I recently sold a property to an owner occupier in South East Queensland (SEQ), northern NSW locality for 120% more than the bank valuation done last year.
There are two points I want to make: one is on bank valuations and second is how quickly that region is beginning to move. I can already hear you say “but John, you said to never sell, so why would you?”; the simple answer is, I just bought 3 properties in Melbourne and another 5 in SEQ, so I wanted to reset a particular debt facility to improve my LVR (Loan Value Ratio) and DSR (Debt Service Ratio).
So Let’s talk valuations
It's not uncommon for bank valuations to vary by 20%, depending on the bank and the valuer. We’ve seen the same house size and land sizes, adjoining, valued by the same bank, produce an 18% variation. There is no point me going into how this happens as you could write a book on it.
What we know
1. Bank valuers often get less than $400 per valuation and if the bank takes a loss because they overstated the valuation, they can be sued for the loss. They should do an inspection but reality is, a good valuer will try to process 8-10 valuations per day. No wonder they will err on the side of the lowest sale they can find as the benchmark.
2. Often, valuers will use comparable sales data that might be 6 months old given they use settlements rather than contract dates as benchmark.
3. Banks do valuations for mortgage security purposes, so they are not done to establish market value. The instructions they give valuers vary from bank to bank but typically they may instruct them to exclude sales from within the actual estate and to value on the basis the property is sold under mortgagee auction within 90 days.
What we can do
1. If you are going to organise revaluations, I suggest you do the comparable sale homework and give it to the valuer or financier yourself. We do it for you if you are with Investloan, but often, financiers have a 'no contact' policy between the valuer and anybody related to the transaction.
2. Also, if you get a low valuation you can challenge, question or ask for another valuation, and produce your own comparable sales, particularly if the valuer hasn't included them in the written report.
Custodian has been giving bank valuations as a policy since the beginning. I honestly don't know any group that discloses them let alone provides a copy of the valuation. It's not so much a price check but more to keep you in the loop of a key indicator necessary for your strategy to build wealth. I know it may seem like a lot, and yes, it’s frustrating, but following this advice could be the difference between you duplicating now, or waiting another 6-12 months.
The other significant factor in my example is, the bank valuation I had done was at a time when there was not a lot of comparable sales data, so everyone was talking the market down, as agents love to do if they think you might sell, and valuers love that talk.
So what are my takeaways on valuations?
1. Stay ahead of comparable sales in your area, and dissect them to the base land and house value.
2. If you are unhappy with the valuer’s assessment, supply your own comparable work for discussion. Should you need help in doing so, contact me or my team at firstname.lastname@example.org
3. Suppress the noise, look at the numbers. There is only truth in numbers.
South East Queensland – the Climate
In the last 6 months we have seen a real turnaround in the whole region. The REIQ has released its quarterly house price data, showing Brisbane was able to welcome its first $2m suburb, along with an additional 15 new suburbs entering the million dollar median.
Historical data is something we should all study, to give us a feel for how quickly markets can improve. The best example is the last full cycle. Sydney had 5 consecutive years of double digit growth before Brisbane hit double digits, but when Brisbane did run, it recorded 15.6% in 2002, then 29.7%, then 28.3% compounding, which saw values jump by 92.5% in 30 months. Brisbane also kept on growing for another 4 years to follow.
The numbers are there. Use them at your advantage.