Join Australia's most dynamic and respected property investment community

Pre-Purchase Valuation Question

Discussion in 'Property Finance' started by albanga, 26th Aug, 2016.

  1. albanga

    albanga Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,105
    Location:
    Melbourne
    Hey Brokers,

    What is your thoughts on this one.
    I have a friend who has the opportunity to purchase a unit from another friend with the removal of an agent. The deal will be agreed market value of the property and then the seller will deduct all selling fees (say 20-25k).

    As far as I know the valuer will almost certainly value at contract price which technically is going to be under market value.

    But what about if the property was valued before signing of the contract and say it comes in at 850k and they then agree to exchange at 830k. Will the lender allow the pre-purchase valuation or will they request a new one?

    I do remember someone (perhaps @Brady) saying they have done this for a few clients and they allowed the pre purchase valuation.

    Obviously the risk being run is at comes in under the agreed price but really if that were to happen he could walk away from the deal or just use another lender and buy at contract price.
     
  2. Brady

    Brady Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    452
    Location:
    Adelaide, SA
    Bank will want a valuation no matter what as the transaction is 'not at arms length' / no agents involved being sold between known parties.

    When the property is worth more than the sale price I've had CBA accept the higher amount, but it's dependant on LVR - needs to be <80% (no LMI)
     
    albanga likes this.
  3. albanga

    albanga Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,105
    Location:
    Melbourne
    Thanks @Brady
    So can I ask when you say "I've had CBA accept the higher amount" what you mean by this?
    Does that mean two valuations were done? One prior like I am suggesting and the banks do another because it is 'not at arms length'??
     
  4. Brady

    Brady Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    452
    Location:
    Adelaide, SA
    Usually it's the lower amount between the 'contract of sale' and the 'valuation' - so requires getting approval to use the valuation.
    Even if you were to do valuation prior, it would require another valuation with CBA as would need to have 'not at arms length' included in the commentary - unless can get valuer to do that in the first place (along with being an approved CBA valuation / can get full upfronts for $49)
    If you couldnt get the 1st valuation to have the correct commentary and required to do a second valuation, would be pretty hard for the 2nd valuer to value lower than the original - could happen but not likely.
     
    House and albanga like this.
  5. tobe

    tobe Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    879
    Location:
    Melbourne
    Banks take either the contract price or the valuation, whichever is lower.

    The exception is non arms length transactions where they will take the valuation only, regardless of the sale price.

    It's hard to get LMI on these deals, they are almost always under 80% in any case.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    The purchase can be arms length even if there is no agent. It may also be a favorable purchase.

    If it is a favourable purchade from a related party you might be able to get it down on market value.
     
  7. Marty McDonald

    Marty McDonald Mortgage broker Business Member

    Joined:
    22nd Jun, 2015
    Posts:
    228
    Location:
    Sydney North Shore and Norther beaches
    If they need the higher value to achieve the loan amount they want it would easier to do at the full price with a side agreement (not in the contract) for the $20K rebate. Assuming this is between friends. I don't see a problem with that as is true market value and only one missing out is an agent however if its in the contract the valuer / bank would be obliged to take it off the value.

    If the loan to value ratio is lower than 80% (with the loan at least $25K less than what it would be at the 80% ratio) then it really doesn't matter. They can still borrow the same amount and the ratio is just a calculation...ie it doesn't matter if the LVR is still under 80% using the lower value.
     
  8. Weaver

    Weaver Active Member

    Joined:
    15th Aug, 2016
    Posts:
    39
    Location:
    Ballarat
    Hi Terry, can you please define 'favourable purchase'?

    I'm interested in this question too, because I've got an opportunity to buy land from a parent with about 20-25% discount from market price. But was hoping bank would value it at market value so I could avoid LMI.
    thanks
     
  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    1,160
    Location:
    Gold Coast
    There is no one way to describe a favourable purchase which is why I'm butting in on terry' s question.

    We normally drive it as a non repayable gift of equity from a relative. Some leners will want a letter stating same where the val is higher than contract .

    Getting Valuers to not rubber stamp the contract price is an art in itself

    Ta

    Rolf
     
    Colin Rice and Terry_w like this.
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    Yes what Rolf said. Something deliberately under or over market value perhaps.
     
  11. Weaver

    Weaver Active Member

    Joined:
    15th Aug, 2016
    Posts:
    39
    Location:
    Ballarat
    Thanks Rolf, and Terry, sounds like another advantage to using a broker - I didn't realise that we could use a statement like 'gift of equity', but I'm going to hang on to the idea!
     
    York likes this.
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    Also consider the legal aspects of an under market value transfer. Although this will probably only be slightly under it could have consequences.
     
  13. Weaver

    Weaver Active Member

    Joined:
    15th Aug, 2016
    Posts:
    39
    Location:
    Ballarat
    do you have a tip for this? I scanned the legal list but couldn't see it thanks
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,970
    Location:
    Sydney
    I recall writing one or two on one aspect = undermarket value transactions and bankruptcy.
     
  15. albanga

    albanga Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    1,105
    Location:
    Melbourne
    The deal as far as I know at guesstimate contract price is pretty heavy LMI territory ( think he said 90%).

    That said its a Sydney unit in a desireable suburb so who knows what a valuation would be. Not at all gospel but a heap of sites have a top range of over 1mil which would take it out of LMI.
     
  16. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,095
    Location:
    Melbourne, Nationwide
    It's been a while since I checked, but 18 months ago it was possible to get a favourable purchase done on an 90% LVR.