HI guys and girls,
I need some expert advise. I was recently in the process of buying a house and land package in Gladstone. Finance had been approved but had not gone unconditional until the bank had completed a valuation. Basically we were in the 11th hour. I had already had to apply for 2 extensions for the finance approval date due to the bank taking their time.
Anyway when the bank val came in it was 40K below the purchase price! My broker was very surprised because it was the house that had come in under val and not the land. So we have gone back to the developer and he has offered us a 25k discount. Houses across the street, almost identical purchase price have had no problems with bank val's. My broker actually did the finance on one of the houses in the same street and had no probs.
My question is, now that I have this discount should I still proceed with this purchase. The only problem now is that I will have to come up with another 15k. The finance approval I had in place only left with with around 5-7k extra. Under normal circumstance I wouldnt imagine that proceeding with a purchase that has come in under val would be a good investment decision but because I have the knowledge that houses on the same street are selling for the same price I was originally willing to pay then perhaps a low bank val is a good thing rather than a bad thing???
Any opinions???
Hi Corie
First thing to do is ask the broker to challenge the valuation – sighting the other properties he financed as comparable sales. He/she will need to come up with three comparable sales within the last 6 months.
Secondly (and do this at the same time) – have your broker arrange a couple of upfront valuations with different lenders. I'm not sure how many valuation firms are on the ground in Gladstone but if you can land a different valuer the result may be different.
Lastly – do you need to come up with the additional $15k or can you boost the borrowings with the lender?
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Jamie,
Thanks for the advise, Some good pointers to remember for the next time I get in a similar situation. I was about to ring my broker but I cant help thinking that getting a low bank val in this situation is actually a good thing. With the 25k discount the developers are offering I am ahead of the 8ball straight away. Even if I do have to come up wih some extra cash of my own, it is less than the discount they are offering.
I think I have answered my own question.
Thanks again
When a developer offers a 25k discount to market that screams red flags to me. That indicates a soft market and/or a developer on the ropes. If you're getting discounts in what was once a buoyant market you have to ask your self if you're simply buying into a falling market.
Yeah I hear what your saying freckle and I had thought of this. Because I am actually buying this through a buyers advocate I think the discount might actually be coming from them although they tell me its from the developer. Because they buy large quantites of houses through this developer they can go back to them and request these discounts. Either way I know Gladstone is not a falling market, and although I dont know for sure I dont think the developer is going under.
Be careful of Gladston. It's a market at or near it's top with the underlying drivers of value weakening. As I said to someone the other day. When a market is significantly above trend and the drivers of value are diminishing the likely direction of value is back towards trend not higher. I've always believed in buying assets when they are below trend because the likely direction is up. There's no guarantees but running with probabilities is a safer bet than speculating on increased growth when you know the market is near or at its price potential.
Sellers acquiescing to discounts suggest you're at the top of a market because they're running in to buyer resistance. A sure sign the markets topped given the circumstances.
Hi Corie
no worries re the advice about the valuations.
I agree 100% with freckle – tread carefully.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Yes i can understand what you are saying. Based on the upward trend of gladstone over the last couple of years compared to its trends now may seem like it has peaked and beginning to plateau but there are still 65 billion $$$ worth of projects that have been approved and are soon to begin. Specifically 2 gas more gas plants.
The population of gladstone these days is around 60k. With $65bill worth of infrastructure due to start and a population of 60k, thats an investment of $1million per person! I agree that Gladstone may have slowed a little but still has not run its race just yet.
http://www.macrobusiness.com.au/2013/05/arrow-lng-next-to-go/
Arrow LNG has been holding negotiations on potential consolidation with rival LNG ventures in Queensland, raising expectations that owners Shell and PetroChina are moving towards scrapping plans for a $20 billion-plus stand-alone plant to instead join Santos or Origin Energy projects.
Origin chief executive Grant King and Santos boss David Knox on Wednesday both referred to talks with Arrow and held up the possibility of an amalgamation between their respective ventures and the Arrow project.
…Chief financial officer Simon Henry is expected to comment on progress at Arrow at Shell’s first-quarter results in London on Thursday.
A fair chunk of that $65B gets spent offshore. Gladstone may play out sooner than you think. The problem with these large resource projects is they invariably over build accommodation and infrastructure to cope with the high demand during construction. Once the majority of the construction phase is completed you're invariably left with substantial over capacity. Port Hedland housing for sale and rent is ballooning at a phenomenal rate. In the space of 12 months they've gone from houses sold within days to 300 now stagnating on their listings. 12 months ago you had to sell your soul for a place to rent. Now there's 200 vacancies.
Gas demand is not increasing and a gas glut is developing. In Europe they're moth balling gas power generation and going back to coal because it's cheaper.
Proposed projects can be suspended and existing projects wound back. The current pipeline of work wouldn't have to slow down much to see an oversupply develop in the housing market. The risk I see developing is that services/facilities get ahead of demand.
Today there are no fewer than 60 nuclear plants under construction in 14 countries, with another 163 planned and 329 proposed. Gas has some serious competitors.
hi mate
i have had a very similar thing happern to me as i bought a house and land pacege through a company in melb we bought it for 432k in august and it keeps geting deleyed to setle but i recived a email of the company the other day informing me the value has gone done by 32 k he could not get a cent out of the developer , the buider has chiped in 10k the company has droped the advocatecy fee of 8k bringing that to 18k and out of pocket of 14k
iam really not to impressed to be honest but thinking positive about it all
he did mention that mine was the worst valuation from the 4 houses he bought which i thought strange
mine is oasis estate is that the same as yours?
regards daniel
Your buyers advocate and broker aren't a part of the same company by chance?
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
iam from melb is that were ur from?
Hi Dan
If you are based in Melbourne and the property is here in Qld i would be very concerned if the valuation is coming in low.
Classic marketing technique is to sell properties to out of towners especially here in Qld.
I actually ran a seminar on exactly this topic in Melbourne to investor clients recently.
Is you Contract subject to finance ?
If so i would be getting your Broker to organise a separate valuation and see what the comes in at.
What did the Form 27C show in regards to marketing fees disclosures ?
Think i would be starting to get concerned and be thinking twice. Begs the question why the Builder has dropped the price.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
thanks for the reply
i havnt got the valuation in my hand iam going to chase it up tomorow
i bought it through a melb company not a qld if that helps
but it was ment to be a 32 k proffit not do a 180 on me straight away thats whats got me triping a bit
as to the valuation i have been informed the cant do another val until the land get relesed does that sound normal?
its a new devepoment which land is stil in civil works
Absolute rubbish Dan you can do an off the plan valuation at any stage.
Just get your Broker (and not one linked to the buiider or marketing company involved with the property) to order a new valuation thru a separate lender and see what they say.
If the purchase is subject to finance and in Qld it should be then you still have an out on finance with no loss of deposit.
Even if it was a Melbourne Company they are still required to provide you with a Form 27 C.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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