Sometimes all that stands between you and your next purchase is a property valuation.
Here are 10 tips to help you get a better assessment.
For mortgage security valuations, the guidelines are well defined.
It’s the price of the property if traded between a willing buyer and seller at the time it was inspected, but with neither party so eager as to overlook normal business consideration.
The valuer will assume standard local marketing campaign of eight to 12 weeks, but based on the market conditions as at the inspection date.
Valuers are generalised as conservative, but that’s not always the case.
They’ve tasked with assessing what price the bank could reasonably achieve for the property if the borrower can’t service the loan and it needs to take possession.
Keep in mind valuers are, for the most part, independently contracted by financiers.
If a valuer is consistently and unrealistically conservative, the lender can’t write loans.
If a valuer can’t justify their figure as reasonable, he/she will be hit in the hip pocket through loss of business.
It’s no longer all about the figure either.
Reports contain risk ratings and commentary that can mean the difference between a breezy approval, costly mortgage insurance or even a knock back.
So how do you go about ensuring you get the best possible result?
1. Know your highest and best use and pay for the right approach
Banks want to lend money quickly and with minimum fuss.
If a standard valuation is all that’s required, they’ll instruct the valuer to proceed on this basis, effectively defining the user under which the property is assessed.
This means your splitter block or potential small development site will be treated the same as every other house in the neighbourhood – unless you step in, according to Tony Higgs, a director and valuer at Herron Todd White.
“We’re under the instruction of the bank and typically the bank’s instruction is to value a property on an ‘as is’ basis, being the existing residential dwelling. If the client wants a site valued with subdivision potential then they need to make that clear to the bank and have the bank provide us with all the information so we can go out and do it on that basis.”
If it’s important to assess the property’s development potential, don’t baulk at the increased valuation fee or required time extension for completing the report.
With current technology, a standard house valuation can be turned around in hours.
If you have added development potential, the comparable sales and details of approvals will require time to sift through and, like all of us, valuers want to be paid for doing extra work.
Don’t forget to furnish the valuer with all the necessary information too.
If you have plans, approvals and costs, hand them over.
2. Don’t lie or hide – dispel the doubt
Remove one of the great killers of valuation-dependent finance – doubt.
Valuers spend their days looking at all sorts of property and they will rarely miss something that rings alarm bells.
If they see something suspect, it will go in the report.
A great example is internal plasterboard fractures.
Often, it’s the case an expansion joint wasn’t put in during the original build and a change in weather can see a house shift slightly.
Suddenly, a fracture can cause a valuer to wonder whether there aren’t underlying structural issues.
“Depending on the level of damage, you would flat that to the bank and recommend they get a building or pest inspection. We would tell the bank what the issues are but wouldn’t advise them as to rectification costs,” Higgs says.
If you think your home has telltale signs of a bigger problem, put it beyond question.
Have a building inspector come over and give it the all clear (or otherwise) before you get a valuation.
Let your financier know so there aren’t any surprise additions to the risk profile in the report they receive.
This advice extends to things like perceived encroachment onto neighbouring properties, improvements to the home that don’t look to have council consent, leftover evidence of long-gone white ants or issues of rising damp.
While valuers aren’t building inspectors, these sorts of things when flagged in a report can play havoc come finance approval time.
3. DIY – order your won
By cutting out the financier, you can present your position on the property’s value directly to the professional preparing your report.
In addition, you have a chance to discuss elements of the property prior to the completion of the report that will help improve your outcome.
Will attending to an unkept garden or finishing off the extension help your figure? Just ask the person actually assessing your property.
Higgs is at pains to point out that just because you organise the report doesn’t mean you dictate the figure.
Apart from personal integrity, valuers are held to rules of ethics under a registration system and a governing body.
“There’s certainly no difference in value because you request it privately. It’s not like we go light because it’s instructed by a bank or anything like that. It will be the same value,” he says.
The advantage in ordering your own valuation is getting the rundown on the whole process behind the report before your lender sees it, so there are no surprises.
“Our client is the bank and that’s who we report back to. Generally, if you ask for a copy of the report they’ll provide it to you, but they have the right to say ‘no, it’s our valuation’.”
An additional benefit to this approach is the ability to shop around your finance.
As the instructing party, you’re able to choose which organisation can use your report.
If one lender knocks you back, simply move onto the next, ensure your valuation report is acceptable to them, have the valuer agree to its use and lock in the finance.
In most instances, it’s simply the case that a valuer can provide a letter re-assigning use of the report.
The one important proviso is to confirm, via your bank or broker, the valuer you choose is on the panel of accepted professionals before you give the go-ahead, otherwise you could end up with a great report that won’t be accepted by your lender of choice.
Likewise, some lenders won’t be acceptable to your valuer so check this too.
“Some banks at present say they won’t accept a privately instructed valuation, they’ll only accept it if they’ve ordered it themselves, so the clients are best to check with the bank before they commission the valuation.”
One of the main reasons property owners don’t instruct the valuer themselves is cost.
Banks will get reduced fees due to the large number of assessments they order.
If you want the ability to own and use the valuation report, it will cost more.
It can, however, be worth it with direct access to the valuer meaning you can discuss additional sales evidence and missed features before the report is sent to the lender.
This will give you an opportunity to ensure nothing gets lost in translation.
4. Finish the reno
There’s a lot of great ‘gunnas’ out there.
They’re ‘gunna’ finish the painting or ‘gunna’ complete the deck.
Valuers have to assess what they see on the day.
It’s no good suggesting the half-removed kitchen cabinetry will be replaced during the next school holidays.
The valuer has to highlight the effect this has on the home’s saleability in its current state, and this could mean unfavourable comments and risk ratings.
“Minor things like a little bit of painting here and there aren’t a major issue, but for us to be able to say to the bank that the property is habitable then there needs to be things like kitchens and bathrooms. We need to risk rate that to the bank and if these works aren’t done, people really can’t be living in the house,” Higgs says.
Not finishing up the renovation works can impact your end figure.
“We do have to make allowances in our reports to the banks if you don’t complete works. We then have to say what the added cost is going to be to them (the financier) to finish the work if they take possession.”
5. Estimate right
When preparing to do an assessment, the valuer relies heavily on your estimate of the property’s worth.
It helps determine the best sales evidence to source and can save time and trouble when trying to finish the job, according to Higgs.
“If you go too high on the estimate, then when the valuer is doing his initial preparations he’ll be basing it on that higher estimate. If he then gets to the property and finds out it’s nothing like what he was told, then he’s got to start his research again which just extends the amount of time before the bank gets the report and the client gets an answer.”
Most property owners and their financiers will go high on their estimates, according to Daniel Pym, a senior mortgage broker with Loan Market.
“No one ever underestimates. If you estimate at $500,000, unless the valuer is really excited about that property, he’s never going to come back at $550,000. It just doesn’t happen.”
Pym tells his clients to be optimistic but not ambitious when estimating.
“It’s no use saying it’s worth a million it it’s really worth $800,000. If the client thinks it’s worth $800,000 to $850,000 for the deal, then you say to the client that they’ll need to estimate at least $850,000 and then back it up with sales, otherwise it’s not going to happen.”
6. Clean up
Yes, it’s a bricks and mortar assessment.
Yes, valuers expect to find a home ‘lived-in’, and yes, not everyone’s home is of a display standard.
All true, but a tidy up can’t be a bad thing, according to Higgs.
“We look at the property based on vacant possession and generally assume it will be cleaned before being put to the market. That said, it doesn’t hurt if the lawn is mowed and the house is in generally good condition.”
Valuers know a dusty bench top is of no consequence to the figure, but a beautifully presented home indicates ongoing and attentive maintenance by the owners, something any inspector will view with favour.
There’s also a point where properties stop being just untidy and start becoming rancid.
If you’re dodging piles of clothing and stepping over dirty dishes from last week, then this will create a saleability risk.
Some properties have gathered so much debris and clutter it’s no longer possible to see the walls.
If a valuer feels a comprehensive inspection of the property is impeded by clutter, it will be mentioned in the report.
“We’d certainly flag if the occupants have a large number of items and there may be some removal cost.
“I’ve done one where there were shipping containers on the site and I might have allowed $5000 to remove those at a future date.”
7. Make a case
You love your property and its quirks are charming, right?
As human as property valuers are, they’re employed to be dispassionate.
The ‘come on mate, it’s got to be better than that!’ defence won’t cut it.
If you want to convince a valuer, show them the sales evidence, Pym says.
“You’ve got to do some of the work for the valuer.”
“What I say to all my clients is that if you believe your property is worth ‘x’ amount of dollars, you need to explain why you think it’s worth that and you need to have written evidence of actual sales within a six-block radius within the last six weeks of comparable properties – not listings and not offers – actual sales.”
Special and desirable enclaves exist in a lot of suburbs.
If you have a home in one, get together the comparable evidence to support your case.
Banks will have guidelines on acceptable evidence – usually it’s properties sold within 500 metres radius of the subject property, completed sales within six months of the valuation date and with sales prices within 10 percent of the assessed figure.
It’s possible to step outside these guidelines, but the valuer will rely only on the most relevant comparable, Higgs says.
“We might have regard to slightly dated sales within a particular locality and within a reasonable timeframe. We can then also comment on why that area is a unique area for that locality and we’ll include the older sale just to show that there’s a premium paid there for property,” Higgs says.
A tip here is to make sure you check on recently contracted sales that may not have appeared on the usual market date sites.
Try ‘sold’ property searches on your favourite real estate listing site as a kick-off point.
8. Turn up but don’t oversell
If you want to maximise your property’s potential, it’s a good idea to be at the inspection – just don’t get in the way.
Valuers are often heavily booked to get through several properties a day.
It’s not a case of rudeness for them to want to go through the inspection process in their own familiar and set order.
It’s also okay for you to point out the less obvious features of your home, Higgs says.
“It probably just extends the valuation time if the own repoints every minute detail in the property. We can see what’s in a kitchen, what’s in bathroom. It’s probably more what things they’ve done or added to the property since it was last purchased or valued. Even solar panels or other things that mightn’t be readily visible but hat would add value to the property.”
Features such as air conditioning and security grilles are obvious, but your hidden laundry chute, soundproof insulation or underground wine cellar may not be.
“If they’ve got any additional information that would be helpful. Something written up with what’s been done and details of costs would be handy.”
House plans can also prove useful – particularly if the home is of unusual architectural design.
Most valuers will give you a rundown of the features they’ve noted at the end of the inspection. This is often your best chance to double check all the good stuff has been included. Also make yourself available by phone for any future follow-up queries.
9. Answer the contract price unknowns
A valuer will have regard to the figure on the contract of sale, but if it doesn’t marry up with the available evidence, then questions are asked.
There are few individuals who could land on the exact dollar value every time for every property.
As such, the valuer creates a likely value range and if the contract price falls within this range, they’ll usually come in on the dollar.
If not, then further enquiry is necessary.
“There certainly should be comments in the report as well as good sales evidence to show why you’re not supporting the contract price. If you have a contract price below the lower end of the range, generally you’ll find it’s a related party sale or non-arm’s length transaction. In this case, we’d make comment that it’s, say, a family sale, that it’s a lower end and then we’d put a value of it at that time,” Higgs says.
Get onto this early.
Perhaps a real estate agent friend is selling the property commission-free for you, or there are chattels of some value included in the sale.
Is the vendor distressed?
By ensuring the valuer is aware of these additions and subtractions, you can be certain they won’t dismiss the contract price out of hand as unreasonable in their report.
10. Follow up and be civil
It’s difficult not to be emotional about your property ‘baby’.
You found the perfect pad, put your heart and soul into its upkeep and renovation, and know what every squeak and creek means amongst its timbers – then along comes someone who spends 20 minutes wandering around and puts a figure on it that’s insultingly low.
The cheek of them!
In reality, valuers don’t have it in for you.
If a figure comes back at less than expected, catch your breath and see if you can get a copy of the valuation.
If not, at least get a rundown on what sales were used and how they compared to your home.
If after an objective look, there’s a case to mount that the figure is too low, then take steps.
Put together your argument and head back to the bank or broker, armed with an appropriate stance.
If the bank commissioned the valuer, then calling the valuer direct won’t be of much help initially.
Valuers are bound by confidentiality to their bank clients, so even if they wanted to discuss the property assessment with you, it would be a legal breach, Higgs says.
“Our contracts with the bank say the only people we’ll discuss the valuation with is the bank, so if the client does have an issue with it, it’s best to go back through the banks.”
Your lender or broker will usually be open to addressing your concerns with the valuer.
“The person who dealt with the job at the bank may well ring us and put forward the owner’s case on their behalf, or say ‘do you mind calling the client? He’s not happy with the figure and he just wants to talk through it with you’ and we’re always happy to discuss it.
“Most of the banks have a dispute process so if the client isn’t happy they can have something lodged via the bank. It might be further sales evidence or information that they believe the valuer didn’t have regards to when they did the valuation. Once we get that, we’ll look at what’s been provided and then we have to go back to the bank, generally with a written reply, responding to each of the issues the client has raised.”
Remember to be polite.
A rabid and illogical response to a valuation won’t help the process.
If you put together a reasoned argument as to why you believe the figure is too conservative, you’re more likely to get a fair response.
Locking down a valuation report with the best possible commentary and assessment isn’t so hard.
A common sense approach to dealing with the valuer and their task can yield rewards.
By simply doing some homework and painting your case in the best light, you may well get over the line and on your way to a ‘yes’ from your financier.
This aticle was written by Kieran Clair and originally published in Australian Property Investor magazine in 2103 and has been republished with their permission.
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