Loan Valuation - Subdivided Lot HELP

Discussion in 'Loans & Mortgage Brokers' started by Joey2020, 2nd Mar, 2021.

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  1. Joey2020

    Joey2020 Well-Known Member

    Joined:
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    Location:
    Sydney
    Hi all,

    Scenario:

    Long story short , I bought a massive land with an old house on it. I wanted to build an attached duplex on it and the valuation didn't come out the way I want due to the land being in one title and I ran into the "in one title" valuation approach which resulted in a c.21% haircut/discount to the Gross Realisation value.

    What I did about it:

    2 things:
    1. Changed from attached duplex to free standing homes
    2. I went and subdivided the land to create 2 lots

    I went back and spent 7 months subdividing the land into 2 lots. I'm nearly done (1 month away) now and once done I can re value the whole project and hopefully get the LVR I want. The bank said I will be able to use and get 2 valuations i.e. one for each lot which will mean a reduction in the discount I experienced before.

    My Question:

    I want to see how the valuation is usually carried out when the lots are subdivided for my own knowledge.

    In the first valuation (in one line method) they applied the following discounts that reduced my valuation:


    1. Less GST (under ATO Ruling GSTR2003/3) - will this still be a discount on the new valuation now? This is the real killer in the whole valuation. It seems like this shouldn't be included since a subdivision does not create new residential premises but I am not too sure.

    2. Less selling expenses (agent, legals , etc) - will this still be a discount on the new valuation now?

    3. Less Profit and Risk - assuming this was due to the land not being subdivided.

    4. Less fees, acquisition/holding costs - will this still be a discount on the new valuation now? I'm assuming no?


    Any comments/feedback will be appreciated please.
     
    Joey2020, 2nd Mar, 2021
    #1
  2. Terry_w

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

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    You will have to ask a valuer, but a subdivision does create new residential premises for GST.
     
    Terry_w, 2nd Mar, 2021
    #2
  3. Joey2020

    Joey2020 Well-Known Member

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    I will when the time comes, but have you seen the change in the discount with and without separate titles?

    essentially my question is would they value it at the gross realisation value?
     
    Joey2020, 2nd Mar, 2021
    #3
  4. Joey2020

    Joey2020 Well-Known Member

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    Joey2020, 2nd Mar, 2021
    #4
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Unless u have subdiv before construction you will need a bunch more equity

    Haircuts are typically 20 to 25 %

    Good example from a recentish project below

    ta
    rolf



    7.1 Method of Valuation
    Primary Method: Direct Comparison
    Secondary Check: Capitalisation of Income
    7.2 Calculations and Assumptions

    VALUATION APPROACH
    Our primary method of valuation is direct comparison in order to arrive at the as if complete gross realisation and once we
    have arrived at the gross realisation value on an as if complete basis the hypothetical subdivision methodology is completed
    in order to establish the in one line as if complete market value.

    VALUATION RATIONALE:
    In the absence of further of comparable sales of “Duplex or Multi-Unit”, style properties we have had regard to sales of
    dwellings/units on small lots with their own individual title to arrive at a gross realisation of the individual units (assuming
    individually-titled) and then deducted an acceptable profit and risk factor, sub-division costs, holding and selling costs to
    arrive at our valuation.
    Our secondary method of valuation is the capitalisation of market indicated fully leased gross annual income at an
    appropriate capitalisation rate.

    PRIMARY "HYPOTHETICAL SUBDIVISION" APPROACH:
    The market value for the units is :
    Townhouse 1 $1,400,000
    Townhouse 2 $1,400,000
    Gross Realisation $2,800,000
    Less GST $254,545
    Selling costs 2.2% $61,600
    Net realisation $2,483,855
    Less profit and risk 6% $140,596
    Less holding, interest
    and subdivision costs $60,818
    Less acquisition costs $136,946
    VALUATION $2,145,495
    ADOPT $2,150,000

    In accordance with our instructions we have valued the units, "As if Complete" and "in one line" assuming both are on one lot
    and held on one title.

    COMMENTS REGARDING "In One Line" BASIS: The calculations and deductions below reflect an (approx.) 23% discount
    on the individual value of the units if they were separately titled.
    The inline value reflects the purchase price a prudent developer or investor would pay for the dwellings on one title in order to
    then subdivide and sell the dwellings individually with separate titles at a profit. Therefore, our valuation is less than what
    would be achieved if the dwellings were already subdivided, had separate titles and were valued individually.
     
    Rolf Latham, 2nd Mar, 2021
    #5
  6. Joey2020

    Joey2020 Well-Known Member

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    Yes agree , I am doing exactly that , subdivision fully then apply for construction.


    My question is post subdivision what are the things that the valuer still reduces from my gross realisation value ?
     
    Joey2020, 2nd Mar, 2021
    #6
  7. theperthurbanist

    theperthurbanist Well-Known Member

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    Perth
    I’m not a broker or a valuer but I would have assumed that the post-subdivision/construction vals would be at the full market rate (insomuch as valuers actually align with that) - so no deductions.

    Happy to be proven wrong though.
     
    theperthurbanist, 10th Mar, 2021
    #7