For most investors, buying further property often means having to refinance with the bank in order to gain access to their equity.
Many people do complain that valuations come in lower than expected. In fairness to valuers, it’s not the easiest job because no two houses are alike. Valuers need to assess the land, location, physical attributes such as age, condition and size of the property, and analyse and compare it to sales of similar properties in the area. Generally speaking they will look back on about six months worth of data but this will all depend on market conditions. If conditions are quite volatile, it could be less; if stable it could be more.
Valuations can, and do, often fall on the lower end of the price spectrum for various reasons. Firstly, valuers have limited time to turnaround valuations. They usually spend their whole day rushing from place to place to return a full valuation in 48 hours or less. This can result in the overlooking of important information.
Secondly, the valuer takes legal responsibility for their estimate, meaning they can be held accountable in the event a property needs to be sold and the lender can’t recoup their costs because it didn’t meet the valuation figure. This liability risk can cause valuers to err on the side of caution. Thirdly, as mentioned earlier, it may be because there are limited recent sales to compare against which generally means the valuer will make a more cautious estimation.
So what can you do to improve your chances of a better valuation or challenge an existing valuation you’re already received?
It’s always best to do your homework and preparation before the valuation. There are not many instances I know of where someone has been able to get a valuer to revise their valuation, unless they have been able to present some new evidence which wasn’t considered or available at the time. Generally, you’d probably need evidence of at least two to three recent comparable sales that support your higher estimate in order to have any chance of success. But there are a couple of things you might like to consider prior to a valuation in order to get the best possible outcome:
Prepare a summary for the valuer
Valuers are busy people so it’s a good idea to prepare a short document summarising aspects of the property to give to the valuer prior to the inspection. Use this document to bring to their attention key selling features such as proximity to schools, transport and other amenities, the size of the land, number of living areas, completed renovations, views, and less obvious features like smart wiring. You may also like to propose your own estimate of the property’s value. This should be based on actual comparable sales data (which you should present to substantiate your estimate), not listings currently on the market. Talk to your property manager or a sales agent to see if they will help you obtain access to such information. A sales agent may also be able to shed light on sales within the past month or two that wouldn’t yet be publicly available. Do try to be as objective as possible and draw on a range of recent comparable properties, not just those that support your highest estimate. A valueris more likely to consider all this information if they feel it is valuable and impartial, but won’t give it a second glance if they sense you’re information is unrealistic or biased.
Order your own valuation
You could also consider organising your own accredited valuation. Typically they cost between $300 and $600. If you go down this path, I recommend using a valuer on the bank’s panel and doing so prior to lodging your refinancing application. If you are happy with the valuation, ask to have it assigned to your lender when lodging your application. Doing it this way gives you more control over the valuation and the bank less control. There is a good chance under these circumstances that the bank may accept your provided valuation but if not, it may still have some influence on their own ordered valuation. You should be aware though that some banks may want to organise their own independent valuation regardless of what you do.
Aim for the right type of valuation
As mentioned earlier, there are different types of valuations – desktop, kerbside (drive-by), and full. The type of valuation you receive could potentially work for or against you. For example, if your property is a bit of shambles from the outside but fully renovated within, then you will want to get a full valuation to ensure the valuer inspects the property internally. You may simply ask the bank for the valuation you wish, but if they don’t oblige you may be able to influence the type of valuation you receive. For example, if you borrow a large sum of the property’s value or a not already a customer of the bank you are applying at, this would more than likely guarantee the bank pursues a full valuation.
Present your property well
A misconception amongst investors is that a valuer will be able to see past the mess and clutter of you or your tenants and value the property on its fundamentals. This is untrue. The valuer needs to base their estimation on what your property would get today, presented as it currently stands. We all know poorly presented homes can turn off buyers, hence why presentation is important to securing the best valuation. Remove the beat up old cars decaying in the front yard, mow the lawn, tidy up, de-clutter and fix up the old peeling paint.
Leveraging equity in your properties is a key wealth creation strategy so getting a fair and strong valuation is critical to maximising your portfolio. If you have had a poor valuation, or believe you will, give some of these suggestions a go or talk to one of our finance brokers who will be able to help you improve your chances.