So you’ve just signed your contract and got the nod from the bank for pre approved funds to complete your purchase. Everything is looking great. Until suddenly it isn’t. The valuation is short $200,000. A feeling worse than being Miss Colombia at the Miss Universe 2015 pageant.
Ok, that may be a bit dramatic, but the issue of low valuations is very real and affects around 35% of home buyers.
00:00 Bank Valuation Too Low? [How to overcome a BAD bank value]
00:46 1. Why are bank valuations so low?
02:56 2. What happens if bank valuation is low?
06:00 3. What does a bank valuation they cost?
06:26 4. Common reasons valuations come in short
07:57 5. What happens if the valuation is lower than the offer?
I’m Josh Vecchio, Mortgage Broker with Hunter Galloway, the home for home buyers Australia wide.
And in this video I’m going to walk you through my 5 tips to help you get increase a low valuation, step by step, so keep watching
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For home loan enquiries
jayden.vecchio@huntergalloway.com.au
T: 1300 088 065
E: hello@huntergalloway.com.au
1 - Why are bank valuations so low?
Bank valuations commonly fall in short and for many is the cause of allot of stress as doesn’t quite makes sense especially if you’ve received a real estate appraise which stats the contrary. So to understand why there’s a difference lets look at each separately. From there will highly why the banks valuations are commonly low.
A bank valuation is designed to be a risk mitigation tool, which looks after the banks best interest. In short, their valuation reflects what the bank can reasonably expect to receive to cover their losses. The biggest thing the bank is concerned about is how long the particular property would take to sell. They want to be able to sell fast, generally within 3 to 6 months. So if the property is unique or has a specific market appeal, the banks can and will reduce the amount they’re willing to lend against that specific property. An example of this are apartments under 50m2. Because the market who would be interested in living in such is limited to students and singles due to the small living quarters. Thus common for banks valuer to also reduce their valuation to be in line with the banks risk assessment. Overall a bank valuation is a fair market value rather value in the eyes of the lender’s appetite.
2 - What happens if bank valuation is low?
Firstly, don’t hit that panic button just yet. The banks have three different types of valuations at their disposal and include.
Full valuation or short form valuation
It's a comprehensive inspection where someone will physically walk through the property or block of land taking measurements of things like floor area, number of bedrooms and bathrooms. Once the inspection is completed the valuer will compile a list of what they believe to be comparable properties in the area which have sold within the last 3 - 6 months. With this the report is completed based on this data.
Drive by or called curbside valuation.
Automated price estimate or automatic valuation model (AVM)
3- What do they cost?
Lenders don’t pass on the cost of the valuation, so if needed a part of the home loan application you can expect that 9 times out of 10 that the bank will cover this fee. On the odd occasion they don’t, typically smaller banks and lenders, then this fee ranges from $200 - $900 depending on where the property is located and price point.
4- Common reasons valuations come in short
Like every opinion, they differ person to person. It’s very common to have three different people value the same property, at the same time in the same market having three separate valuation figures. No one valuer is right or wrong, technically speaking they’re all correct. The 11 most common reason a valuation undervalues includes;
Oversupply in an area
Market conditions
Hazards -e.g. if the property is located near high-tension power lines
The liability of a property (is the property deemed habitable)
Physical Issues (e.g. incomplete renovations)
Uniqueness / Resalability - how long would it take to resell the property
Limited comparable resales history
Overcapitalisation
Non-arm’s length agreement - e.g. buying a home without intervention of a realestate agent.
Multiple properties on one title
5 - What happens if the valuation is lower than the offer?
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