Land Value vs Dwelling in Bank Assessment

Hi,

Curious to see if anyone knows how the bank views the land value and dwelling value split in their assessments on borrowing? Especially on recently renovated homes that are facing now facing headwinds.

For example, there are homes in Ipswich that have asking prices in which the asking sale price is over 300% more than the land value. They are recently renovated, with large capital investments.

Here is one below, asking 595 k, current land value 175 k.

https://www.realestate.com.au/property-house-qld-east+ipswich-133443662

I cant see the bank, knowing the land is worth 180 k, being happy to stump up a loan of say 500 k to support a house like this given the majority of the loan will be for the the asset which depreciates.My guess is they'd want a large deposit for the borrower to offset risk.

To build an equivalent house new would probably cost something similar, but how do you think the bank would treat this?

Thanks?

 

No. Bank valuations don’t split land and dwelling values.

If you are getting confused by valuer general assigned land values, they are just for land tax purposes and banks don’t use them whatsoever.

 

But the land value itself has to come into the assessment of the total value dwelling.

How is an existing property otherwise valued?

 

Comparable sales.

 

Even for a bank valuation?

So if a bank is projecting a -10 % price path in their modelling would they factor this in to their valuation?

 

I recall seeing a few valuations where land value was given separately in addition to the value of the property. Don't think it common though.

 

You can't generally sell the house separately from the land in most cases (Queenslanders & raised houses excepted).

The valuer will provide a valuation based on the instructions provided, where the improvements add little or no value, these can be valued englobo or separately.

 

For purposes of a bank valuation the valuer will determine the land vs. improvement value if it is a shortform valuation. The value is going to be based on market value based on comparable sales and from there it rests on whatever the bank's policy is around that security type so they're unlikely going to look at it in the way you describe and change their LVR% requirements.

What is the $175k land value in your example based on?

 

Local Government statutory land valuation, site value method.