Lower valuation than the purchase price

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.

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

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

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.

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. 

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

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

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.

zen wrote:

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!