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Valuers can easily offer subjective opinions on a particular asset, but there are ways investors can find out exactly how much a lender is willing to give out for the purchase of their chosen property.
According to Simple Property Investment’s Nick Holden, valuers tend to be more conservative with bank valuations than market valuations because they could be held liable if the bank ends up suffering financial loss.
A conservative bank valuation could mean a decreased borrowing capacity for the purchaser.
However, Mr Holden said, even if the bank valuation is equal to the asking purchase price, lenders can still reject a borrower without justifying their decision.
“If a lender’s mortgage insurer is involved, they, too, can override the valuation figure and state what amount they are comfortable in insuring,” Mr Holden said.
How, then, can an investor determine the amount a lender is willing to let them borrow?
Mr Holden suggested submitting said a finance application as an initial step. Some lenders are willing to give a figure at this point, if it is a simple application.
However, there might still be several factors that can affect a lender’s decision when the application is more complex, as in the case of off-the-plan purchases.
He explained: “If you are purchasing a property off-the-plan, understand that a bank valuation may be significantly lower than the purchase price once it is getting close to completion/settlement.”
“If you elect to go unconditional for the purchase contract, ensure you have room to move if this happens,” Mr Holden added.
Meanwhile, for OTP transactions, circumstances may change from the time of purchase to the time of settlement. The longer a property development goes, the lower bank valuation could become.
For established properties, other influences come into play. Here, valuations tend to come in at varying rates, depending, once again, on the lender.
“Valuers are supposed to compare re-sales or sales, but this rarely happens. They use comparisons of the sales of existing or established properties, which does not always reflect the added value of the property being new—apples are not being compared with apples,” Mr Holden said.