Banks are increasingly requiring some homeowners to provide costly independent valuations as part of their lending conditions.
Some mortgage brokers have noticed an ongoing trend of banks requiring more and more homeowners to get independent on-site valuations instead of relying on the cheaper automated valuations.
Most independent valuations, which require a valuer to inspect the property and provide a lengthy report, cost between $700 and $950 depending on the value of the property, the location and the complexity of the valuation.
Umbrella Company owner and mortgage broker Sara Hartigan said: “There’s been a shift in the market and unless you are going in with a 30, 40, 50% deposit, banks are requiring valuations on most properties.”
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Banks would be asking for independent valuations to help make sure they were operating within the loan to value ratio (LVR) rules, she said.
QV general manager David Nagel, whose company provides independent valuations, said the proportion of lending decisions requiring a full market valuation had grown due to the risk of default increasing considerably since the market peaked late last year.
Because house sales had slowed due to rising interest rates and tightening credit rules, the demand for full market valuations overall so far in 2022 was still down from last year.
“We would always recommend due diligence when buying a property and this includes getting a full valuation report from a registered valuer,” he added.
Mortgage Lab chief executive Rupert Gough said it was common for banks to require an independent valuation for most lending over 80%, but it was less common for those with larger deposits.
Valocity head of valuations James Wilson says changes in the market will be impacting demand for independent valuations. Photo / Fiona Goodall
Banks still used electronic valuations, but if a homeowner was planning on offering outside 10 to 15% of that valuation, then it would require an independent valuation, he said.
“In a down-turning market that will happen more and more because people are either still offering last year’s prices or offering significantly lower to try and get a bargain, and the bank wants to know why they are offering lower.”
Banks are particular about who carries out the valuation and uses one of two independent valuations services for banks – either run by OneRoof’s data partner Valocity or CoreLogic - to locate a valuer the buyer should use.
Valocity head of valuations James Wilson said banks often used a number of automated valuation models or tools to work out a property's value before requiring an independent valuation. Whether a bank required a full valuation depended quite heavily on the property being purchased and who was buying it.
“For example, if you don’t quite have the minimum deposit requirements, then it’s more likely your bank is going to require you to get a full valuation over being able to use another type of valuation assessment such as an automated valuation model,” he said.
Wilson said the change in market dynamics would explain the lean towards more independent valuations. There were now more home-buyers with lower equity in the market and fewer equity-rich investors.
“It’s always going to be customer-by-customer and bank-by-bank, but I don’t think the deposit requirements have sort of shot up to that level where full valuations are required as a result.”
To offset the expense involved in buying a property, banks have been giving generous cashbacks on settlement that a lot of buyers put towards the cost of legal fees, LIM reports, toxicology and builder reports.
One of Hartigan’s clients received a $6000 cashback which had covered both the legal fees and valuation cost.
“It all depends on the deal, but the banks are pretty generous with cashback because they know it does affect somebody financially to get into a home,” she said.
