valuation - the forbidden question

jsoe

jsoe

Hi all,
We're renovating the existing garage/shed in the back yard converting it into a 2 bed 1 bath granny flat - will be all fenced up, private, with a separate entry. The main house is 3 bed 2 bath. There will be no separate title as it's just a granny flat. Rental income will be $400 pw on the main house + $350 pw on the granny flat.

Question regarding valuation:
Will the bank revalue it as 5 bed 2 bath house?
Does it matter if the granny flat is DA approved or not? There are many GFs for rent in the area and none are DA approved. REA still rent them out.

Thanks heaps!
 
The valuer usually notes that the granny flat may be illegal, but he does not check council records to verify anything. They may or may not value it as 2 dwellings or one house but it depends on how well versed the valuer is in these properties.
 
Prepare for the valuation to come in less than what it would without the granny flat. the idea being granny flats dont necessarily add to the value of the property, and the valuer might have trouble finding comparable sales.
 
The bottom line is the value should have increased to a certain level regardless of whether the valuer counted the property as one or dual occ?
I think they take into consideration of the rental income as well, is that right?
Our intention is to refinance and move on to the next one. Thanks heaps.
 
rental is one component, but ultimately they need to find comparable properties in the surrounding area in the recent past. If there havent been any recent sales of houses with granny flats recently in your area, the valuer might note the addition hasnt added to the overall value of the property.
 
jsoe said:
The bottom line is the value should have increased to a certain level regardless of whether the valuer counted the property as one or dual occ?
I think they take into consideration of the rental income as well, is that right?
Our intention is to refinance and move on to the next one. Thanks heaps.
Click to expand...

They might value the property higher, but I wouldn't be counting on it. The rental income is not given any consideration in the value figure.

If the granny flat doesn't have a toilet, bathroom & laundry, it won't be given consideration for rental income on the valuation report either, because it's not an independant dwelling.

In many cases a granny flat devalues the property because it's a non-permanent structure (intended to be removed when granny dies). This means there's a cost of demolition and restoration to the property.

Granny flats are good for your personal cashflow, but don't count on the banks to recognise it. If they do, then it's a bonus.

Bank logic... :rolleyes:
 
Hiya

We do a lot of work with grannies and in NSW the following is common,some of this has already been covered.

1. if the granny is approved, get the doco to the valuer. If its in Blacktown LGA, it will take you 10 mins to find the approval

2. Prep the valuer and yourself by chasing as many comp sales as you can for similar product.

3. get the val done BEFORE application where possible. This bit is VERY important !

4. be aware that if you are LVR sensitive, and need > 80 % lvr, then some lenders are OUT ( eg WBC if the granny is detached, BWA and ANZ generally)

5. If there is a council approval, OR the granny complies and can be approved later, then its likley that the property value will increase better in the long term as more comparable stock comes onto the market and the valuers get a better understanding of the product.

ta
rolf
 
jsoe said:
Hi all,
We're renovating the existing garage/shed in the back yard converting it into a 2 bed 1 bath granny flat - will be all fenced up, private, with a separate entry. The main house is 3 bed 2 bath. There will be no separate title as it's just a granny flat. Rental income will be $400 pw on the main house + $350 pw on the granny flat.

Question regarding valuation:
Will the bank revalue it as 5 bed 2 bath house?
Does it matter if the granny flat is DA approved or not? There are many GFs for rent in the area and none are DA approved. REA still rent them out.

Thanks heaps!
Click to expand...
Maybe also make a simple call to the insurance company you use for landlord insurance and run the plan past them because you may be faced with the reality of not being covered,but you may have already asked that question..
 
jsoe said:
Hi all,
We're renovating the existing garage/shed in the back yard converting it into a 2 bed 1 bath granny flat - will be all fenced up, private, with a separate entry. The main house is 3 bed 2 bath. There will be no separate title as it's just a granny flat. Rental income will be $400 pw on the main house + $350 pw on the granny flat.

Question regarding valuation:
Will the bank revalue it as 5 bed 2 bath house?
Does it matter if the granny flat is DA approved or not? There are many GFs for rent in the area and none are DA approved. REA still rent them out.

Thanks heaps!
Click to expand...

Under the BCA a dwelling is a Class 1 structure and a garage is a class 10 structure and may not meet requirements/standards for a dwelling.

If it is permitted then there should be some extra value added.

A valuer will generally not enquire with the council as to if something is permitted. If they did that then the council would be ordering lots of people to pull structures down.

If it patently does not confoorm to the BCA then the valuer should note it on the report and not really ascribe any value to it.

If it is a significant structure then this could negatively impact on your valuation.

For example I once valued a property where they have extended the garage and added to it, so that there was a 90sqm 3 bed bungalow, off the very large enclosed verandah. Nothing would conform to the BCA, illegal plumbing etc. I had to mention this structure and the banks/mortgage insurer always wants a figure to remove this structure (in this case over $30k was the figure I put down) which they deduct from the valuation figure for lending purposes.

Yes the market will pay more for this property but the valuer is valuing for mortgage security purposes and the mortgagee (if they are in posession of the property) cannot sell something with illegal structures.

The area in which I value has a lot of people from ethnic backgrounds where they do not worry about such niceities as permits. In fact as few as a dozen properties in the past few years would have legal enclosed verandahs etc. out of nearly a 1000 properties that have them. I generally will ignore them unless they are way too large and will only add the value of a pergola or nothing in my calculations. If it is too large then ... well it will negatively impact their borrowing.
 
HI RightValue,
Thanks heaps for the comments above. It helps a lot.
We decided to go ahead through the council to get CC and OC issued, get the licensed plumbers, electricians, etc.
Our intention is to refinance later down the track in a year or so times to move on to the next property so it is important for us to get a higher value.
Thanks for all your comments.
 
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