Lenders always valuate house and land lower than build amount?

Discussion in 'The Buying & Selling Process' started by innovatism, 18th Nov, 2019.

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  1. innovatism

    innovatism Well-Known Member

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    Hi All,

    I am planning to buy a land and build duplex on it but I read about lenders evaluation and looks like lenders/banks evaluate bit lower than what it takes to build.
    My BA told me it's normal that lenders will evaluate 2 to 3 percent lesser than the build amount for land and house deals but after build value is most likely always higher, if area chosen and other things are correct. So my questions:
    1) Is it true lenders always evaluate lower for house and land? Or is there any way or chance evaluation can be upto the mark?
    2) Also, i can only get my property evaluated( on the basis of land and built contract) once I sign the contract?? If so, I think i will only get 20 25 days from cooling period to decide to back off or stay? I am just worried what if bank evaluates too low. Lower the bank will evaluate, higher I have to pay as deposit.
    3) Whether it's worth to pay higher when bank evaluates lower just because its not unusual for land and build?

    Thanks,
    Deepak
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    1. not sure what you mean here, but value usually come in at land value plus construction amount.

    2. No, you can get a valuation done prior. Lender valuations generally need a signed contract.

    3. ??
     
  3. innovatism

    innovatism Well-Known Member

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    1) What I mean is if i can match my build value with what lender also think should be. Lets say, if my land price 200 and build price is 500k , I am paying 700k but if lender thinks, its worth only 650k not 700k, they ll give loan according to 650k

    2) You mean I can get valuation prior to signing? With lender?? I have done valuation with realstate agents but as lenders gonna give the loan, i want to see true picture from lender's end too.

    3) In above example, is it worth building when lender thinks its 650k and not 700k in hope that it ll still be valued at more than 700k after built? As my sole purpose is investment and equity.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    In most cases the valuation will come in at land value plus build cost. Land value is usually what you pay for it. If it comes in lower, you need to consider if something is wrong.

    2. You can order your own valuation. You can also give a lender signed contracts, but not exchange with the other side. Seek the advice of your broker on the potential issues

    3. Hope is not a good strategy.
     
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  5. thatbum

    thatbum Well-Known Member

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    Why would a duplex build valuation come in at below cost? The idea with developing is that you're creating equity aren't you?
     
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  6. Joynz

    Joynz Well-Known Member

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    The price could come in lower if someone builds in a new estate on the city fringes and specs up the house.

    This is to do when people get to the ‘design studios’ - of builders - even for cheaper ‘volume’ builders. Upgrading carpets, brick colour, stove type etc comes at a cost that might not be reflected in the valued amount.

    Homeone forum has members posting about this type of situation.
     
  7. innovatism

    innovatism Well-Known Member

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    Yes I am but here I am talking about pre build valuation, which lenders will do and will give loan.
     
  8. innovatism

    innovatism Well-Known Member

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    Yes I agree but some did ok, some didn't, and how to know where worth building, as lenders might valuate lower even for the good areas just because it's just land when not built?
     
  9. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I've often found the valuations are higher than the sum of the land + build price.

    Where they don't, it means you've paid more than the property is worth. This is not uncommon when you're buying in a new estate that's oversupplied and prices are artificially increased by the developers.
     
  10. Lindsay_W

    Lindsay_W Well-Known Member

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    Thought we covered this in your other thread?
    When a lender does a valuation they will value the property 'as-if-complete' which literally means as if the property has been built and finished, that's what they'll value it at.
    It is not usual for banks to value a new build lower than the land and build costs unless you're paying too much for the land/build - your BA is trying to sell you on the idea that building is the best way for you to go - it is likely they are getting commission from the builder or developer for doing so.

    Get a good mortgage broker, quick!
     
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  11. Archaon

    Archaon Well-Known Member

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    Two builds (duplex) on one title will be valued less than if each building is strata subdivided and valued individually, the reason for this is because you may never proceed with the subdivision and keep both on one title.

    When a bank looks at this, they need to factor in how much they can sell the property for were they to repossess the property.
     
  12. thatbum

    thatbum Well-Known Member

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    Yes but as someone else mentioned earlier, isn't the valuation for the as-complete product?
     
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  13. innovatism

    innovatism Well-Known Member

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    Yeah, I am in discussion with the one. Thanks
     
  14. innovatism

    innovatism Well-Known Member

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    Makes sense, one duplex house will definitely be lesser than house, but combined value of 2 duplexes can/will be higher, that was the idea. But ofcourse with risks involved and I got your point here, it makes sense.
     
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  15. Archaon

    Archaon Well-Known Member

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    Yes, but you wont find comparables of a duplex on one title that have sold recently in the area, so its hard to gauge what it's actually worth.

    Then, a combined duplex would cost 2x (or more) the price of one of the villa's, but wont be worth 2x the value of a stand-alone house on the block.
     
  16. Lindsay_W

    Lindsay_W Well-Known Member

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    While I get the point you're making here it still doesn't mean the valuation will be lower than the cost of land and build, if it is then you're paying too much, regardless of single title or not. It's that simple.
     
  17. innovatism

    innovatism Well-Known Member

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    But if estate is new and there are not many comparable houses, then are there high chances that valuation will be lower because there are not enough comparable houses or it doesn't matter?
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Sometimes
     
    Last edited: 20th Nov, 2019
  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    been here just recently with a client who sourced a duplex build and land via a marketer.

    Didnt need to wait for the val to come back........

    ta
    rolf
     
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