What your property is worth at any point in time really is variable, depending on the market, what has recently sold in your area, when you sell, and what the buyer on the day is prepared to pay for it. Now that we have a softening property market where prices have slowed we have seen and will continue to see property valuations coming in lower than expected. This is occurring on existing properties already owned by clients. This is not necessarily the case with properties being purchased and it’s important to distinguish between the different types of valuations which are completed and for what purpose. See below for important information about valuations.
Valuers work for the bank
Often clients think valuations are completed by the bank, instead they are companies which are independent of the bank however they are paid by the bank. The final report is sent to the bank for review, however the bank has no part in the assessment itself. Banks have agreements with a ‘panel’ of valuers, and often there are different valuation companies servicing the banks depending on the postcode the property is located in. The actual ordering of valuers is completed via a centralised system and allocated to the valuation company who has the agreement with the bank for that postcode. Many valuation companies are on the panel for multiple banks. This can sometime result in one company doing the valuations for up to three or four lenders in one area. So ordering a valuation with different banks end with the same valuer and valuation.
Different types of valuations
There are essentially four ways a bank can assess the property value. They can complete a full inspection of the property internally and externally. Sometimes it is a ‘kerbside’ valuation where they drive up to the property and view it without inspecting it. Sometimes they do ‘desktop’ valuations relying solely on data analysis to come up with an estimate via software programs. Or they will accept the signed contract of sale and agreed purchase price. The type of valuation is dependent on a number of internally decided factors by each bank.
Valuations on existing properties owned by you
If you have an existing property and are looking to increase your borrowings against it or are looking to change lenders, in most cases the bank will require a valuation. These are the valuations which are often subject to large variances as valuers become more cautious in their outlook on the market.
Valuers will always be conservative in their estimates for a property that you are looking to refinance or borrow against. Valuations are not an exact science and involve a valuer providing an assessment of the property value compared with properties which have recently sold in the area. If there haven’t been a lot of similar properties sold recently or you have a unique property it can be difficult for the valuer to assess and they will therefore err on the side of caution.
Valuations on properties being purchased
With a property purchase, their job is to value the property to confirm the purchase price, they are not there to assess whether you have over or under paid on the property. Hence a valuation can’t be ordered by the bank until you have an agreed purchase price with the vendor or have purchased at auction already. If you’re unsure about purchasing a property without a valuation we always recommend paying for your own independent valuation, these can be done through the same companies the banks use. Your own valuation can give you peace of mind though they can add up depending on how many properties you consider purchasing. Remember, everyone at an auction is in the same position as you – the best they can do is a preapproval subject to finance.
A bank in any case, will still order their own valuation as needed, regardless of whether you’ve had one completed. It’s very uncommon for a property purchase to come in at a different valuation than the purchase price. What’s more likely is that the bank may not accept the property for a range of reasons, including if it’s in a flood zone, they already have too many apartments in one building or they deem particular postcodes too risky i.e. mining towns. Bank policy with regards to the property itself can change dependant on how much you are borrowing or your overall financial situation or if you are a new to bank customer. There are a multitude of factors which come together when a bank assesses whether to approve your finance.
Delays with valuations delays the entire process
One of the biggest delays to obtaining finance approval is caused by delays to the valuations. This is often caused by delays with accessing the property, usually by tenants. The managing or selling agent is contacted by the valuer to arrange a time for inspection. The agent then has to coordinate with the tenant for a time for access. It is at the discretion of the tenant when they allow access and we’ve seen instances where they have made the valuer wait over a week for access. The valuer then takes up to two days to return the report to the bank, where it then goes into a queue to the credit assessor for review.
Preparation is key
If you are thinking of buying in the next 6 months or need to borrow against an existing property – plan ahead. Get preapproved. The finance process takes time, so it’s important to start the process well before the funds are actually needed. Bank credit policy is getting more complex and borrowing is becoming more difficult. We have the experience to help you identify and mitigate the potential issues when buying a property or borrowing against an existing property.
