Most lending in Australia before being approved requires a bank valuation to be completed and this is where lending can get complicated. The reason being the bank definition of value and that employed by the free market tend to be poles apart.
Leading Melbourne Mortgage Broker What If We Finance CEO Spiro Kolokithas says “most people believe value to be what a willing buyer and seller are prepared to exchange the property for under no pressure to sell. Conversely bank valuations employ a different principle. This is often referred to as market value”
Research and experience by What If We Finance shows banks tend to value property at the price that can be achieved over a short period of time. Usually 1 to 3 months. Most bank valuers will look for evidence to support their valuations. They will look for sales of similar properties in the past 6 months and as the property market can be quite dynamic, this can produce valuations results that do not make sense.
What If We Finance experience also shows that bank valuers are not influenced by properties on the market. Generally, sales must have occurred within the last 6 months.
Bank Valuers will consider property features but as no two properties are identical, valuations tend to be more of an art than a science.
Bank Valuers are often assigned responsibility for specific suburbs and they may not the area too well. They will drive out to their area, take photos and go back to the office and complete the valuation. They are often swamped with valuation and may not spend too much time on a valuation.
What If We Finance CEO Spiro Kolokithas “we have had instances where a bank valuer lives and works in Malvern (a Melbourne suburb) and conducts valuations in Cranbourne. We found valuations form this bank were consistently 20 or so per cent lower than those of other banks. “
So what should you do to avoid a bank valuation coming below your expectations/ What If We Finance recommends you undertake the following:
Look at comparable sales – you can look at property research reports or talk to real estate agents. Be mindful a real estate agent may overinflate property prices or not use comparable properties
Commission your own valuation – Residential valuations start at around $500. Chose a bank panel valuer and tell the valuer the valuation is for bank mortgage purposes. The benefit is you control the valuation; you meet the valuer, brief them on the property and see the valuation result in advance. Banks may order their own valuation but if the same valuer is used it is highly likely the valuation result will be the same.
Use a Mortgage Broker. Your Mortgage Broker can advise you on different bank policies and which banks tend to have the most favourable valuations this will ensure the bank valuation is in line with your expectations.
What If We Finance recommends that a home loan health check is conducted every 12 to 18 months. What If We Finance advises borrowers to monitor their home loan when considering if you should refinance the first thing one should is conduct a Home Loan Health Check.