All Topics / Help Needed! / Lower valuation than the purchase price

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  • Profile photo of wealthcreationwealthcreation
    Member
    @wealthcreation
    Join Date: 2010
    Post Count: 21

    Dear all,

    It is very kind of you to provide valuable suggestions and inputs since I joined this forum.
    So far I have acquired 2 IPs since joining this forum in the past 17 months or about 1.5 years.
    My sincere thanks to all of you for your valuable inputs in my early property investment career.

    I am now aiming for 3 rd IP.
    I am having an experience where the lender's valuation has come down by 4.4% than the contract price.
    This is my "first time" facing this situation. Hence bit stressed. The property is OK for its age with building & pest inspection done.

    I have challenged the valuation report with additional data such as comparable sales and rectify some data which was assumed in the report.
    The report is being queried and hopefully the queries will be reviewed by the valuer.

    I have to make up my mind if the valuer does not agree to reconsider the valuation.

    If the valuation outcome is unchanged, then I may have use my cash to cover 4.4% difference (About $10,000).
    Thus use my cash buffer and also take the risk.

    I am also trying to negotiate the purchase price.
    So lot of uncertainties at this moment.

    Any similar experience ?
    Anyone experienced such problem of "lower valuation" or "over payment" for an investment property ?

    Should I wait for another opportunity ?
    Or the best thing to do is to acquire the asset whenever you can at any point of time ?

    Any thoughts in going ahead with this or "wait" ?

    My strategy is "buy & hold". Hopefully long term and use the asset for inheritance planning, if I can.
    So at this moment, hold it forever if I don't need to sell it for any better reasons or change in circumstances.

    Thank you in advance.

    Regards,
    WC

    Profile photo of MenunesMenunes
    Member
    @menunes
    Join Date: 2012
    Post Count: 28

    I had a similar situation with units I bought last year.
    Purchase price was $500k for 4 x units loan for $530.
    Valuation came in at $475k

    We looked at the rental opportunities and made the decision for purchase from the figures.
    Taking up the equity on other investments has slowed us down for a while as we are “maxed out” according to the banks. But, The area is in growth and rental made it a positive investment so for me it was a no brainier, in this circumstance.

    Every situation is different though, so you will need to check the individual figures for this purchase.

    Profile photo of wealthcreationwealthcreation
    Member
    @wealthcreation
    Join Date: 2010
    Post Count: 21

    Hi Menunes,

    Thanks for your reply.

    I just wonder if we want to focus on gaining some equity, then going by "on the market" purchase prices of the properties against the valuation outcome. Lender's will consider valuation in future for allowing more lending.
    Yes, you are right , it can slow down your asset acquisition in a conservative market condition. If its a high growth market, then yes, it can give you desired results.

    Thanks for sharing your experience.
    Any more comments, thoughts always welcome.

    Cheers,
    WC

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Must admit i am not seeing it that much on purchases and if you do then i think i would be looking to get an alternative valuation or switch lenders. Get your Broker to order the valuation up front before you lodge the application so you dont fry your Credit record.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of wealthcreationwealthcreation
    Member
    @wealthcreation
    Join Date: 2010
    Post Count: 21

    Yes, I did change the lender. But the valuation company put the same valuer in both valuations.

    The valuation systems assigns it randomly and I was advised that I don't have any say or control over choice of valuer.
    I paid for the valuation report.
    Very strange to me.

    I have challenged the valuation with some new data about comparables sales, actual buildling year. The valuer just assumed the building year.
    I am now therefore hoping that the valuation challenge becomes successful.

    If its not successful, then I am also thinking to have another valuer no 3.
    But can I have control over the choice of valuer , if I pay for the valuation report ?

    Any thoughts?

    Thanks.

    Regards,
    WC

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,018

    All depends on the location of the property, the security type etc etc etc.

    Not every lender uses Valex or similar.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Aaron_CAaron_C
    Participant
    @aaron_c
    Join Date: 2012
    Post Count: 65

    This is very common. Find a different valuer, one that is on the panel of other lenders if you think this is going to be a problem. Ask your broker to find one for you.

    Profile photo of wealthcreationwealthcreation
    Member
    @wealthcreation
    Join Date: 2010
    Post Count: 21

    Dear All,

    Sorry for such a late reply.

    Update !

    Just to let you know that after several follow ups with the valuation company and additional data of comparable sales, the valuer agreed to change the valuation from $225,000 to $235,000. I got the comparable sales data from the seller's agent and then I passed it on the valuation company through my broker.
    The property was settled in late May.

    Thanks for all your valuable inputs and insights.

    Best Regards,
    WC

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi WC

    Good result – just goes to show that persistence can pay off.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of John MaxwellJohn Maxwell
    Participant
    @john-maxwell
    Join Date: 2010
    Post Count: 30

    You should definitely be finding another Valuer. Personally it is unacceptable for the valuation to be lower than the purchase price. That’s like me selling a car valued at $10,000 for $12,000. Sure, some will pay more for it based on features and other benefits but it’s an emotional decision to pay more.

    There are always more deals and better deals on the horizon. Consider your options and be prepared to walk away. Many a time, the vendor will come back to you when you take the offer off the table… That’s part of the art of being a good ‘unemotional’ investor.

    Profile photo of luke86luke86
    Participant
    @luke86
    Join Date: 2010
    Post Count: 470

    Yes I have had a low valuation on a property that I was interested in. I made an offer of $335k subject to an acceptable valuation. The valuation came back at $315k. I went back to the vendor and said that the valuation was low and I would not be able to get finance approved, and submitted a new offer for $315k as this was what the valuation was and what other buyers would probably get as a valuation. The vendor was not happy and said that they would be able to give me the details of their bank manager who had a valuation done for $340k, an offer which I politely declined. A week later I got a call from the agent saying that the vendors really needed to sell and would take my offer of $315k.

    As John said, it paid to be unemotional.

    Cheers,
    Luke

    Profile photo of jagsinghjagsingh
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    @jagsingh
    Join Date: 2012
    Post Count: 2

    Things to do when you get a low valuation . 

    1) Negotiate with vendor to lower the price and tell them you will back out from the deal if they can't. (If you have subject to finance clause of course)

    2) In case vendor doesn't (in most of cases) wait for two or three weeks, and reapply a valuation through a different borrower and hope the use a different valuation company. Any good broker will be able to tell you which bank uses with valuation company. 

    In my case the first valuation was 45K under the the contract price. The vendor did not negotiate and I pulled out from contract. After a month we followed up with vendor and were able to negotiate 15K less than the initial contract price. 

    Next time valuation came around 9K more than contract price. So difference between first valuation and second one was nearly 40K. 

    Second or third opinion is very necessary. Trick is to choose a broker who knows about the area you are looking to buy. A good broker who knows the are is the key. 

    Profile photo of jagsinghjagsingh
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    @jagsingh
    Join Date: 2012
    Post Count: 2

    Brokers can get bank valuation done before even putting up a formal loan application. If your broker says he/she can't look for another broker who can. You can work with more than one broker and see who can get you a better valuation and better intrest rates deals. 

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    jagsingh wrote:
    You can work with more than one broker and see who can get you a better valuation and better intrest rates deals. 

    Don't do that.

    Feel free to find a broker you're comfortable in dealing with but don't use two at the same time. It's a waste of time for all involved and can end up worse off for the borrower if multiple applications are submitted by different brokers.

    If I had someone tell me that they were using another broker at the same time as using me – I'd pass on the business. I'd rather spend time/energy focusing on clients who are dealing exclusively with me rather than spending time on someone who's actively using multiple brokers/bankers.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    The post above really doesn't make sense for a lot of reasons. A good broker is one that knows which lenders offer upfront valuations? Really? What about one that knows complex structures? Policies? Can educate the purchaser and make sure that they are in control throughout the purchase process? 

    TheFinanceShop | Elite Property Finance
    http://www.elitepropertyfinance.com
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    Residential and Commercial Brokerage

    Profile photo of zenzen
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    @zen007
    Join Date: 2016
    Post Count: 46

    Hi Team PI

    Happy Spring!!!

    I’m at the same stage, contract price for my first investment property ‘townhouse’ is $350,000 and my broker came back to me with first valuation from PRP $330,000 and the second valuer was at $340k. My initial deposit was $17,500, if I decide to walk away I think I may lose my deposit!

    What are my options?

    1) Am I able to renegotiate with the developer to redraft the contract to $340,000?
    2) Should I walk away and lose 5% of my deposit ($17,5000)?
    3) Should I still proceed to purchase property?

    Its an investment to rent to people and I’m in the for the buy and hold strategy.

    Any thoughts, appreciate in advance.

    zen

    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    Purchase price was $500k for 4 x units loan for $530. Valuation came in at $475k

    @menunes That sounds like a xcoll loan structure. I would advise getting it restructured before proceeding with any subsequent purchases.

    We looked at the rental opportunities and made the decision for purchase from the figures.
    Taking up the equity on other investments has slowed us down for a while as we are “maxed out” according to the banks.

    Are you dealing direct with banks or via a broker as there may be unexplored options for you to consider to extend borrowing capacity.

    You can work with more than one broker and see who can get you a better valuation and better interest rates deals

    I 100% agree with Jamie. When dealing with professionals in the various aspects of property who are commission based it is only fair to treat them with respect and be upfront as well. I would also decline the business if I new I was competing with another broker as I could spend this time with people who are serious about engaging my services, which is for free :) until a deal settles and then you get paid 2 months later. If the shoe was on the other foot you would agree @jagsingh. Its likely if a broker is happy to compete against another broker or bank for that matter they are desperate for business!

    • This reply was modified 3 years, 5 months ago by Profile photo of Colin Rice Colin Rice.
    • This reply was modified 3 years, 5 months ago by Profile photo of Colin Rice Colin Rice.
    • This reply was modified 3 years, 5 months ago by Profile photo of Colin Rice Colin Rice.
    • This reply was modified 3 years, 5 months ago by Profile photo of Colin Rice Colin Rice.

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
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    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

    Profile photo of Colin RiceColin Rice
    Participant
    @fms
    Join Date: 2011
    Post Count: 338

    What are my options?

    1) Am I able to renegotiate with the developer to redraft the contract to $340,000?
    2) Should I walk away and lose 5% of my deposit ($17,5000)?
    3) Should I still proceed to purchase property?

    @zen;

    1. Yes you can negotiate with the developer.

    2. No, its only a small shortfall (10k) so would not be worth forfeiting your 17.5k deposit. You can adjust your loan amount or tip in the difference from own funds which will be a few k at most.

    3. Up to you but I personally wouldn’t pull out for a 10k val shortfall if you where happy to proceed if it was a full val.

    Colin Rice | CDR Finance
    http://cdrfinance.com.au/
    Email Me | Phone Me

    Perth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]

    Profile photo of zenzen
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    @zen007
    Join Date: 2016
    Post Count: 46

    Appreciate Colin your thoughts on the options. My conveyancor got back to me with a letter from developer lawyers and they do not want to reduce to $340k. I ask my broker to proceed with the lender, suppose to settle mid-September, and titled end of September and hoping to get a tenant in there during October. my first investment property and look forward to many more to come.

    Cheers

    zen

    Profile photo of Ethan TimorEthan Timor
    Participant
    @ethantimor
    Join Date: 2016
    Post Count: 282

    Appreciate Colin your thoughts on the options. My conveyancor got back to me with a letter from developer lawyers and they do not want to reduce to $340k. I ask my broker to proceed with the lender, suppose to settle mid-September, and titled end of September and hoping to get a tenant in there during October. my first investment property and look forward to many more to come.
    Cheers
    zen

    Congrats!!

    Not sure if it’s worth it for $10-15k but it might be prudent to do another valuation 3-4 months after settlement. You could bring comparable sales and attend the valuation, talk with the valuer, show her/him your comparables, tell them what number you’re hoping for (after all, we are all people and valuations are not set in stone). You might come on top, freeing more equity towards your next investments :-)

    Good luck!

    Ethan Timor | Aligned Finance Pty Ltd
    http://www.alignedfinance.com.au/
    Email Me | Phone Me

    Active Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)

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