property valuation by the banks



From: Anonymous

Dear IP Gurus
I am looking at purchasing an IP in Brisbane. The seller's price is $177k. I thought that this was reasonable as it was comparable to other similar properties in the area (3 bed lowset duplex in Chermside).
The bank I am looking at to finance the loan did their own valuation of the property as part of their loan approval process.
They came up with a value of $160k, some 10% less than the selling price. This was somewhat unexpected.
Some one told me that the banks tend to "undervalue" a property as part of lowering the risk.
Do my more learned colleagues in the forum agree that the banks do indeed under value a property? If so, what is an acceptable margin (in this case 10%) between the purchase price and the bank's valuation?
Would anyone suggest I get another opinion on the valuation of the property?
Please help - "cold feet" is beginning to set in on this one.
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Reply: 1
From: Nicholas Hamilton

Are you comparing the prices of other properties in the area to the price they are trying to be sold for, or what they have been sold for as this might explain the difference? If you got the comparable properties what your property is like and how much they went for then I am sure you can do something more easily.
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Reply: 2
From: Rolf Latham

Hi Anon

The answer to your question is NO. Banks do indeed NOT undervalue stock. It is not in their interest.

The Majority of lenders use panel valuers, which are independent of the bank in most cases.

Short vals are not unusual, especially if you are from interstate and buying in QLD - sometimes assumptions are made.

If you are +ve that its worth the 17? then use the same information ti ply the valuer. In 60 % of cases if your data is good you can get a re evaluation done on the basis of new data.

Many valuers rely on RP data which is a stamp duites database which can be six months old. You need to chase "reported" sales which may not yet have settled but have unconditional contracts on them.

The low val may aslo be a blessing in disguise.

Seeing you are anon, why not post the lender ?


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Reply: 2.1
From: Mike .


Found an interesting article on the subject. Lesson is to use a lender who will accept a valuation from an independent valuer paid by you. As the saying goes, "You get what you pay for." Seems that most investors don't want to pay for a valuer so the banks will happily have the property valued based on a forced sale. Which is why they are often below what you think is right.
The article is commenting on the situation in South Africa but the lesson still applies here. There is no guarantee that you will get a fair valuation unless you pay for an independent valuation yourself.
PS: A quote from The Royal Bank of Scotland website:
"The Bank will require a valuation to be undertaken by a Bank appointed and approved valuer, the cost of which will require to be met by the customer. For further information on the Bank's valuation fee scale, please contact us."
Is this fair? - you pay for the valuation but the bank gets to instruct the valuer on their terms.
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Reply: 2.2
From: Ian Parham

'Evening All

There is quite a lengthy article in the most recent API magazine covering this very issue.

Of course various 'interest groups' have had their two cents worth through the article, but if one sorts through the information there appears to be fair opinion suggesting that bank valuations (whether panel or independent) will come in on the low side....purely as a protective/safety measure...for the valuer.

I think without having the article in front of reference source in the article indicated banks have their own staff doing valuations more and more these days....hmmmm, interesting comment, as I know one of my banks does this.

My recent first hand experience suggests that, if desired, a financier (in my opinion at their peril) can bring pressure to bear on a valuer also. I won't mention names but we had a bank insist the valuer, against his wishes, increase the valuation so the bank could retain a customers' considerable ongoing business...FACT!

I'm not going to argue the toss re ethics, the business or professional obligations and reporting to any statutory body the issue at I said earlier, I think it was at their peril. All I will say is we thought the value to be 'X' at a stretch, the valuer went 9% lower, the bank said stretch it!

Otherwise, low valuations would appear to be quite common. Particularly if the valuer doesn't leave the office (it happened to me in WA)...I had spoken at length with my property mgr re our strategy to get my valuation as high as practicable. Valuer rang agent, agent spoke of the bells and whistles, said this is the! Our valuation came in beyond realistic expectation. The API article mentions the hurried nature of valuations expected by the financiers...48 hour turn come on...what sort of serious valuation and report could be carried out under that sort of pressure???

On the other hand I would reasonably expect an independent private valuation to be far more comprehensively researched and precise....and take a damn sight longer than 48 hours to compile and present.

Anyone else with similar experiences please join in...

Rolf, i'm definitely not trying to offer conflicting information, simply wishing to relay recent first hand experience. Yes, one valuation was an interstate scenario as you very correctly outlined, the other was purely local.

Kind regards as always
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Reply: 3
From: Iggy V

I don't have much experience (only bought 2 properties so far), but neither had a low valuation. The purchase price was taken as the value and I was able to have both revalued a few months (2-4) later for 22% and 68% respectively.

May be the deal is not all that good? Just a thought.


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Reply: 3.1
From: Tracey Betts

I'm just a newbie, however I have lived on the northside of Brisbane all my life. 177k sounds too high to me for a three bed duplex in Chermside. I would trust the banks valuation over the owners asking price. I don't know if your from interstate, but I think interstate investors are paying ridiculous prices for Brisbane properties. I would use the banks valuation as leverage for the vendor to drop their asking price, and if their not willing to,look elsewhere.

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Reply: 3.1.1
From: Ian Findlay

Hi all,

I'm also from Brisbane northside. $177k for a chermside duplex doesn't sound
overly expensive particularly if new. Chermside and Kedron (next suburb) are
areas that have undergone enormous growth in last quarter. Kedron has gone
up >29% in <12 months according to some reports.


> From: "Tracey Betts" <>
> I'm just a newbie, however I have lived on the northside of Brisbane all
my life. 177k sounds too high to me for a three bed duplex in Chermside. I
would trust the banks valuation over the owners asking price. I don't know
if your from interstate, but I think interstate investors are paying
ridiculous prices for Brisbane properties. I would use the banks valuation
as leverage for the vendor to drop their asking price, and if their not
willing to,look elsewhere.
> Tracey
> To reply:
> To start a new topic:
> To login:
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From: The Husband

Here's a tip

I recently refinanced a property that I thought was worth $200,000. I indicated to the bank it was worth $220,000 because I too thought valuations come in lower. The bank did a drive by, and it came in at $220,000! I should have put $260,000 or more!!!!!

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From: Felicity W.

I have to agree with the whole interstate valuation issue on this one.
We had a property in Brisbane (I'm in Melbourne) which consistently came in around $10,000 below valuation, did it 3 times. The third time was a month before we put it on the market - and within a week sold it for $10,000 above valuation.
I was told by my broker that this situation is extremely common with interstate buyers.
Keep smiling
Felicity :cool:
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From: Chris L


I would like to give some experiences too.

All houses on Brisbane Northside for our interstate friends.
My first house was at Northgate, renovated and had many (4-5) Re agents in for sale price. All under my thoughts by $20,000, I ended up selling for $17,000 over their quotes. They all went on the RP Data of the street and only a fraction on what I had done to the place.
Next house Boondall, first Re agent said $1,000 below what I thought I would get, listed with them, sold next day for their price. Old couple bought it and I didn't want to haggle over a thousand plus I liked them. Turned out to be friends of my relative, moral - don't do crap renos, you never know who will be the buyer, they're happy and I know it's a good house with good work done by me.
Last house Bracken Ridge, had 4 Re agencies with about 10 agents thru for sale quotes, all under my thoughts by $40,000!!! except Boondall agent who was within 5-10 of me.
Went with them, result $37,000 over quotes and spot on my agents price. All other agents again had RP Data reports and I was asking over $90,000 than any in the street.
NB: I would still use these Re agents for different areas, it's no good using your favourite agent in an area they don't know either.

The whole point to this is that you have to know YOUR market, YOU have to check the other similar properties for easily 2 months (prefer longer) or how will you ever know, then when you walk in you will definitely know if it's worth the money.
If I went with those dozen Re agents prices, I would have been very disadvantaged and probably never have known it.

Sorry I can't help with your property as I stick to houses and my area at this point in time.

Hope this helps,
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