Understanding Property Valuations
When investing in property most people will need to obtain a loan from a bank or lending institution. The lender will use the property as security and will agree to lend a percentage of the value of the property, for example 80%. This is referred to as the Loan to Value Ratio (LVR).
As part of the loan approval process the lender or your broker will arrange a valuation on the property. Now most of us will assume that the purchase price is the ‘value of the property’ – after all, it was set by market forces and is a true indication of what the market is willing to pay. The lenders and valuers do not necessarily see it this way.
Lenders instruct valuers to take a very conservative approach to valuations. They use historical sales data to compare values within a small geographical area and also take into consideration broader market conditions. Some of these considerations are subjective. Sometimes they only use the sales data (known as a Desktop Valuation) and sometimes they only drive past the property (known as a Kerbside Valuation). In the current market we are seeing very conservative valuation results.
Preparation – The Key to Success!
Let’s face it. Investing in property is a big decision and a valuation shortfall can leave you questioning your decision. It is important to have done your research before committing to a purchase and getting the right advice to help you make the right decision. You need to know your numbers and manage any potential risk by:
Creating a financial buffer – either equity or savings so you can cover any valuation shortfall
Do not wait until the last minute to apply for finance
Consider a number of lender options so you can mitigate the results of a valuation – not all valuers and lenders are equal!
I am available to answer any questions and help you to achieve your property dreams. Contact me on 0448 258 716 or by email to rebecca@sattouts.com.au.
