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Valuation for property going to Auction

Discussion in 'Property Finance' started by 1st_Home_Buyer, 6th Feb, 2016.

  1. 1st_Home_Buyer

    1st_Home_Buyer Member

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    We are new to the property purchase scene and just want some advice in relation to a property going to auction.

    I understand that when buying at auction it is unconditional. No falling back on finance or building and pest. My question is, if I am relying on finance, how does the valuation process work without the finance clause? Do i need to get an independent valuation before auction date and pay for it? or can I get my bank to do this for me?

    Thanks in advance.
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Just because there isn't a finance clause doesn't mean the bank doesn't want to value it before handing over their money.

    If the value falls very short of the buy price, your finance will be declined and you have no way of exiting contract as its unconditional.

    Within certain limits / parameters, they'll value it at the buy price.
     
  3. 1st_Home_Buyer

    1st_Home_Buyer Member

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    Just to clarify the reason why I ask is because I want to make sure that I don't overbid at the auction and then have the bank not finance due to the buy price v valuation.

    I presume the bank isn't going to waste its money and value the property for me prior to the auction in the hope that I win it. I presume I would need to pay for my own valuation??
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Getting a valuation prior to the auction won't help you. Odds are are the valuation will have a different figure (and likely lower) than what you pay for at auction. As the bank has a valuation on file, they'll rely on this and you've got to make up the difference.

    Hence getting a valuation prior to an auction is likely to hurt, not help.

    99.9% of valuations after an auction come back at purchase price. You simply need to do your own due diligence and bid to what you believe is fair value.

    It's worth pointing out that many brokers (on this forum) provide free property reports and other useful information to their clients to assist with this type of thing.
     
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  5. D.T.

    D.T. Adelaide Property Manager Business Member

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    Not prior, no.

    You could do your own Val but your best bet is to just set a limit prior to going of what you're prepared to go to.

    Do some research on what other properties are selling for in the area and compare what sort properties fit where in order. From there think about where the target property fits into that ranking, and this will be roughly what it goes for.

    Ask your broker for a Residex report.
     
  6. myotherac

    myotherac Member

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    I can give first hand experience to support that getting a valuation before will hurt rather than help.

    On my last property purchase, another bidder, unbeknown to us, got a valuation with Westpac or St George. They were not successful in bidding at the auction, I was. Bidding was competitive and I ended up with the property. I sought finance with St George. They had the pre auction valuation on file which was 25% less than what I bid at auction and St George wanted to proceed based on this which would make my borrowing a lot less. My broker argued that this was not a representative valuation of the market as there were limited comparable sales, and the auction price is more reflective. St George sent another valuer from a different company in, and the value they came back with was, surprise, surprise the auction price. St George were still being difficult, and we had to settle on a value halfway between the two values. Lucky I had enough funds to settle, but it was less than what I could have borrowed otherwise.

    We thought about jumping to another lender but there was not much time until settlement and St George are one of the few lenders that is good with complex loans (third party borrowing with trust as owner). So basically someone that did a pre auction valuation stuffed me up.
     
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  7. dabbler

    dabbler Well-Known Member

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    I would not buy at auction unless I know my highest bid would make the place a good buy, have done this way before and then setup finance after. You should be able to work out a fair price yourself.

    At the end of the day, you need to have money to settle, to make up any loan shortfall, or be willing to gamble the deposit. One of the three.

    If you are able to qualify with multiple lenders, then this gives you a bit more of a safety margin. I would also use a broker.
     
  8. Redom

    Redom Mortgage Broker Business Member

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    There's not much you can do - you can go in with a strong pre-approval subject to valuation prior to auction.

    You may be able to go to a lender that allows the COS to be taken as the valuation - this may assist in covering this risk. You can talk to your broker about lender choice here and potential fall back options if a valuation does come in short.

    I wouldn't go far as saying 99.9% of the time its fine, its probably a slightly bigger risk that that in SOME circumstances. I've seen this multiple times in January 2016 alone, usually it happens when the purchase price is very high and the security type wasn't a standard resi house. The two cases i've seen were both able $2mill, which makes using a COS valuation more difficult with most lenders. Also in rampantly hot markets (Sydney 2014/15), it did happen more often on those higher end properties where people were willing to pay top dollar to secure it.

    I also had one anomaly last year (out of perhaps ~200 vals), in Melbourne for standard cheap resi homes. Plan B (COS) option that i mentioned above got them over the line in that case.

    Cheers,
    Redom
     
  9. 1st_Home_Buyer

    1st_Home_Buyer Member

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    Hmm. Plenty for me to think about. Thank you all for your comments.