What if the Bank Valuation is less than your Offer?
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- Опубліковано 8 чер 2024
- What happens when the bank valuation is lower than the purchase price, or the price you have offered?
00:00 What if the Bank Valuation is less than your Offer?
02:23 1. How Do We Fix It?
02:31 2. Challenge The Valuation
03:26 3. Organise Two More Valuations
03:41 4. Renegotiate With The Sellers
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When you buy a property you might assume you’ve paid market value for it. More often than not you’d be right.
But in some cases your mortgage lender may value the property at less than the purchase price. Here’s an explanation of why this occurs and what to do if it happens to you.
The bank valuation
Let’s say you’ve bought your first home and now want to finalise your loan. Before the lender offers you unconditional approval they may send an independent professional to value the property.
Lenders do this because they use your property as security for the loan. In other words, if you default on your loan, the lender has the right to sell the property to recover the outstanding loan amount.
Sometimes the valuer may estimate the market value of the property is lower than the purchase price. Let’s look more closely at some scenarios where this may happen.
Off-the-plan apartments
If you’re buying an off-the-plan apartment, it’s a good idea to remember that the lender is only able to value the finished property. Completion may be well over a year after you sign the contract and place a deposit.
There is a risk that property values in the area may change over the construction period. If they do, the bank valuation may be lower than your purchase price.
There is also a risk that the dimensions of the finished apartment may vary from the plans. This situation may result in a bank valuation that’s less than the purchase price.
Buying unregistered land
A similar situation may occur in new estates when developers offer unregistered land for sale. It may take several years for the developer to build the infrastructure necessary to register the land.
In this case, the lender will need to reassess your application before settlement. Over the time since you paid your deposit, values in the area may have changed, resulting in a valuation lower than your purchase price.
If you’d like to know more about what to consider when buying land, we have an article that looks at this subject in more detail.
What if the lender’s valuation is lower than the purchase price?
As we mentioned earlier, the lender values your property to see whether it provides enough security against the loan amount. To help assess their risk, lenders use a measure called the loan-to-value ratio (LVR).
Many lenders will not lend if the LVR is more than 95%. And if the LVR is more than 80% they will ask you to pay Lenders Mortgage Insurance (LMI).
Here are some examples of what could happen if a lender’s valuation affects your LVR:
The LVR is still below 80%
Your purchase price is $500,000.
You need to borrow $300,000.
The lender’s valuation is $450,000.
LVR is 300,000 / 450,000 = 67%.
In this case the loan application would still go ahead and you wouldn’t have to pay LMI.
The LVR is over 80%
Your purchase price is $600,000.
You need to borrow $420,000.
The lender’s valuation is $500,000.
LVR is 420,000/500,000 = 84%.
The loan may still go ahead but you will have to pay LMI. You could add the LMI cost to your loan if you have the income to service the larger loan amount.
To sum up
The purchase price and the bank valuation might be different.
The bank valuation is used to calculate your LVR.
DISCLAIMER:
This video offers no Legal, Financial and Taxation advice, and the information contained is general and does not take into account your personal situation. The Listener acknowledges, consents and agrees to the viewing of the content presented on the Channel is subject to the full Disclaimer (below) and agrees to be unconditionally bound by this Disclaimer.
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More info on how to challenge a bank valuation www.huntergalloway.com.au/how-to-challenge-a-bank-valuation/
I watch all of your videos. All the information is very helpful specially for the new brokers
Glad you like them!
Excellent tips
Thanks a lot
Great tips, thankyou
Glad it was helpful!
Helpful 👍
Glad you think so! Thanks for watching!!
Hey! I bought an established house at auction and the valuations come at $107k LESS than what I bought it for. Second valuation scheduled with the same bank and one scheduled with another bank. Im stunned!
Oh my gosh that is terrible! It is worth getting another valuation or even a third to make sure you have all of your bases coveredd.
@@MortgageBrokerAustralia It was ridiculous! Happy to report that the second and third valuation both came back at the contracted price; phew!!
@@utubed03 Great to hear that would be a big relief! Congrats
My new build in S.A., was over $100,000 lower than build.
Got it redone, it went up by $55,000. My new build is in a new area. So no selling.
Looks like no house.
Hey Jackie, so sorry to hear about that. We are finding this is a bit more common with new builds, it would be worth trying another valuer/bank as we mentioned because there can be significant differences in their opinions. Happy to help if you want to get in touch - send me an email at huntergalloway.com.au cheers.
When the conditional approval is received from the lender, Who orders the valuation?
The lender or broker will coordinate this!
So is the worst case scenario I don't get finance and can just walk away? Can I get my deposit back?
So long as you have a finance clause in the contract, that's right. Every state and territory operate slightly differently from each other and this is where your solicitor / conveyancer can provide legal advise prior to entering into a contract and protect your interests prior to entering into a contract.