OTP property valuation



From: Anonymous

Question for discussion.

I have a chance to buy a unit in an up and coming area (and I realise that this description carries certain connotations).

The chance is through a contact with the developer, and the price being offered represents a discount of some 20% from the 'retail price' of these units. I gather these are pre-sales to get the development over the line and help the developer get finance, hence the discount.

Location looks good, near to transport, link to Sydney CBD etc.

However, the development is in a location where the council has (up until now) not allowed units, and this is the first lot of 'high quality' units which have been approved. So there's little (if anything) to compare the units with, in particular the "retail price" that's being quoted. For example, the developer could set the "retail" to whatever he likes and the gain on paper would look great.

How can you be sure there's value in it, when you're working in a vacuum? Local agents can't really give an idea of what rents or value would be - and I haven't checked with a valuer yet.

I'm keen on taking up the chance if the value is there, but I don't want greed to make me do something I'll later regret.

Any thoughts as to what steps to take?
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Reply: 1
From: Michael Croft

This answer may seem a bit cryptic - "the lower of; purchase price or valuation". The emphasis is on the word lower.

Are you cashed up? got heaps of equity?

Michael Croft
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Reply: 1.1
From: Jeremy Laws

Nothing wrong with OTP, but Meriton in Sydney are currently if you haggle offering about 30% discount. Be interesting to see what banks do with this little scenario!
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Reply: 2
From: Michael Yardney

Anonymous - your concern sounds justified.
A developer (and I should know because I am one) can ask anything as the retail price and especially if they know they are going to give discounts or give agents larger commissions or marketing organisations large fees, then all they do is build it into the price.
And in this booming market that's what most developers are doing and they are getting their prices.
So be wary when you are told you are getting 20% off.....you are correct in asking off what?
When I have bought well, I have usually bought off a motivated vendor. Despite what the seminar guru's tell you, developers are NOT motivated vendors. Most are "professionals" and in the hottest market in the last 10 years don't really need to give 20% off the retail price. Why would they when most properties sell at full market value or above.
If you don't have comparable sales, how do you know there is a market for this type of unit in the area.
If you still want to buy get a valuer to value the property or buy it subject to a valuation.
Michael Yardney
Metropole Properties
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Reply: 2.1
From: KJL .

Thanks guys.

I understand the principle behind the 'subject to valuation' concept, but what are the mechanics of it - ie is it valued at settlement and then you only complete based on a favourable 'retail' price? Would you as a developer usually agree?

BTW, I didn't mean to post as anonymous, it's just that I don't know how to put up a post without my name appearing after it in the "Conferences" column! How do you do that?

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