You have probably have read comments from us previously regarding bank valuations undertaken prior to your lender approving your finance application. We suggest that you bear in mind that these valuations are one person’s opinion and therefore very subjective. Remember also that most banks are conservative and will insist a valuer comes back with a price that can be realised in a hurry, should there be a forced sale. As such, it is not unusual to see variations of 5% and even at times up to 7% below contract price.
What’s simply ridiculous is when two different banks value the same property with a difference of 25%!
A friend and co-worker, Martin, had his own home valued a year ago (when refinancing) and although he was told the loan was approved he had never seen a valuer. On investigation he found the valuer had done a “drive by” as instructed by the bank. After insisted on a “proper” valuation, grudgingly the bank agreed, the valuer visited and he ended up with $30k more!!
Over this past week we have seen a prime example of these variations between two bank panel valuers. Let’s be blunt; one was very unprofessional. Reluctantly, I feel we should not mention any names but if you talk to us one on one, we may be able to “elaborate”.
With $3.5 billion in current commercial and infrastructure spending happening right now, the Robina area is understandingly experiencing some rapid growth at present. It is apparent that some valuers with experience and current knowledge recognise this, while others who seem to simply put in their 9 to 5 commitment, don’t!
This is what happened…
Last week bank “C” valued a property three levels above one that Katrina & I are settling in 14 days; at 50 Riverwalk Robina. The valuation came in at $59,000 under contract price. They used valuer “A”.
This week, valuer “B” (another bank panel valuer) valued this same property for our client at $40,000 more!
The net result is still a $19,000 shortfall (or just 3.7% below contract price). Compare this with the bank “C”/valuer “A” one, which was a whopping 11.6% below. Never before in the history of mrd have I seen such an unprofessionally low, reckless valuation!
NOW HERE IS THE CRUNCH – The valuer “A” shot herself in the foot in this case. Going even further than she had with the property value; this time she undervalued the rental value by 16.6%! She stated in her report (I have a copy) that the market rental value was only $350 a week; yet a few days later the managing agents have immediately secured a tenant paying $420 a week… and two weeks before the property settles or is available for rent! (NB: 7.7% above the conservative figure mrd gave at the time of selling this property & 20% above what the valuer stated).
Paid as a professional, this valuer is supposed to know how the local area market is performing to be able to value this property! Clearly, in this instance at least, she has not acted professionally or done the right thing by the purchasing client. Needless to say that bank “C” lost this persons business.
What does this mean? It means that any doubts that may have been lingering about the real worth of the property (i.e. was it undervalued… or over priced) and the integrity and competency of mrd, has been completely dispelled. Bank “C” and the valuer they chose have been caught out & discredited (I am sure they won’t see it that way though!).
Given the actual rental worth of this property was undervalued by 16.6%; we could build a case for assuming the same translates over to the actual property value. If we did, it would make the real worth of this property at $540,000 ($31,000 more than the client is paying). I am not saying that this is the case, but just that there is no consistency or at times professionalism in what banks and valuers do. It is imperative you have all the information to make a fully informed purchase decision, ahead of time. mrd will partner with you on your wealth creation journey, helping you to separate fact from sensationalism.
Different banks will set different criteria to their panel valuers. Things like the guidelines they can use to make comparisons etc but these dramatic variations are just too large to be acceptable. Too many times we hear valuers comment about the buyers being interstate and therefore they seem to assume they don’t know the market and will automatically be paying too much. Besides (in this instance) the fact that the locals (including Katrina and me) are paying the same price for these properties; how would the geographical location of a buyer influence or alter the true valuation of a property anyway? PS: For the record, our personal valuation came in at $19,000 under contract price too; We settle on 30th November 2007
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STOP PRESS: The continuation of the story of the mrd client with the (really) low valuation…
Given this client had to arrange new finance, i.e. away from the bank that gave such a shocking and unprofessional valuation; settlement was put back by 3 weeks. This delay in settlement did not suite the prospective tenant who needed to move sooner; so he was ‘lost’.
A new tenant (paying $450 a week) has just been found. This represents a rental valuation of 28.57% more than the (so called) value put on it by the “Valuer”. Again if we assumed she was as equally wrong with the sales valuation as she has been with the rental valuation, it would mean this valuer understated the real value of the property by $128,565! I do not mean to suggest that the property was worth almost $70,000 more than was actually paid by the client… but I do mean that the property was worth significantly more than the valuer stated in her report.
The lessons to be learned from this is that we need to know we are paying a fair market price for any investment purchase we make and we need to be prepared for the strong possibility of a “valuation” that reflects (1) the subjective opinions of the valuer, (2) the conservative constraints of the lender involved and (3) a valuers desire to avoid litigation against his/her company’s Professional Indemnity Insurance policy.
