Valuations - off the plan

Hi everyone,

I'm looking at an off the plan IP purchase. Have spoken to the vendor and i might not be able to get a conditional on finance clause into the contract.

I'm curious on how the valuation process works - I've heard there are only a few companies that do it, regardless of which lender I go with?

I'm just wondering how many bites at the cherry I'd realistically have to get a valuation. Obviously if its way off then its not gonna matter, but my concern is a valutation comes back very slightly under - do I have options to get further vals dones - or is it more a 'one shot' deal?
 
Hiya

Pretty rare that you can purchase OTP with a finance clause - I've never heard of it happening.

With valuations - you need to wait until completion. Even if the lender carried out an on-completion valuation now they'll still want to value the end product.

What is your research telling you about the price?

Cheers

Jamie
 
The challenge with OTP is that although you sign the contract and pay the deposit NOW, you typically don't settle until completion which could be in 2 years or more. It's the valuation THEN, in 2 years, that the bank uses to approve the loan THEN in 2 years time.

If the valuation falls short then you will have to find other money to make up the short-fall, it's your problem, you cannot cancel out of the contract just because it ends up you paid too much. :(

Which is why you will never get a "conditional on <whatever>" clause of your own in the OTP contract. The vendor/developer wants the deal done, price locked-in, deposit taken before pouring concrete.
 
The 'one shot game' is more of a problem in regional/small areas. As you'd suspect, there are likely to be fewer valuers servicing these areas, so you run a greater risk of getting the same valuer twice.

If its in Sydney/major city - its quite possibly and even likely that you'll get a separate valuer who'll look at it differently.

So the question is tied to where the security is held.

Cheers,
Red
 
Bank can do a "on completion valuation" 6 month before completion just to get a general idea ( Some banks will do this up to 12-18 month ahead!) BUT they will still carry out a final valuation once it's completed...

Always plan for the worst case scenario for OTP- Not just valuation but also 20% deposit and job security and job income for servicing + buffer for increasing interest rate market.
 
The upside with OTP is that you enter into a contract at today's agreed price, and if the property values higher when it's finished - which may happen in an "up" market, you end up with a lower LVR loan. That's a win for you.

The downside is the exact opposite- if the market falls between now and when the property is complete , or near completion (at which time the bank valuation and loan is finalised) you could end up with a shortfall that you need to cover.

Also worth considering is that depending on the state you purchase in, purchasing OTP may entitle you to some form of stamp duty waiver or concession, which can make it more attractive... obviously if the valuation were to go up AND you were able to pay less stamp duty, that's a great outcome.

The bottom line is, you are entering into a contract without unconditional finance approval in place. The valuation is not the only risk to consider. It may be the least of your concerns if you have a change of circumstances that prevents you from securing finance at all - injury , illness, incapacity etc.

So what this all means is, OTP can make you a quick profit if the market goes up and your circumstances don't change, or cost you a small fortune if it goes down or if your circumstances do change. You're taking a strategic punt either way. It would be prudent to do your sums based on an assumption of a 5% valuation shortfall , at a minimum.

if the area you are considering purchasing in has strong comparable sales, in line with what you are considering paying - the "punt" is probably relatively safe - provided you have no significant change in circumstances. I say this because we appear to be in a prolonged period of stable rates and there doesnt appear to be any risk of the property market collapsing.

However, if the development is the first of its kind in the area you are considering, and there are limited or no other projects like it within several KM's, you should assume that valuers will find it hard to compare it to other "like" properties, and you should absolutely factor in a shortfall.

Having said all of that - tens of thousands of properties have been purchased off the plan without incident, by tens of thousands of investors.

Just make sure that you consider all the pro's and con's before making any decisions...
 
I've heard there are only a few companies that do it, regardless of which lender I go with?
I recall someone making this statement on SS or could have been PropertyInvesting.com?

Asked for details of the companies offering this and they said they PMed me but never got the message.

Anyone recall who and when that was as I have never heard of it although I have advised clients to request it from smooth talking spruikers ;)
 
I just read where someone made $100k equity from otp. He only spent $1000 which was the deposit., then got the $100k out upon completion. I thought lenders only use the contract price if the value on completion is higher than the contract price? How can it be done?
 
I just read where someone made $100k equity from otp. He only spent $1000 which was the deposit., then got the $100k out upon completion. I thought lenders only use the contract price if the value on completion is higher than the contract price? How can it be done?
Some lenders will accept the on completion val, if you ask!
 
Yep lenders will accept market valuation EVEN if it's higher than the purchase price as long as the contract was signed more than 12 month ago generally speaking. So possible to buy a place with no deposit- literally...Rare though so i wound't bet my money on it.
 
I just read where someone made $100k equity from otp. He only spent $1000 which was the deposit., then got the $100k out upon completion. I thought lenders only use the contract price if the value on completion is higher than the contract price? How can it be done?
That sounds like the strategy of that spruiker from the early noughties who use to charge about $15K for education. (I don't we're allowed to use his name for legal reasons).
 
End val with OTPs is the key
we had some in Toowong where one valuer came spot on - and the other was 67k under contract price which then meant LMI.

Took 2 weeks to dispute the valuation which the short one was overturned. Settled a week late but it all worked out ok at the end. Just a hell of a lot of work and stress

So what I'd suggest is if buying OTP and when doing final valuations dont just get one banks valuer to do it. Even under Valex we got two different firms.

In the process - I also got told by my bank BDM that some firms (who I wont state publicly) downgrades the project it goes into their internal database and all the valuers have to then downgrade the project to tow the company line.

So whether another valuer in the business has a difference of opinion on the project it doesnt matter.

Would love some clarity around this if any valuers on the forum could fill in the gaps around this.
 
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