BROKER HELP – Friend has had an off the plan Val come in lower

Not the best situation!

Generally it’s adviseable to put the land + construction finance in at the same time, to avoid these issues – though usually it’s the land coming under, as opposed to the build. The 2yr fix is going to act as a further anchor.

Did he pay LMI? If he settled on the land recently and his fixed rate reflects the current ADL bank rates available, he *may* be able to exit his fixed rate without cost, refinance to an alternative lender who will accept the H&L value.

If he can’t break the fix without substantial cost, has already paid significant LMI or a combination of the two, he’s in between a rock and a hard place.

I wouldn’t say it’s necessarily a case of breaching duty of care, but a bit of poor forethought on the brokers side perhaps.

There are plenty of reasons why a person would source finance for a vacant block of land, I wouldn’t expect a bank to refuse finance based on potential issues moving forward for construction.

If the block value has gone up 20k and the lender is still requesting a further 40k, something doesn’t stack up. I’d take the guess that due to the limit current stock available of that type, they are having difficulty finding comparables. Are the $ per sqm meeting market averages?

It might be of value requesting a *new* valuation from the lender, particularly if you can find comparables which support the market value – these need to be sale prices however.

Did your friend tell the Broker he was applying for a house & land package.

Either way i can’t see the Broker can be to blame if the construction price has not come it at value.

Could merely be an overpriced build and someone trying to make a few extra dollars at your friends expense.

Another problem with Off the plan H & L properties.

Cheers

Yours in Finance

Woody1986 wrote:

Now, I was wondering who would be at fault here.
1) The broker giving the advice to fix the loan
2) The bank who should have known it is a house and land package and shuoldnt have approved finance for the land without the build.
They are now asking for him to add an extra $40k which isnt small change.

Your mate is at fault. People should take responsibility for their actions! Put it down to a learning experience. it doesn’t seem like the bank has declined the loan, just that he needs to contribute more cash

As Terry said the buyer is responsible. HE made the purchase without a backup.

When you buy a product that won’t be finished for 2 years NO-ONE can guarantee how much it will be worth. That is why the buyer must take care not to over extend themselves. The boker is there to set up the finance (and he did that). He can’t control the banks.

Small banks (and others for that matter) don’t like to have to many properties in one area (or complex) as it puts them at risk. Maybe that is one of the reasons for the low valuation?

Woody1986 wrote:

Hi Terry.
I will have to disagree with you there. People employ “professionals” and I use the term loosely for some people , to guide them through this process ( and other complicated things like insurance and accounting) and provide them with quality advice and limit risks.
What good are brokers if they arent helping the client avoid issues like this?
Are they there to just fill out paperwork? Some brokers get generous commissions for the life of the loan and should be providing value for the financial benefit they receive.

From what I know is they havent declined the loan , just the build portion .

Yes I agree, a good broker would have avoided this. But it is a great step to try to pin any blame of negligence on that broker. I am a broker and at various industry sessions it is amazing to see the basic level of knowledge of brokers.

I would be interested to know the numbers here, because it sounds like quite a variation.

I will add a bit to the discussion about who is at fault.

– There are good and bad brokers, but a bad broker doesn’t mean he’s a (grossly) negligent broker. Just like any other occupation – surgeon, lawyer etc there are variations in skill set. When using a broker you don’t have to know everything that the broker knows, but you need to do your own due diligence to ensure that he is a good broker and the advice given is sound – those are things in your control. In this case, I would be interested to know what your friend did in regards to due diligence to determine the quality of the broker? My guess would be that it wasn’t too much… and that’s likely the root cause of the issue.

Sounds harsh, but I do hope he gets out of it. Going for a reval with the current bank, or moving banks sounds the best bet.

• This reply was modified 10 years, 6 months ago by  TheNewGuy.