb or near suburb that's the same type, please tell me what else there is to do!
Truly - happy to learn.
I'm a scientist with a reasonable knowledge of stats and maths - even worked for the CSIRO group of that name - so I'm not scared to be shown any formula you have.

 

[Terry_w]

Hi Jamie,
The house is jointly held, but the two are changing to single owner under "For love and affection".

Alarm bells going off!

 

[Brady]

Pending sales of anything that's remotely similar in the suburb or near suburb that's the same type, please tell me what else there is to do!
Truly - happy to learn.
I'm a scientist with a reasonable knowledge of stats and maths - even worked for the CSIRO group of that name - so I'm not scared to be shown any formula you have.

Pending sales mean zero to a valuer, until it's sold it doesn't really matter.

 

[Big Will]

Get a licenced valuer will give a better indication but will cost about $1,000 but their value has to stand up in a court of law.

For my PPOR I had a bank value of 530k but I bought at auction (passed in) for 510k and this wasn't in boom times.

 

[Greg Reid]

On what basis was the valuer instructed?
If it was for mortgage purposes, they tend to be conservative due to the insurance/legal risk and the nature of the instructions as to what assumptions are used.
You might consider instructing the valuer for the purpose of transfer of property. You might find a perhaps less conservative valuation arising, perhaps to the order of 5 to 10%.

 

[WattleIdo]

Not an expert by any means but I have estimated my recent bank valuations were 10% lower than what I thought the market value was at the time they were done. That was based on quite a few similar properties being sold at the time and knowing that one of my properties in particular was one of the more attractive in the suburb.
Would be interested to see whether there is much difference between a bank valuation and an independent valuation. I'm guessing there would be. But wouldn't get them done close together because they use each others' data to come to a final figure (I think).

 

[Redom]

This is slightly irrelevant - but my partner did a thesis paper on this topic exactly - 'How much do people think their home is worth?'.

She had a subset of data collected by some agency - where people estimated their house value, got it valued/went to auction, compared the results.

From memory her conclusion was that on average, people overestimated their property value by 8-12%.

But then again, there arent many rich academics!

Cheers,
Redom

 

[mcarthur]

On what basis was the valuer instructed?
If it was for mortgage purposes, they tend to be conservative due to the insurance/legal risk and the nature of the instructions as to what assumptions are used.
You might consider instructing the valuer for the purpose of transfer of property. You might find a perhaps less conservative valuation arising, perhaps to the order of 5 to 10%.

Thanks Greg. I don't know how the valuer was instructed - since its for one half of the couple to take over the currently jointly held house, I assumed it would be for a loan/mortgage.

Rob