Impact of plans and permit on valuation

Hi Folks,

I know that contesting valuations is almost always a waste of time, but here's one for you.
I recently purchased a residential home that came with approved plans and permits for apartments.

The home is in great condition, previously owned by an owner occupier family and is currently tenanted at just $1000 per week (solid home, 3 bedrooms, renovated kitchen, etc etc).

Just got a valuation back on the property where they have stated that it's 'highest and best use is as a development site'. Valuation came back at contract price - so far so good.

Here's the spanner... the bank can't use the valuation because it's been valued as a development site.
And the valuer has commented that there 'is no market for owner occupiers'.... which is ridiculous given that the under bidder was an owner occupier and the vendors were too.

They are arguing that the mere presence of a permit (regardless of whether it will be used or not), means that the site automatically has to be valued as a development site.

I understand this in the context of a dilapidated site where the house is falling over... but what happens when the house is in great condition and the selling agent has marketed it both to developers and owner occupiers?

Anyone ever dealt with a similar situation?

 

Is the current usage and that under the DA the same? Ie is the highest and best use still low density residential or medium density?

 

Nope. The current usage is as a single residential family home. The proposed usage in the DA is 9 apartments. Thing is... the apartment permit doesn't stack up (includes an expensive basement, etc etc).

It's one of those sites that could go either way - a developer could build on it or an owner occupier could move in and keep the existing family home.

 

Yep, I would be valuing it as a development site too as this suits the zoning. That would yield a higher land value but put a very low figure on the building (more like a liability).

Might need to get to bank to value it 'as is'.

 

Hi Scott,

Thanks for the reply - much appreciated.

We've tried coming back to the valuers and getting an 'as is' figure from them - but they won't do it, which seems bizarre. I would have thought they would have been able to come up with a figure with the benefit of plans & permits and a figure 'as is' as you've described.

Any tips?

 

It might be necessary to get the broker to look at another valuer or bank.

 

Yup, that was my thoughts as well.

Apparently there's an internal risk analysis person at the bank who can look at the valuation and decide if they want to proceed or not.

I guess my question is.... Does the bank actually have the power to instruct the valuer to value the property 'as is' and ignore the presence of the permits?

 

We raised this in one of the recent development meet ups we had.

In August 2014 valuations changed in that the valuer has to value the property as its best and highest use and as a result most lenders will not accept proposed development sites under residential lending.

This is not lender or valuer specific so there will be no point changing lenders or valuers.

The workaround is to use a lender that has a no valuation policy (i.e. they are going to accept the Contract of Sale price).

 

Wow - I think this change is going to catch out a lot of people.
You mentioned in your post that the solution is to use a lender with a 'no valuation policy'.

Do any of the big 4 have this? And if not, who does?
The contract price was 1.5 million.

Thanks a mill for the reply Shahin.

 

Yep heaps of people are going to get caught out. We certainly did late 2014 as the change in valuation policy wasn't announced to the mass market.

ANZ, Westpac and CBA all do Contract of Sale but they have varying max loan amounts - for example CBA has a max loan amount of $800,000.

 

Thanks Shahin.

I'll have a word to my broker on Monday morning.
Hopefully she can find someone who can do contract of sale at over one million.

 

Westpac will do it servicing permitting.

 

That's actually good to hear - I'm dealing with Westpac at the moment.

They were the ones that ordered the valuation, but I'm assuming that's because the loan application was submitted with an LVR of 88%

So you're saying if the LVR is adjusted back down to 80% (or less), they should be able to process it without the valuation?

 

Probably too late now as they will see the valuation.

Bank of Melb are the other option but most likely they will have WBC valuation records of the valuation on their system too as I am pretty sure they use the same platform.

Above 80% pretty much everyone does a full valuation and generally anything above $1m most banks will require full valuations even at 80%.

 

bloody hell i had no idea about this. might throw a spanner in the works with so many houses/sites zoned for medium density in perth not being feasible as developments and now dropping to levels where OO's are strarting to look at them again. eg the rivervale type areas where prices are prob going to drop 30% and start making sense for owner occupier to just build a house on it.

 

Geez, that's going to be a pain in the ass.

Any idea about the policy of lenders outside the majors? E.g. Citibank, AMP, BOQ, etc etc?

 

BoM don't have a set COS policy - they may take COS depending on what their internal system CLAS requests.

I don't use ANZ much but I think they will do COS as well but their servicing is shiitehouse.

 

This scenario happened to me just this week. As a result LVR was reduced from 80% to 70%. I was told it would have been 50% if the house was sh*thouse.

 

Here's one for you Shahin
What if the plans and permits are part of the contract of sale?

Do you think credit at the bank would just put it through as residential... or do you think it would trigger a full valuation?

 

Yikes. Which bank?
Did it go through as residential or did you have to put it through via commercial?