This is obviously a touchy subject, but here goes. I have heard that banks are coercing valuers to under-value investment properties, so as to have less exposure. I think it is to ensure that investors put in a greater amount of their own funds & demonstrate an ability to afford/finance the property. The property suddenly values 10 to 15% higher in 6 months when re-valued.
Anyone had any experience of this? I would have thought the banks would simply just lower the percentage offered on a ‘true’ valuation, as is the case at Docklands, where only 70% is offered.Hi there,
Yes! I know they do!
I had two properties valued and the valuer asked what the ‘purpose’ was. ‘Um, so I know what they’re worth’. i replied.‘for the purposes or achieving finance, or to sell?’ the valuer asked.
‘For finance, eventually’,I replied.
‘which bank?’ said the valuer.
‘I have no idea. yet.’ sez I.
‘because it depends on the bank, how I value it – we have to be very careful’.
so there’s your answer.
One of the properties I had pretty much just bought for 19K valued at 25K. Sounds good on paper except that I had spent about 9K on it painting, polished the floors, new bathroom, and he valuation hadn’t even seemed to have capitalised these visible things at cost! The final straw was that this valuer (who had been rather patronising to me the whole time anyway) told me if I was *selling* it, it would go for 10 K above the valuation figure he’d given me. As in 35K. That sounded more like what I was expecting.
So the moral of the story is that a bank valuation might be ….hmmm maths….30 percent lower than a ‘market valuation’. To me that really sucks, is totally meaningless and it’s all just rigged, and yes, yes, yes, the banks scare the valuers into undervaluing so they keep getting the work. The valuers are just, in the end, bank slaves, and employees, waiting for the phone to ring for a job…i mean, i geddit, i just don’t like it.
cheers-
Minisame thing happened to me.
had two places valued 3 months after the last valuation. one came in 45k more than i expected with no work done on it. the other one had capital growth of 8% in the last quarter, and i even had the RE agent go with the valuer. place was revalued at 2k more than what i purchased at.
i spoke to my mortgage broker who has told me they do this all the time, and just do a “top up” in 6 – 8 months time.
bugger i needed the money, but what can you do?
cheers
shaunLead, Follow or get out of the bloody way
I have never had a problem with valuations. Sure banks are conservative and I expect that, but when I do my own valuation I look at similar properties in the area. The bank valuation has always agreed with my valuation.
I often hear of marketing companies like the investors club winge about bank valuations. Every month in their newsletter there is an article about how bad they are.
As for a property in the $19k to $25k bracket. It must be hard to value them. There must be some risk associated with ownership so it may be difficult for a valuer to come up with a price.
I believe in independent valuations and believe valuers are professionals in what they do. If not go and bring it to the attention of their professional organisation.
There is no one value for a property. There are statutory, mortgage, market, just terms compo etc. values which can vary greatly. That is why the valuer would have tried to qualify his instructions by establishing the purpose of the valuation. The valuer has to conform to the parameters of the instructions or accept legal liability for an incorrect valuation.
Incidentally capital improvements, whether retail or wholesale and broader market growth rates do not have a simple linear relationship with the market value. Just because you spend 10k on a front gate, or paint, plumbing etc. doesn’t mean the property is worth 10k more. Comparable settled sales are the best measure.I think bank valuations will always mostly be done on “location location location.” Overcapitalising can be a real problem, I agree Captain. Important ideas from you in these days of the reno boom.
kay henry
yack, yes,
“when I do my own valuation I look at similar properties in the area.”
Indeed, and my own research tells me the property would sell for 35K right now based on similar properties in age, size, area, condition on the market right now. 19k properties – forget it, you don’t even hear of them any more unless they are burned out shells. And this was only mere months ago.
But I did make another mistake, in that the valuer who was recommended for that town – the local one – said he wouldn’t be able to do it for a few weeks as he was that booked out (doesn’t that tell you something! In hindsight, I should have waited…)- so I grabbed another valuer from the next town an hour away and i think that was a mistake because he was out of his ‘area of expertise’.
I will have to get them valued again soon anyway so it will be interesting to know what happens this time.
cheers-
miniOh kay, yes absolutely, it doesn’t pay to overcapitalise on the cheap properties. The reason of renovating wasn’t for capital gain so much as to ensure the long-term life of the building in it’s purpose for generating income as a rental property long-term.
See. cause here’s the thing. The yield AFTER – as in, including the renovations was 21 percent. Do the numbers yourself if you don’t believe me. 19k house plus 9k reno = 28K, rents for 115 a week.
The reno was paint throughout, handyman, polish floors, new bathroom and shower, fix the odd catch, handle, tap, hole etc, new kitchen bench, light fittings, curtains. etc.cheers-
MiniMini,
Yes, I realise that cosmetic or other reno’s for old houses can be really essential. And I think the reno’s you have done make your houses look so great!!
I was referring, when i mentioned “overcapitalisation” to people spending heaps and heaps of money, and then not necessarily getting their money back on it. My comments applied really to the pre-war boom days- which is only really 4 years ago- when people were spending up big on reno’s- often intending to resell- and it didn’t make a pinch of difference to their price.
kay henry
The valuation of the property is not compared to houses that are on the market right now but on those that have sold recently. A valuation should list three comparative sales in the same street, or at least the area and why these are comparable.
The bank once valued a property of mine and I expected 20% below market valuation. But the property came in well below and so I went to see them. The Loan officer had just finished stating that she had my valuation there (face down) when she was called out of the room so I turned it over to discover that the valuation was in fact around my original expectation and they had gone another 20% below that. (No guesses “which” bank).
However, a few years later we needed to get a valuation done and same thingt, way below the expected valuation so this time I was ready with the info, told the bank I refused the valuation, and that I would remove our buisiness. I now insist on getting a copy of valuations that I dont pay for myself, and even though they say they dont do that etc etc I have now managed it each time, or I negotiate to have the valuation done by an independant valuer.
I guess my point is you dont have to accept a banks valuation but you do need to be informed about what you are talking about, and its not paint etc. Its how many rooms, square feet, capital improvements etc. They couldnt care less about your colour scheme!
The point is that nobody really knows what will happen to the market so is it surprising that at the moment the lenders are a bit more careful than they would be in an actively boiling market ?
Remember, there is always more than one side to a story. Your superannuation fund may well have part of your super tied up in this lender’s shares.
So we really ought to have some understanding if a lender is trying to play defense, defense, defense as they may be managing YOUR money.
BTW, from where I am (as a mortgage broker) there are several lenders out there (banks) who in my opinion are lending recklessly (and who, in my opinion, eventually are likely to get themselves into strife because of that).
Pisces
yes but their caution should be executed by lowering the LVR, not by fudging the valuation numbers – after all they are suppose to be valuing the property in todays terms, not predicting into the future.
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yep i found out they undervalue.
depends on area, depends on valuer.My bank sent me the valuations.
Others wont give themcheers
Mini, when/if you talk to that valuer again, ask him which bank they would provide the ‘highest’ valuation for, and check out their terms – you may get a good deal from that bank for a loan, and if you get more than the other banks will lend – well, laughing….
Cheers
Mel
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