The valuation has to be one of the biggest hurdles when you’re building a home, as it can be done a number of ways – and it can come back to the lender instruction as to how it is done.
I’ve heard of ‘Valuer General land value’ (you know, what you pay your rates based on, which is usually nothing at all like what the land is actually worth – but if it was we would pay higher rates..) plus the cost of the build. Lots of credit unions use this method and its often a deal killer. Particularly problematic in a Knock – Down, rebuild (KDR) scenario where you’re relying on built in equity in the land. I don’t agree with this valuation.
Land cost + build cost – not unusual & pretty straight forward, works when you’re buying new land. Problematic if you’re buying in the first release of an estate which is quite different to the surrounding area as the land price isn’t easily compared to anything, much better in later releases. The issues we come across here are exactly as I said, the valuer has to work out what your land is worth – not what the developer wants you to pay for it, and they’re sometimes quote different. Subsequent sales or other sales in the area of vacant land help us here
The valuation will also be “discounted” if immediately when the build is finished theres something important missing – like a driveway – because we all know its hard to sell a half finished home, so the tip here is to also provide all of the quotes for the rest of the stuff you need to finish off (and in fact some lenders require it) like window coverings, floor coverings, driveway, grass to the curb at least, and fencing. Even simple quotes like “10 rolls of turf at $3.50 per roll from Bunnings” is ok. The other edge of this sword is, though, that the bank will want you to have enough money to finish these items too – either savings, or try to borrow it, and they won’t release the borrowed money until you’ve got everything in, so talk with your trades about paying them once the job is done and the bank has paid you, or keep enough aside to cover it.
Land cost + build cost + finishing items – with quotes supplied – a much better valuation all round. See above for tips about the finishing items. If you’re borrowing the maximum as a percentage of the valuation there’s not a lot of room to move in terms of paying your tradies, but if not you’ll make it work.
The higher the valuation obviously the better it is, especially if you’re paying mortgage insurance.
And its absolutely essential, when you’re building, that you talk to the builders about what they do POST contract, so what choices and changes you make after the contract is done and signed, because the contract is what your valuer will work with. Once they’ve done your valuation its very difficult to convince a valuer to increase the result because you’ve chosen fancier tiles – I mean the tiles you had in already were just fine and saleable, what point in new shinier ones? How would that get a better sale price? How does that make it better than the other homes that have sold in the area (that the valuer has compared yours to) that have, for example, established gardens?
Construction loan specialist
Items that are typically done after the contract is your electrical upgrades (try convincing a valuer to increase your valuation by $10,000 because you have more power points….), or colour selections (which can include tiles or roof tile upgrades) and I have even heard of kitchen upgrades!!
Much better we get these things allowed for via means of a “provisional allowance” at the tender and the contract stage – we can always vary it back out of the contract if we don’t need them.
So,
- Supply as many quotes for everything up front – you can change your suppliers down the track without issue.
- Get absolutely everything done in the tender and contract – or if not make provisional allowance
- If its a brand new area see what research you can do on block prices that support the price list you’re being given
And look forward to your build – its loads of fun!!
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