What if bank undervalues the property?

Discussion in 'The Buying & Selling Process' started by Ria, 9th Mar, 2018.

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  1. Ria

    Ria Active Member

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    Hi everyone,

    I am in process of buying a place. I have pre-approval from 2 banks (ANZ and BOM). Both banks advised that they will do valuation of the property as it is a private sale (no agent involved).

    There are tenants in the property ATM who are in the process of relocating. So, there is alot of mess in the house.

    What will happen if bank undervalues the property? Can I challenge the valuation?

    Thank you
     
  2. Ria

    Ria Active Member

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    Bank advised me that they will need access to the property in order to the valuation. It means the valuer will go inside the property?
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    Is the valuer going to be afraid of 'moving mess'?
     
  4. Ria

    Ria Active Member

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    I hope not.
     
  5. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Valuers are usually fairly good at looking past a messy house. I frequently see valuations with photos that would distress my Mum.


    The bank will lend against the lower of the valuation or purchase price. This means you'd have to put more money in.

    Don't loose sleep over this. Even when the house is a mess, it's extremely rare for this to occur as long as you've done a reasonable amount of research and are confident in the purchase price.

    On the handful of occasions where it has occurred, we've simply gotten a valuation through a different lender (and you have two pre-approvals). That has solved the problem in all but one case that I can remember.
     
    Last edited: 9th Mar, 2018
    Tom Rivera likes this.
  6. Ria

    Ria Active Member

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    Thanks for your reply Pete. I think I am getting a fair price at $550k. According to ANZ market evaluation report, it's between $550-$685 k (high confidence). Im not sure how valid ANZ reports are? If it is valued at the purchase price, I wouldn't be paying any LMI.

    Thank you
     
  7. 3rd Drop

    3rd Drop Well-Known Member

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    My last purchase came in $13k less than the purchase price. I have no other choices of lenders therefore I was required to put in the $13k gap. I have had the money so I didn't bother.
     
  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Why 2 ?


    ta
    rolf
     
  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Pete has covered all the obvious stuff

    As a contra view , a low val can also be used as a negotiation tool, unless you have a very hot market.

    We have helped clients get reductions of up to 80 k due to low vals.

    Typically, if 2 vals come in low, the chances ofa 3rd coming in on the money shrink a lot.

    ta

    rolf
     
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  10. Ria

    Ria Active Member

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    Thanks Rolf for your comment,

    I was looking for better interest rates, therefore ended up with 2 preappre-app. There is an another buyer (a fanily member) who already put unconditional verbal offer. I don't want to lose this property. I guess I just have to cope LMI if results are unfavourable.
     
  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Do you have variable income or some other credit impediment that would need a second pre approval ?

    2 pre approvals - Its not something we would encourage - unless there is structural reason for same.

    These things can stuff your credit file pretty quickly, though at sub 80 less of an issue, but then at sub 80 % one would usually not need 2 pre apps if that makes sense.

    Uncondtional verbal offer - sounds like semi pregnant :)


    ta
    rolf
     
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  12. Ria

    Ria Active Member

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    Hi Rolf,

    Thanks for your reply. My finance situation is very straight forward. I'm on $85k pa, $130K in savings, $220k equity in PPOR, no credit card or any ongoing loan.

    I was bit naive about loan application. I put multiple loan applications with different banks in order to get good deals. I was not awared of credit ratings until recently.

    Thanks
     
  13. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    We all learn.

    Wel done

    Ta. Rolf
     
  14. kaibo

    kaibo Well-Known Member

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    Never had problems with valuations in Melbourne after being involved in purchases of detached houses in 2013, 2014, 2015, 2016 (all East of melbourne within 25k of CBD). 3 were purchased under the hammer and 1 was negotiated after auction.. Not sure if things have changed
     
  15. Ria

    Ria Active Member

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    Hi Kaibo,

    Bank told me that usually they do general computer valuation. As I'm buying privately from a family friend, bank needs to do site visit.
     
  16. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    That would be because its regarded as a a "not at arms length" transaction, and presents additional security risk.

    ta
    rolf
     
  17. Big Will

    Big Will Well-Known Member

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    I might be late but if you haven't overpaid then generally speaking it will be fine.

    The issue is that it wasn't on the open market and/or to close to the vendor.

    If the price is 'fair' then the valuation will be the same however if there is significance difference of opinion then the valuation will come up short and they will take the valuation price not the contract price meaning you will have to make up the short fall - however as Peter wrote this is rare but could be more common for your situation.

    From what you said ANZ desktop val said and your contracted price I wouldn't think you would have any issues.
     
  18. Ria

    Ria Active Member

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    Thanks for your comment. All went well. Bank didn't disclose the valuation price, but they are happy to provide me finance at the purchase price.
     
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  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    so the val came in at purchase

    Sometimes though, with not at arms transactions, the vals can and do come in higher

    ta

    rolf
     
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  20. ZachAnsel

    ZachAnsel Well-Known Member

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    Rolf, the only season I notice vals can come higher is when the market trend is up.
    Lender closely monitor this valuation with market trend, and think twice to lend when the market go south. In some market, that's lender way to force buyer come up with the gap.
     

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