I’ve written about this recently for Proadviser, and I thought I would add to the conversation over here.
Property valuations are one of the trickiest aspects of my job, in that they can cause the most grief. A poor valuation can ‘kill a deal’ meaning you can’t do what you wanted to do. Fortunately I have access to information and resources to minimise the number of times this happens.
Property valuations, in the simplest form, represent what someone thinks your home is worth:
As a buyer – what they’re willing to pay and you’re willing to accept
As a lender – what is a reasonable figure to quickly offload the property if the borrower stops making payments
And we all believe there should be a set in stone figure – but the reality is that never happens, look at the number of times you see a standard home sold in your area and wonder how on earth did they get that price, or why did that go so cheap – its opinion based, not a science.
Add to this (and lenders will argue its not the case to which I say rubbish!) different lenders seem to have different ‘instructions’ for their valuers, absolutely I can tell you at any given time which lender is giving better or poorer valuations, even down to the system being used. A tool in my arsenal if you will.
Another impact is cost price, particularly when building – new estates releases often rise in price with every stage, the valuer has to find a reason to justify the increase. Especially where there are incentives like a car or a furniture voucher thrown in, valuers will not allow this in their figures. And if your build is particularly expensive on a per square meeting basis it can exceed the “check costs” and fall over there.
A lack of other evidence plays a part too – for example the more unique properties, or areas where there are not many sales. Valuers have to work within certain parameters which often are “sales of like properties in the same suburb within the last 3-6 months”, if there are none – what do they do?
And we’re always talking secondary sales – sales through agents and not from developers which are very rarely taken into consideration.
Consider the case of the low valuation where – and this particularly happens with units – a development is complete right after a similar neighbouring development suffers a setback. I’ve seen it happen where a developer has had to offload stock very quickly so they have reduce the prices of their units. Now the second development is complete and the buyers need to finalise their finance – valuations all come in low because on an average basis the other units were so much cheaper. I’ve seen this with land developments as well and it’s harsh. Nothing has actually happened to the ‘value’ of either property but the average has dropped because someone has been prepared (forced) to accept a lesser price.
Finally theres the quality of the research as well – its a professional field but like any other you can get suffer a genuine error or a lazy bugger – I know I have spent the odd day on the phone ringing real estate agents to come up with exactly the same data the valuer can access at their finger tips, in order to force them to review an obviously wrong valuation. Not a good use of my time and unnecessary stress – but imagine if I was a bank customer who just got told no and walked away? Those clients would not be living in their dream homes right now if that were the case.
Once again, if you rely on walking in the door of that perfect lender who has the perfect valuer to get the job done – you have reduced your chances of getting your loan approved, or you may end up paying necessary mortgage insurance.
Another interesting aspect is a valuer rarely comes up with their own price from scratch – more often they’re trying to justify the value that has been suggested to them – if the price that you’re paying or the value you need to get the job done is within scope very often they will do their best to support it. This won’t help you if you want to get the price just right for an auction – often people want to know they aren’t paying more than they have to – but in reality what is that? Its a concept only.
As a seller, and I have been there, I have expected a certain price for a property and when noone offers this it’s ugly and no amount of evidence or valuation reports is going to force more money out of someones pocket, so I guess at the end of the day theres little value in valuations as well other than as a tool to get the job done.
So what do you do if it goes wrong and you can’t get the job done – I am ever thankful that I have access to that broad range of lenders and valuers as well as data so to have the best shot at getting your approval. Don’t stop there – give us a ring.
And if you’re curious about the value of your current home, here’s where we start:
- Run a complimentary property report – just contact me with your address and a couple of details
- Then work out what it is you want to do with this and we’ll work out which valuation to target