Bank valuation comes under purchase price

Hey folks, we’ve recently placed an offer of 1.5 for a 5br newish home (under 2 yo) in Padstow NSW. This property was listed for 1.35 early last year.

We’ve recently seen a similar house dropping in price from asking 1.45-1.55, to 1.35-1.55.
A bit worried we’re grossly over estimating the price.

has anyone gone through similar situation? If valuation comes back lower, could we still negotiate in this hot market?

Tia

 

Are you using a broker for the finance?
If so, valuation should be ordered before any application for finance, this will show if it's in line with current market values.
Market seems to have moved a bit since early 2020.

 

Yep we are.
the bank has arranged the valuation this morning.
Just a bit nervous cause we might be a bit emotional due to the hot market, but the valuator might not care about the current market.

 

Would you also worry if it was a falling market?

 

I think we wouldn’t have offered this high if it’s a buyers market, say mid 2020.

 

I reckon you'll be OK but the valuation will confirm this.

 

If you sign a contract without a cooling off period then you are liable for the purchase price regardless of the valuers figure. I have one of these at the moment and the valuer wouldn't budge from their undercooked figure so my clients have to come up with the extra cash to complete the purchase.
So if you are signing the contract, pay the 0.25% and if it comes back low you can try to renegotiate price or walk away and lose the 0.25%.

 

The valuation has just came back at 1.4M, 100k less than my offer.

We’re trying to renegotiate (still within cooling off period atm), also trying different banks. But can valuations done by different valuators differ by 100k?

 

If you've signed a contract without cooling off and walk away, you're not liable for the whole price, you lose your entire deposit (whatever is agreed, usually 5-10%) and the vendor can fire sale the property and sue you for the difference between the original contract price and the final sale price. Unconditional contracts aren't to be taken lightly for this reason - you stand to lose a lot more than the 0.25%.

The only time you ONLY lose 0.25% is if the contract is conditional upon cooling off or other provisions. In NSW this is 5 business days so if you walk away you will lose 0.25%. If my bank val came up $100k under then I would cool off and walk away being glad it was only 0.25%. Other wise you've technically lost almost $100k in value immediately after the cooling off expires by having overpaid by that much.

0.25% of $1.5m is only $3,750....much better than the alternative IMO. Use it as a lesson and a minor slap in the scheme of things, but one you can use to negotiate and research better next time.

Good luck!

- Andrew

 

That's correct if u walk away but not if u are able to complete by selling everything that moves to stump up the extra cash.
Sometimes the valuers just get it wrong rather than overpaying. Tough in this market to work out how much is a valuer's underestimate vs too high an offer

 

Yeah there can be big differences. 100k is a lot but i have seen it.

 

I've had 100k under. It hurts having to walk away or dig deep (I did the latter).

 

Yes have seen variances that large from different valuers.
Can you confirm if it was a Short From valuation and they sent someone to look through the property?

 

They sent someone to look through the property, I think it is short form valuation.
I’ve heard of long form valuation and from what I’ve read it’s for very unique property.

We’re trying different bank and see if they have better valuation. Even 30-40k higher would’ve made a big difference for us, we just don’t have the 100k extra.

 

Thanks for your advice. Luckily we are in cooling off period.

Regarding the offer, our hands were tied, there were two other offers of 1.5M but one was rejected due to long settlement, and the second buyer is working on their finance.
Any lower and I don’t think we’ll be able to secure the property at all.

 

Lucky for you. I'd personally get out of it

I've heard of a few similar stories, an apartment and a house. One was 100k off the valuation but purchased at auction.

Maybe things are finally hitting peak?

I've seen a few places in St George area, particularly newer houses/duplexs asking for stupid amounts of money but not selling

 

You don't need a long form valuation, you need a short form, sometimes they do a kerbside or desktop which can come back lower than the short form valuation or vice versa

 

and then what?

 

back to looking for another place? what else can you do

 

This is where it gets very frustrating. Three parties who are actually putting real money on the line say it is worth 1.5m. Conservative valuer comes along and says it is only worth 1.4. Not according to the actual market it isn’t.