By Michael Matusik, 1st March 2012
At a recent Property Council gig there was a lot of discussion about valuations currently coming in well under purchase price.
The difference between the price paid by the buyer and the bank valuation is often high – over 20% – and the differential is spreading.
When asked about this situation, I replied that the solution should be a relatively simple one. Firstly, bank valuers should be paid more – they carry the risk, not the bank – and this, in theory, would allow them time to conduct the appropriate research. And secondly, rental return should determine value, not what a previous buyer paid.
If you require finance to complete the purchase of a dwelling, all financiers seek a valuation to ascertain the value of the property that is being offered as security for the loan. Licensed valuers must base their opinion on hard evidence and take legal responsibility for any information they provide.
Australia’s four major banks have a panel of valuers who are assigned to value a particular property through a process called “Valuation Exchange” (Valex). Smaller financiers often use the same valuers as the “big four”, although there are many valuers who are not part of the Valex system.
To assess a property’s value, a valuer must inspect the property, record details on the number and type of rooms, along with fixtures, fittings and any improvements. A property’s unique attributes will also be taken into account, such as:
The valuer combines these attributes together with recent comparable sales in the surrounding area and prevailing market conditions to produce a valuation report. Several photographs must also be taken to support their findings.
The identification of appropriate comparable sales is often the most contentious issue, especially in relation to new apartments purchased “off-the-plan”. There are a number of reasons for this, as detailed below.
However, the Australia and New Zealand Valuation and Property Standards state that where the property to be valued is within a new development and is being purchased from the developer, sales from other comparable developments should be considered as a cross-reference. In our view, this means developer sales in other projects can be used as sales evidence to support a valuation.
The distribution of costs should have no bearing on the end value of a product.
Finally, remember that you as a buyer can challenge a valuation if it appears too low. In particular, keep in mind that comparable sales evidence needs to be “like for like” as far as possible, especially insofar as proximity (to a railway station for example) or height above ground, view, aspect, ceiling height, facilities and so on.
Furthermore, valuers can utilise a much wider range of data than just comparable sales in any valuation report.
Select Your Report
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