ANALYSIS: For some buyers, getting a valuation from a registered valuer is a necessary step of the purchase process. Typically, buyers who have less than a 20% deposit are required to get a valuation report. Likewise, anyone who is using the equity in their current home but the “electronic” valuation or e-val doesn’t represent the true value of the property may need to get a report done. Essentially, a registered valuer will walk through the house, see all the good bits (and the bad bits) and give a more accurate value of a property versus the electronic method which just has more generic property data to use.
In a hot property market, these registered valuer reports can be useful because recent sales data may be a couple of months old which could mean a result below the actual value. If the property market went up by, say 5% in the past couple of months, your e-val could be 5% out.
A small side note here, e-vals do use very complex algorithms and try to compensate for market movements but they are still only as good as the data that is fed to them.
In this current market, however, we could see a whole new problem; lower sales volumes could mean there are not enough recent, comparable sales in the area to get an accurate electronic value. You may still get an estimate but it might be tagged as “medium” or “low” confidence. If this happens, the banks are going to need to ask for registered valuer reports more and more. The question then is: what is the valuer's opinion of where the market is sitting today?
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It’s hard to tell where property values will head from here. I’m fairly optimistic about values holding for a few years rather than falling significantly. But registered valuers will probably need to build some sort of conservative view into their reports which may mean valuations come back lower than an owner or potential buyer might expect.
For mortgage applications, this means a big change in strategy. Over the past few years, if an electronic valuation (based on recent comparable sales) estimated a property to be worth $1m, you could be comfortable that a valuation report by a registered valuer would come back at the same level or higher due to the quickly rising market.
But for applications in this stage of the property cycle, it may be prudent to use a slightly lower valuation - say 5% lower - to estimate how much equity you have. In the example above, it could be that an e-val showing $1m will have a registered valuation report come back at $950,000. In other words, we can’t be certain that every last dollar of equity will be useable in a month or two so you would need to make some conservative adjustments when presenting to the banks.
Mortgage Lab founder Rupert Gough: “There are many traps to getting a valuation before the bank requests it and few upsides.” Photo / Fiona Goodall
For property investors, removing $50,000 of equity can mean losing between $125,000 and $250,000 of purchasing power depending on whether they are purchasing an existing property - requiring 40% deposit/equity - or a newly built investment property that requires only 20%. This is obviously significant; $250,000 puts you in an entirely different price and quality range in some cities
It may be tempting for those who are considering buying in the near future to dash out and grab a registered valuer’s report now before any significant values change. I’d recommend against this for a couple of reasons. The first is that the banks like the valuation to be ordered through their independent ordering system which stops clients from having too much influence on the valuer at the time the report is prepared. The second reason is that the valuation is only valid for a short time after it is done - typically three months. If you’re not ready to submit it to the bank in time, you may need to pay for an update or have a whole new valuation completed. In my experience, there are many traps to getting a valuation before the bank requests it and few upsides.
The only option is to understand that we are in a new part of the property cycle which requires new strategies. If you are likely to be in the market to buy soon and need every last drop of equity in your current properties, consider applying for pre-approval with the bank sooner rather than later to see if the bank requires a valuation report or not.
- Rupert Gough is the founder and CEO of Mortgage Lab and author of The Successful First Home Buyer.
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