First home buyer - the bank's valuation substantially lower than contract price. Now what?

Hi all, long-time lurker, first time poster.

I'm a first-home buyer in Brisbane. I recently went under contract with a townhouse on the northside, and during the home loan process, my bank has come back with a valuation that's significantly lower than the agreed price.

I signed contract at $670,000.

Property valuation is $610,000 (via desktop valuation).

I can't afford a shortfall of $60,000, nor am I insane enough to want to overpay so much for a place.

The bank is sending an actual human to physically inspect the property within 2-3 days, so the valuation may change. But it seems unlikely to me that they're suddenly going to say it's worth $670,000.

If you were in my position, what would your next steps be in terms of negotiating with real estate agent / seller? Thanks in advance.

 

First call would be to your solicitor to see what clauses are available on your contract.

 

established, built in 1985

 

Get onto a broker immediately and have them order a valuation via a different lender.

Valuations can be subjective, what one system or individual things can be different to a different system. Unfortunately if two or more come back with similar results, then you've probably paid too much.

If you can't get a more favourable valuation then you've got two options:
* Negotiate a lower purchase price. This may or may not be successful, but it's worth a try.
* A family guarantee may help if it's available.

 

You need a good Broker on your side! Can't stress this enough!

My broker recently ordered 3 valuations on a property I wish to refinance, the valuations came back at 350k, 440k, 450k... Imagine if the bank I chose to refinance with got the 350k value.

 

Yep, that 30% definitely trumps mine, craziness.

 

I was looking at the 30% haircut, as opposed to 41% gain, but it depends where the starting point or desired outcome is.

 

Had an almost identical scenario to this recently. The full valuation returned purchase price & all was well.... failing that you'll need to run the valuation through another couple of lender up front valuations (ideally which don't have the same valuer on panel).

 

Yeah, this is a good question. A day later, and having researched more about "desktop valuations" - and read great discussions on property forums such as this - I'm over the shock of the property possibly being severely undervalued initially. So if the physical valuation does end up at (or near) $670k, I think the intent is just to go ahead with the purchase, as I'll be owner-occupier for many years to come.

 

My weirdest valuation story was well over a decade ago when most valuations were ordered by the banks (not brokers):

Submit application to bank A, who orders a valuation. The valuer visits the property, returns a figure about $40k below the purchase price. Borrower doesn't have the funds to cover it, so the application isn't going anywhere.

Submit application to bank B, they order a valuation. I get a call from the selling agent a few minutes after the valuation occurs. It's not just the same valuation company, but the same person. We're fairly certain that we're going to get exactly the same result.

Second valuation comes back with a figure equal to the purchase price, the deal is on! Following up, it turns out that bank A didn't tell the valuer to include the on site car park, bank B did.


And then there was the time a client bought a property on live TV, aka "The Block"...

 

Thanks to everyone for your feedback here - I'm awaiting physical valuation to return early next week. My broker has also ordered a valuation from a different lender - it might just be another desktop valuation, but it'll give us another data point to go back to seller with if it makes a similar conclusion to that first valuation, to help with further negotations if needed. Cheers

 

When we refinanced in 2016, the valuer reported that our three bedroom townhouse had two bedrooms. He didn't call one a study, he completely failed to notice it.