Bank valuation VS Independent valuation

I would think if you are not using any other property as security that the bank vsluation would be sufficient unless you are not borrowing a high percentage of the purchase price. I think in the past some people who borrowed using two properties as security were trapped because the value of the property they were buying was less than the purchase price but they didn’t know as the bank didn’t tell them and as far as the bank was concerned the total value of both properties was sufficient to get the loan. Are you using a broker?

Hi Lyn

Are you wanting your own valuation done for peace of mind?

As has been mentioned above – the bank will only lend against the valuation that they arrange….and the vast majority of the time, those valuations come back at the purchase price.

Cheers

Jamie

If the lender (bank) only has to recover 80% of the Purchase price plus selling costs, they shouldn’t be too fussy if the valuation is not quite up to the selling price. If the borrower’s capacity to repay is strong then the risk is low for them. So why wouldn’t they approve a loan even if the property was valued at 90% of the purchase price. So unless you get the lender to confirm the valuation was 100% of purchase price you don’t know what they valued it at. When using a lending broker the broker can sometimes discreetly mention the valuation because they have seen it.

If you had an independent valuation can you expect that the independent valuer will not look at the asking price as,part,of,their,research to establish the value. I think they would look at the asking and purchase price. I would be keen to hear experienced players comment on the differences between lender valuations and independent valuations.

If you look upon the independent valuation as another insurance then it may be worth it especially if it is something you will worry about. Small cost for quality sleep. However for an investor who has to balance risk and costs there is the question of how much confidence do you have in your ability to compare similar properties. And how much insurance do you buy before it becomes uneconomical.
For lower cost housing the reports and valuations can represent a more significant cost than for a median Sydney property. i.e. $400 is a more significant percentage of a $200,000 unit in a regional city in NSW than a $600,000 unit in Sutherland Shire in Southern Sydney.

The valuer will 99.9/100 revert to the purchase price at sale, even if they believe the property is at a higher value. There is no effective benefit in you trying to achieve a higher value at the contract date, as lenders will take the lower of the two values – as Kinnon has touched on.

In practical terms, after 6 months you can order another valuation, by which time the valuer will be more likely to value the property on the comparable sales in the area, than referring the recent sales price.

What to do if your valuation comes in low? I agree with the comments that in the majority of cases the bank assigned valuation result will be the same as the contract price. In fact, at loan to valuation ratios of 80% and in some cases 90% lenders will accept the contract price as the value and not require a formal valuation at all.

However, this comes with certain cavets such as property use, location and property type.

But what do you do if you are all ready to go and the bank valuation is low. First and foremost this is an issue that hopefully you have addressed before the purchase is unconditional. That is, your broker may have ordered and received the bank valuation for you prior to you committing to the purchase. This is available free with most lenders and for a small fee with others. However, if it is low you can a) form and argument about why it is wrong – some people will say this never work when it does work in strong cases but only if you have a very strong case or b) Simple go to another lender.

In all cases time is of the essence re valuations. You need time to dump and move on if you a result that is just plain out there.

Valuations are necessary to gain our finance but as investors it is important for us not to treat them as anymore than a tool for us to buy the property we need and to get out the equity we need to buy other property or in fact simply create liquidity pools that can be used as a rainy day reserve.

In niche areas of property investment valuations can be problematic. This is why you need to give yourself time and if using a broker give them the call early in the negotiation process to get your upfront valuation done. In rare cases real estate agents may stall access for various reasons in the early stages but usually getting your valuer through will not be an issue.

• This reply was modified 9 years, 5 months ago by  Don Nicolussi.
• This reply was modified 9 years, 5 months ago by  Don Nicolussi. Reason: having a lot of trouble on this keyboard