Possibly a good idea!

[boods99]

Hi all,
I have an idea that I will put out there for any opinions etc.
I'm not sure if anyone has ever done this although I suspect that they may have been as I am not the brightest tube in the room

I have access to a decent amount through a line of credit and was thinking about making a very lowball offer on a property in a suburb that I have been watching closely for quite a while now.
My idea was to offer about 75% of what I believe a valuer would value the property at, however, would make the offer cash, unconditional and would settle within days or as soon as the vendor can organise the discharge of their mortgage etc. The offer would be accompanied by a cheque for the full amount to show that it is a serious offer. The idea is to try to make the deal as attractive as possible to the vendor as far as ease of sale goes.

As soon as the property had settled I would then apply for finance at 80% LVR which should in effect cover all costs thus far, effectively giving me back all of the funds for my LOC.
I'm assuming there is a time lag between the settlement of a property and when the sales data would appear to be viewed on the likes of RPdata, so a valuer would not be able to have access to the sale data.
Any ideas, thoughts, issues, death threats or otherwise on this idea? By the way, I would not be approaching little old ladies, but properties that are legitimately on the market.
Ultimately, I will be purchasing for development, and after searching high and low, subdivided land in this suburb are asking around $120k per lot and the development sites are asking around $320-340k, so there is not much meat in the deal if the site is purchased at full asking price, when you take into account all associated costs for subdividing.
Bring it on.
Cheers.

 

[steveadl]

Just a quick point off the top of my head - can you perhaps use the same strategy in an area where the figures work out a bit better?

ie. land is $120k. 75% offer of $320k = $240k or $120k each

For example in the area I'm focusing on at the moment the older knock down jobs are going for around $320-330k'ish (and that's full price, not 75% of asking) and vacant lots for around $180-190k.

Now obviously these figures don't take into account holding, subdivision costs etc but perhaps try and find an area with more fat in the figures?

 

[boods99]

Hi Steveadl,
I have been looking at a few other areas, however, I wanted to keep it local as I find it easier to develop when you are able to be there, if you know what I mean. This particular suburb is zoned R30 (WA) so most of these development sites are triplex sites.


I guess I have been looking in this area also due to it's low entry price compared to other suburbs. My point being, if I am going to pay in full up front, I need to be able to find the funds easily. My LOC is decent but not huge

 

[battler]

I'm assuming there is a time lag between the settlement of a property and when the sales data would appear to be viewed on the likes of RPdata, so a valuer would not be able to have access to the sale data.

Unless he talked to the selling agent in the process of making the valuation.

I've never seen a valuation go higher than the purchase price, within the immediate timeframe. I think you would want a very independant valuer.

 

[steveadl]

This particular suburb is zoned R30 (WA) so most of these development sites are triplex sites.

Aha! Triplex, sorry I'm used to thinking duplex.

 

[boods99]

Unless he talked to the selling agent in the process of making the valuation.

I've never seen a valuation go higher than the purchase price, within the immediate timeframe. I think you would want a very independant valuer.

Thats the sort of feed back I was looking for! How would a valuer know if a property has been sold recently, as it won't be listed as for sale anymore because settlement has occurred? Also, as mentioned earlier, how long does a sale take to register on RPdata and the like?

Cheers
Boods

 

[boods99]

Aha! Triplex, sorry I'm used to thinking duplex.

No worries mate, I probably should have mentioned that from the start!

Boods

 

[Perp]

How would a valuer know if a property has been sold recently, as it won't be listed as for sale anymore because settlement has occurred? Also, as mentioned earlier, how long does a sale take to register on RPdata and the like?

It can take a few months for data to become publicly available, but the valuer is going to notice that the person wanting the valuation (ie you) and the registered owner are different, and is going to ask when you bought the property, and at what price. I'm assuming that you're not willing to commit fraud (by lying about sales price) in order to achieve your objective, so as soon as this happens, "the gig's up".

You could, however, do a quick reno, even if it's not very expensive, in order to convince the valuer that the sales price isn't so relevant. If you've changed the property, the only way the valuer can value it, is by looking at comparables, and the reno might bring a set of comparables into play that would exclude your own transaction.

 

[battler]

"As soon as the property had settled I would then apply for finance" (quote Boods)

but the valuer is going to notice that the person wanting the valuation (ie you) and the registered owner are different.

Boods would be the registered owner after settlement, and before he enlists a valuer.

 

[Perp]

Boods would be the registered owner after settlement, and before he enlists a valuer.

Quite right! Ooops.

I meant to say the owner associated with the most recent listed sale figure, on the public data. If they see last sale is 2004 Person X to Person Y, and now the owner is Person Z, they're going to ask about the transfer from Y to Z.

 

[battler]

My view on the valuations is that it should be independant of purchase price, and calculated from comparable properties in the area. My reasoning being, that if you built a new house, and haven't sold it, there would be no sale price to work from, but it has to be worth more than it cost.

 

[boods99]

You could, however, do a quick reno, even if it's not very expensive, in order to convince the valuer that the sales price isn't so relevant. If you've changed the property, the only way the valuer can value it, is by looking at comparables, and the reno might bring a set of comparables into play that would exclude your own transaction.

Good point ozperp. might be worth a lick of paint and a good clean up of the place before getting it revalued.
...and no...fraud is not my thing!
Boods

 

[boods99]

My view on the valuations is that it should be independant of purchase price, and calculated from comparable properties in the area. My reasoning being, that if you built a new house, and haven't sold it, there would be no sale price to work from, but it has to be worth more than it cost.

I agree, however, you just dont know how some of these valuers arrive at their figure sometimes! You can appoint 2 independant valuers to value the same property and get two very different figures. It would also depend on the purpose of the valuation, and who commissions it. I was thinking that I would approach a valuer on my lenders panel of valuers and get them to do a valuation for me, before applying for finance, then, hopefully the lender will allow this valuation to be used for their purposes. Anybody done this before?

Boods

 

[battler]

There would be plenty of valuations made to increase a LOC etc, that can't be based on sale price, as it may not have been sold for many years.

I don't see any fraud in this, you are just asking for a current value from a lenders valuer......your not altering the numbers on the valuation certificate.

 

[boods99]

My intention is not to pull a swifty over the valuer, but not to give him any easy ammo to value the property lower. I guess I want him to earn his money rather than just looking at the last sale price and calling it a day.
Boods

 

[eggnog]

then go give them comparable sales data and justify what you think your place is worth. Its pretty hard to dispute a thoroughly justified standing.

 

[boods99]

then go give them comparable sales data and justify what you think your place is worth. Its pretty hard to dispute a thoroughly justified standing.

You can try, however, because it will be the bank that has ordered the valuation, the valuer won't necessarily talk to the borrower. Most times the borrower will not even find out what the valuation came in at, only if it passed or not. However, if it does not reach the val needed, you can always ask why, as you have already got a valuation done from the same valuer, or another of their panel valuers that is higher.

Boods

 

[Perp]

My view on the valuations is that it should be independant of purchase price, and calculated from comparable properties in the area.

I somewhat agree, to the extent that many "comparable" sales aren't really comparable at all. Figures may include estate sales, people who pay over the odds to live near their friends or kids' school, people going bankrupt, divorce sales etc... An unrenovated heap is stacked up against completely modernised, based on land size and number of bedrooms.

if you built a new house, and haven't sold it, there would be no sale price to work from, but it has to be worth more than it cost.

I disagree that building a new house "has to be worth more than it cost"... sometimes the market prices are above replacement cost, and sometimes below replacement cost. In most established markets in Australia right now, existing houses are significantly cheaper than comparable new builds. The only way to make a profit is to build something "less" than existing (ie less land, smaller house, lower quality of construction). People who aren't motivated primarily by profit, such as those building their PPOR, generally lose equity when they build in quality, established areas.

...and no...fraud is not my thing!

I didn't think so. Good luck with the paint and clean-up. Don't forget the street appearance, particularly as they might do a drive-by valuation!

I agree, however, you just dont know how some of these valuers arrive at their figure sometimes! You can appoint 2 independant valuers to value the same property and get two very different figures.

Yep. Two valuers on our PPOR came in at $650K and $790K last year. And the latter valuation was from a valuer with a reputation for coming in low!

I was thinking that I would approach a valuer on my lenders panel of valuers and get them to do a valuation for me, before applying for finance, then, hopefully the lender will allow this valuation to be used for their purposes. Anybody done this before?

Yes, and I think it's the way to go. No nasty surprises! You ask the valuer for an "assignable valuation". There's no guarantee the lender will accept it, but your broker can probably tell you ahead of time whether that lender is likely to accept an assignable valuation. It may cost you a little more than it would through the lender, but IMHO it's worth it to retain control of the valuation process. Once the lender has seen or knows about the $650K valuation (as above), it's highly unlikely that they'll accept $790K, even if it's from another panel valuer. Even if they agree with you that $790K is the "right" value, their insurance and credit legislation etc can get them in trouble if there's any evidence that they knew of the lower valuation. I find that if they want your business, they're actually quite happy for you to do the valuation in this way, because it also protects the lender from any undesirable obstacles to making the loan.

I agree with both of you that I'm quite comfortable in doing all that I can to ensure my valuations end up where I want them. If valuers were more consistent, it wouldn't be such an issue. But the quality and credibility of valuations is so enormously variable, it feels like gambling. And I prefer to have more control over my investment plans than "pulling the handle and hoping".

I intend no disrespect to those excellent valuers who are reading this. Unfortunately many of your peers are not as conscientious or skilled as you, and I just can't take the chance as to whether the lender will put you on the job, or one of the "others".

 

[INVSTOR]

In regards to comments about renovating, here is a quote from a valuation done on one of my properties. "The existing home is in good maintenance and has been partly renovated.........with the minimum lot area under R20 being 440sqm, it is likely the home would have to be demolished. As such the existing home only adds minimum value."