Newbie Question -How realistic are/were bank valuations

Discussion in 'Loans & Mortgage Brokers' started by Orangedrop, 4th Aug, 2021.

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  1. Orangedrop

    Orangedrop Member

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    Hello

    This is my first post here and I was wondering if I could ask a question? When a bank provides a loan I know they undertake a valuation of a property, but how accurate are these valuations?

    The reason I ask is that I naively purchased two off the plan apartments in Brisbane in 2016. I have learnt my lesson and will never buy off the plans again but Im stuck with them now. When the build was finished however, the bank did a valuation and valued both properties at exactly the purchase prices. Within a few months of finding a tenant however, the value seemed to be about 10-20% less than how much we purchased them for and the value has remained that way since.

    I realise now that off the plan apartments are often overpriced given other parties make profits in the process. But if its the case that off the plans are overpriced when sold, why would the bank value both properties at the purchase price only for the value to now be so much lower?

    Is it just the case that apartments in Brisbane in 2016 were just worth more and the market for these units has plummeted or is there some other reason why the bank value them at the purchase price when they are worth so much less now?

    I'd love to hear any feedback. Thank you
     
  2. David R Sutantyo

    David R Sutantyo Well-Known Member

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    Valuations for mortgage purposes and valuation for sales purposes are different. In the end of the day, your property is worth what the next buyer will pay you for.
     
    Terry_w likes this.
  3. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    You were lucky - often the bank will value lower. End of day - market value is what someone is willing to pay for it. You paid the purchase price, so that is market value in that moment.
     
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  4. Lindsay_W

    Lindsay_W Well-Known Member

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    One main reason is supply, Brisbane had a tonne of new apartments built since 2016, so many that it was actually determined to have an oversupply of apartments.
    When buyers have so many choices it typically means prices get cheaper as developers are desperate to sell stock.

    Values are typically arrived at by comparing similar properties sold with the last 6 months, amongst other things.
     
  5. Archaon

    Archaon Well-Known Member

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    How big are the apartments?
     
  6. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    Maybe you just got lucky, or maybe when you settled on the property there wasn't much resales/sales around the area and it only got devalued when investors was selling it at a loss.

    Oversupply might have played a role.
     
  7. Orangedrop

    Orangedrop Member

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    Thanks very much for your feedback guys. I appreciate your insight. I guess its now just a matter of me holding the properties and seeing if their values come back some day. Selling is clearly not an option:)
     
  8. Trainee

    Trainee Well-Known Member

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    why not?
     
  9. Orangedrop

    Orangedrop Member

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    Well because, when I tried to get an extension of my interest only periods, the bank said no as I was in negative equity. I was forced to refinance with another bank using our family apartment as equity. The new bank required independent valuations of the two properties during the refinancing process. These valuations came in at 20% and 15% lower respectively for each unit. When I tried to look at similar sales in the area this 20% lower value than I paid seemed about right. Accordingly, I'm in negative equity by a tonne of money.

    There are moments where I curse ever buying these two units and feel ashamed for being stupid. I had little understanding of property investment but tried to read as much as I could and I thought I had done a modicum of research/was being responsible with investing. Novice mistake, but now I have no choice but to keep going and hold them.

    At least the tenants pay the mortgage payments so its not costing me very much to hold the properties. Hopefully one day they'll recover their original purchase price and I can sell them and write the whole experience of as a bad mistake.
     
  10. DBS

    DBS New Member

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    I feel for you Orangedrop. In 2014 I very nearly made the exact same mistake. I thought I had done enough research to justify a unit purchase in Brisbane CBD as our 1st IP. Fortunately while doing this research I also started reading about Buyer’s Agents, a service I had never heard of before. I decided to investigate using a BA as an option and am sooo glad we did. They provided advice on good locations for investing (for a fee of course) and we have never looked back. If not for their advice, you and I might have been telling the same story.
    I do hope the value of these units recovers for you soon.
     
  11. Scott No Mates

    Scott No Mates Well-Known Member

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    Did you miss all of the "don't buy OTP" articles? At least you did some research albeit leading you down the wrong path.
     
  12. Trainee

    Trainee Well-Known Member

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    Not sure how you could have read as much as you could and not at least realise otp had risks.

    the question is whether to stick it out, or try to sell (by saving enough to pay the shortfall). If you’ve crossed its worse.
     

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