Valuation based on intended use

[mattnz]

Hi all,

We are currently negotiating for a development site, which happens to have a dilapidated house on it that couldn't be rented in its current state.

The block is just over 1,000 sqm with high density zoning that will allow 10 units to be built on it.

We intend to get the DA approval, then onsell to someone else to develop it, as we don't have the funds currently for this size of development.

The market is booming and prices are shooting up pretty quickly. We expect to pay mid 500s for it, which is a fair price with plenty of margin in it.

The issue is that because of the state of the house, we are concerned that the bank valuer could significantly undervalue the property, as the house is not currently rentable. We need to get a valuation which is the same as the purchase price to be able to fund it.

Any suggestions on how we go about this? Are any specific banks or valuers better than others at allowing development potential, rather than current useability to determine the valuation?

Thanks,
Matt

 

[Aaron_C]

It depends. Valuers only go by comparable sales - and if you pay more for the block of land because of the development upside, but others in the area do not, then you won't get the high value for it.

 

[Rolf Latham]

potential is generally not considered by valuers, since there is risk in that potential

ta
rolf

 

[mattnz]

How about if we have a long enough settlement period to get the DA in place prior to settling, would we then be likely to get the higher valuation?

Alternatively, would we be able to get it as a commercial loan, rather than residential?

 

[Rolf Latham]

on a comm transaction you do have a higher hope.

Highest Use valuation doesnt mean though that the lender will lend against it.

Youd need to make sure you address that with your funder before going down the track.

In comm, they arent as fussy with "hurt money" in the game as they are with resi.

ta
rolf

 

[mattnz]

Great thanks Rolf. Sounds like the plan of attack to get this across the line.

Cheers,
Matt

 

[Mick C]

Yep Comm valuer are more flexible and look at everything case by case- including potential future value...not just past data.
But commercial loans are generally;

1. Higher rate
2. Higher set up cost ( so may lose up in the short term, if your looking at short term finance)
3. Some has annual review- not sure what time frame your looking at...or more like how quickly it sells?
4. Serviceability especially for vacant commercial land is a lot hardier to reach
5. Low LVR - under 70% i would say, without knowing much about the location and details.


Regards
Michael

 

[Aaron_C]

Yes commercial is far more flexible in that regard as Mick and Rolf have said. But if you are relying on the valuation to stack up - I suspect that even a good valuation from a commercial valuer wouldn't give you the funding you need due to the lower LVR.

 

[Mick C]

Yes commercial is far more flexible in that regard as Mick and Rolf have said. But if you are relying on the valuation to stack up - I suspect that even a good valuation from a commercial valuer wouldn't give you the funding you need due to the lower LVR.

That's true- EVen if val is high- the lower LVR may just kill the deal

Regards
Michael

 

[mattnz]

Thanks everyone, we are currently negotiating the terms, requesting 120 working days (almost 6 months), which would be tight, but could be enough time to get a DA through in.

 

[Marty McDonald]

Why don't you just use a lender who won't do a valuation. Sub 80% lvr and two spring to mind.

 

[mattnz]

That sounds great thanks Marty, which lenders wouldn't do a valuation at 80% LVR?

 

[Marty McDonald]

Anz and Adelaide bank

 

[mattnz]

Awesome thanks Marty. Thats quite scary that ANZ doesn't bother with Valuations if the market seriously drops. They'll be left with alot of crappy assets on their books.

 

[Marty McDonald]

Not really. 98% of vals come in at purchase price so what's the big deal. 2% don't with a 20% margin for error. So actual losses would be minimal versus the savings in valuation costs = calculated risk / reward. If the market starts tanking englobo they change policy.

 

[Piston Broke]

The market is booming and prices are shooting up pretty quickly. We expect to pay mid 500s for it, which is a fair price with plenty of margin in it.

Thanks,
Matt

Which planet is this on?