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Valuation came back 10% less than ticket price!

Discussion in 'Commercial Property' started by Chabs, 15th May, 2016.

  1. Chabs

    Chabs Well-Known Member

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    Hi everyone, would love to see if anyone else has heard of similar cases..

    Commercial property in blacktown, industrial freestanding low clearance storage/warehouse facility 475m2 on 1275m2 land with big parking, great for trucks. zoning permits buildings up to 20m high and b7 zoned, somehow the bank came back with a valuation at $900 000, when ticket price was $1 000 000..

    I am confident that the ticket price was not overpaying, the vendor was even asking 1.1m + !!

    Of course this has greatly hurt the liquidity in the bank at the moment, has anybody else heard of such wild variations in bank valuations?
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    10% insnt wild per se

    esp in commercial

    how long is the current lease and whats the rtn pls?
    ta
    rolf
     
  3. Chabs

    Chabs Well-Known Member

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    @Rolf Latham

    Current lease we permitted the tenant only 3 year lease, he wanted a 3+3 or a 5 year lease.. he has been there a few years highly motivated to stay.

    Return is past the 5% gross, outgoings are on us and approx $9000p.a.
     
  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    what is the existing lease though,with the current seller.

    thats what the val is usually more based on than what might happen after sale

    ta

    rolf
     
  5. Chabs

    Chabs Well-Known Member

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    We were very lucky to purchase from a vendor who had let the lease expire before selling. But he was/is paying the same rate, we added only $200 a month inc gst.
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    therein may be your reason

    ta
    rolf
     
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  7. Beano

    Beano Well-Known Member

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    Did you get a copy of the bank valuation ?
    Keen to see what their assumptions are on the property
    But referring to your question yes the last 29 properties I have brought I have paid more than the Valuation I (these were commissioned by me too)
    Mostly about 5pc less than purchase price
    Not concerned at all
    RATHER PAY MORE for something I really want to own than LESS FOR SOMETHING I am indifferent to owning.
    Epilogue. ...although valuer said it was worth less than what I paid one subsequent tenant offered 80pc more than my cost (within 24mths of purchase)
     
  8. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Asking and valuation are often wildly different things.
    Are you the buyer or the seller?
    As mentioned below the value of a commercial site is not just the site or it's zoning, it's the leases that come with it (length remaining, yield and lessee)
     
  9. Beano

    Beano Well-Known Member

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    Buyer ...not sold since interest rates were 20pc in the late 80's
     
  10. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Was that price and valuation inclusive or exclusive of GST?
     
  11. Beano

    Beano Well-Known Member

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    Both ex gst as both parties gst registered
    Valuation also ex gst
     
  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Valuations are always ex-GST. Lenders wont / dont lend GST. (Technically on a low LVR they can lend it but they are lending on the ex-GST value / LVR)

    That said its likely you can often (not always) buy under going concern basis which means GST can be ignored. Otherwise its a financing concern for the GST.

    Get tax advice on GST is my tip. The rents will also be affected by GST
     
  13. Dazedmw

    Dazedmw Well-Known Member

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    Have no knowledge of the market in Blackburn so can't really comment there but as others have said there can often be little relationship between asking price and market value in commercial property. It's entirely possible to pay 10% less than asking and still be above market.

    Try to obtain a copy of the report and look at the sales evidence and see if you can follow the valuer's logic. It's hard to argue against the valuer's comparative opinion of sales, if you want to dispute the valuation best to look for factual errors.
     
  14. Dazedmw

    Dazedmw Well-Known Member

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    Reading the info again, you have bought the property with an expired lease and have negotiated a new lease with the tenant? Is the new lease signed and executed? Is it possible that the valuer didn't have the new lease and therefore valued the property on a vacant possession basis?

    Might help explain the difference.
     
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  15. Beano

    Beano Well-Known Member

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    That is the way i read it too
     
  16. Aaron Sice

    Aaron Sice Well-Known Member

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    Last time I looked, a commercial property's valuation was partially dependent on the lease, it's contents and it's viability to be enforced to the fullest extent.

    If you are missing any part of that then you should expect any part of your valuation to be missing to the same extent.
     
  17. Chabs

    Chabs Well-Known Member

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    Hi guys thanks for replies :)

    Very good point about paying more for something I really want. Thanks for wisdom sharing!
    The valuer did mention a note saying that the block was a development potential block, I have heard that they typically assume market price is over true value on these because people are often happy to pay extra for blocks with dev potential.

    I will have to look at the written report, just to prepare myself better for the future. I don't think its worth disputing valuations as that would probably be unnecessarily time consuming.

    Bought property with expired lease. While in settlement period existing vendor signed new lease with our terms. Valuer should have had the lease but to be fair it is only a 3 year one.