I could write a whole series on how you have almost no chance of getting the right loan by walking in the door of your local bank… in fact I think I will file this as part of a series – and this one would come under:

“How you have almost no chance of getting your loan approved by walking in the door of your local bank”

Sounds scandalous and hyperbole? I know, I apologise, but it’s right: case in point.

A valuer’s job is to ascertain the value of a home, and they do this by comparing other recently sold properties and their aspects to arrive at roughly what the home is worth. Reality is, in the case where a home is for sale through a reputable agent the price is generally right & the valuer is looking to confirm the price on the contract. Harder if you’re building a new home. At the end of the day a property is worth “that which someone is prepared to pay and that which someone is prepared to accept”.

Today, one valuer got it very right and two got it, lets say, wrong to degrees.

The banks then work out what they’re prepared to lend up to a maximum percentage of this valuation amount. So if the valuation is too low, the bank cannot lend as much. That simple.

Today I received the third of three valuations ordered for one client. Lovely people, gorgeous, they have a lovely home on a large block in a location they adore but they have outgrown it. Their kids are older, they need more space and definitely need a second bathroom. Let’s call them “John and Mary, and two teenage sons Jack and Harry”.

Mary really wants an ensuite, she needs it actually – can you imagine sharing with 3 almost grown men? Mental picture isn’t pretty right?

But John loves the location, well they both do in ways, it’s a gorgeous big block, they have brilliant neighbours, they love their street, life is handy and all within reach from here, and sentimentally it’s their first home too. They’ve looked at selling and buying somewhere else but the thought of leaving their neighbours and Friday afternoon socials makes them feel slightly ill, renovating isn’t going to work either so it’s a knockdown rebuild (which I love by the way, so glad I get to help them with this) and we go about gathering our tender and organising quotes for demolition and going back to the bank.

And it’s one of these – it’s a funny neighbourhood – quite mixed, some very expensive homes and some much more economic. A very wide range of type of property on the market and the neighbouring suburbs are mixed too – some very established areas and one booming brand new estate which is leaping ahead.

Because it’s a little more difficult for new homes being built we decided it was clever to order a valuation from three places, three separate valuations, and three of them came back vastly different.

If you only had access to one valuer – as the bank staff do – you can’t do this. You’re stuck with one valuation, you better hope its the good one and not one of the others. Add to this, bank staff have a lot of pressure and not a lot of time, it possible they wouldn’t even think of questioning the valuation even if they were able. Not their fault – just one of those things.

But the first valuation we received was killer. The clients could not do what they need and want to do. Full stop. Loan declined.

Imagine if the story finished there, and this happens so often.

How does this happen?

The valuers have access to government records on what has recently sold in the area and through other sources some limited data on the attributes of said property, so I imagine they start with a search within a given range of distance, for properties sold within a given range of prices and with certain attributes, similar land size, 4 bedroom, 2 bath etc, similar look and feel, similar age. They also have a set of instructions from the lender, for example, only sales within the last 3 months, only within this kilometre or post code range etc.

From these results they weed out the ones that don’t match our property & add and subtract based on their knowledge of what people are willing to pay for a particular attribute and come up with a final price – a valuation. It’s a little subjective though, one valuer might not see as much value in the fourth bedroom as another, or the additional garage space, or the larger block. See how things can get out of hand.

But I said they got it wrong, not just subjectively…

The first valuer didn’t think the new building was worth as much as it was costing – are you kidding mate, the tender price is the tender price. Not that this can’t happen – it can, but the price per square meter is fine and the builder is a reputable project builder and we are building an average home for the area –  we’re not overcapitalising. Wrong. Deal killer.

The second valuer had no issue with the build price at all however s/he valued the land at $260,000 for an 800 m2 block in suburban Sydney. Show me where you can buy a block of that size for that money in Sydney? The price list for blocks less than half that size in the new estate starts at $305,000. Wrong. Deal Killer.

The third valuation was sensible and accurate as far as I’m concerned. And we have a deal.

Mary will get her new ensuite and John can still have beers with the neighbours on a Friday, and I might even get myself an invitation to join them.

The bottom line, use a broker – a good mortgage broker, they will save you from permanently sharing your bathroom.

Using a broker gives you a better chance of avoiding a bad valuation.