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Many property investors often entrust property valuations to professionals, but knowing how they work can help you be more involved in the realisation of your investment potential.
One of the most important things to discuss when requesting a valuation for a residential property is the difference between bank valuation and market valuation.
According to the Australian Property Institute, market value is “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction,” whereas bank valuation is the figure that a lender is willing to let an investor borrow for a particular asset. While these two values could be the same, banks tend to be more conservative to protect themselves in case they need to sell an asset quickly in the event of a foreclosure.
“This is why we have seen different valuations on the same property when the loan-to-value [LVR] ratio is different,” Simple Property Investment’s Nick Holden said. “Bank valuations can be significantly less if the purchaser is borrowing 95 per cent against a property than if they were borrowing 70 per cent [because] the risk to the lender is a lot greater.”
Property investors will do well to remember that valuers can form subjective opinions on the value of an asset.
What can you do when you’re not satisfied with the bank valuation?
1. Request a reassessment
While this rarely happens, it is not entirely impossible to acquire a reassessment of the bank valuation. You will only need to provide documents to support the request, like comparable properties with higher values.
2. Try another lender
You can always cancel the finance application and find another lender to work with.
Nick shared: “The biggest difference we have witnessed so far was a North Melbourne apartment [with a purchase price of $397,000] that was valued by one lender at $308,000. The finance broker took the application to a different lender, which returned a valuation of $385,000—all within 48 hours.”
3. Find out the market valuation
If you believe that a real estate asset is overpriced as a result of low bank valuation, ask an independent valuation company to determine its market valuation. While this could give you a true valuation, it is important to remember that individual valuers can also be subjective.