Do you know when you need to get a bank valuation?

It seems to me that most people have no idea whether they need to get a bank valuation before they buy a property. Some people think they do because their broker told them they do. Others think they don’t because the bank will just take the auction price as the valuation figure.

What on earth is the correct answer? Well, here it is: it depends….

The bank valuation is done by the bank to protect the bank, so a decision whether to buy before having one done depends on your own exposure to risk and your appetite for risk. To determine your own personal risk level you need advice from your broker or bank manager that takes into account all of the equity you will have in the property. You want to make sure that you have access to additional funds if the bank valuation comes in at a figure less than you have paid for the property

If you are borrowing the majority of the funds for this property, it is probably a good idea to order the valuation prior to making an offer. But here there are different risks to consider. Some banks won’t order a valuation unless you have already exchanged contracts (this is a bit “chicken and egg”) and for those that will, the valuation will take a few days at the very least. In that time, the agent could sell the property to another buyer.

Then there are the stories we have heard about banks doing very conservative valuations prior to auctions. Because this, of course, limits their bidding power, borrowers are sometimes encouraged to rely on a valuation done after the auction, where they are assured the auction price is usually taken as “market value”.

In practice, if the valuation is ordered after contracts have exchanged and the valuer has a vendor signed contract, the contract does hold weight in being a reflection of market value. Strangely, this is the way the majority of real estate transactions take place in the inner suburbs of Sydney (largely because of auctions) and it is very different to other ‘slower-paced’ real estate markets around Australia where people have different (less risky) ways of doing business.

Bottom line: you need to get advice from your broker about the risks associated with either approach and how they apply to your individual situation.

WATCH Veronica chat with selling agent Peter Gordon about valuations from both sides of the equation

Published:-   8 June 2016

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Please note:

Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.

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