Highest & Best Use

A recent valuation completed on a property has determined that the 'highest and best use' is development. The banker has told me the valuation will be covered by the bank ($2,200), however the 80% LVR I was after is likely to be reduced (65-70%). Is anyone able to facilitate 80% on such properties?

I also had a colleague who purchased a block whereby the house was immaculate (inside/out) and because the next door property had 4 townhouses, the bank determined it was a 'development site'. Any finance options above 70%?

Cheers all!

 

You need to see if you can use a lender with a contract of sale valuation policy.

Several lenders take contract of sale at 80% LVR depending on the lender, postcode, purchase price, etc.

 

Crazy. But if presumably the site is more valuable as a development site, isn't the reduced LVR of 65-70% based on a higher value? Does this help someone's borrowing?

Otherwise the value of the existing house and land is the highest and best use??

 

With an LVR of 65 plus per cent they need a greater deposit. It's likely to reduce the price as finance is harder to come by.

 

Thanks all.

Banker had advised that the price paid was inflated and the high price paid is because it reflects development potential. If valued at straight land + dwelling then it wouldn’t be worth what was paid.

Contract price matches the highest and best use valuation but an additional 15% equity (even 10%) is ridiculous.

I’m aware some banks do contract price lending but my understanding is that this was not meant for development sites and if they even get a whiff it’s for development (I.e., company name borrower, client is builder/developer) then they can flag it for valuation.

So no one will do 80%?. Purchase was $1.3m so dditional 15% is a lot of cash! Help needed =]

 

I haven't seen this problem for almost 12 months now, I thought they'd gotten over this sort of BS. The times I did see it last year, certain lenders were generally quite difficult to deal with (CBA & Westpac/BOM come to mind), but some weren't a problem at all.

The best thing to do is to simply use a broker who can order a valuation up front, so you've got the results before you lodge an application. The comments on highest possible use can be somewhat random amongst valuers.

The challenge can also be in choosing a lender that has favourable policies for whatever the future plans for the property are. If you're purchasing through a company/trust structure, this can also present problems as you've indicated.

 

It's a dilemma. Almost any property has development potential and the Bank is claiming the price you paid incorporates the development potential.

Would a valuer only nominate a highest and best use as a dev site if it were significantly more valuable with the permissible development? Eg a house that could fit a duplex is not worth changing the lending parameters but if it could fit a ten level apartment block, then say the value changes from a $1m house and land to a $2m dev site?