Do you need a valuation when buying a property?

Matthew Dawe, Mortgage Broker and Financial Adviser here.

What is a valuation?

A valuation is a professional registered valuer whose job is to come out and review the property, have a look at its position and existing comparable sales and come up with a professional opinion on the value of the property that's independent of the price that you're paying.

A few tips on this. I'm gonna cover off why it's required, the cost and the timing.

So, registered valuers, and I'm not going to speak for them, but generally take a few years to get accredited. So, in other words, do all the exams, etc. There's a lot that goes into it. And then they need their accreditation with the bank that they are submitting a valuation to. The bank needs to make sure that they can accept valuations from that valuer.

So, why is a valuation required, Matt?

A valuation is required because the bank needs an independent feel for the value of the property that you're buying. I'll give an example. Let's just say you're a first home buyer putting 10% deposit down on a property and the bank is lending 90% of the money. Like every $10 of value, they're lending $9. It's up to their eyeballs, right? So in that case, let's just say if the property decreased in value by 10%, not suggesting that would happen, or let's just say on the off chance that it did, I should actually say, what if you're paying 10% too much than what the property's worth. You're actually asking the bank to lend a 100% of the value, which a bank would never do. So, that's the reason that a lender needs a valuation. They need to know exactly what they're exposed to in terms of the fair market value of the property.

Valuations are compulsory where you have less than a 20% deposit, you're buying a new build, construction, or in certain instances where the bank can't get a firm feel for the value of the property through a desktop valuation, through their own metrics, etc. So, those are the cases where a valuation will be compulsory.

Basically, normally, the valuation needs to be booked through an independent portal. The two big independent portals in New Zealand, Cotality, which is the old CoreLogic, and Valocity, which is the New Zealand owned one. So, they are just portals. We've got access to those where we can book valuers in to conduct the valuation. They ensure that the valuation is arm's length. So in other words, independent from mortgage broker, client, bank, anyone else, real estate agent, etc. They just ensure it's independent and the valuation is complied through the portal to make sure it meets the standards. There are certain standards that the valuation must meet.

In terms of cost, this is a big question. It depends on the availability of valuers in that particular area that can do that valuation and the timeframe required for that bank. So obviously, if it's in a bigger city, there's gonna be more valuer thank if it's a standard suburban property. It's gonna have most valuers, you'd assume, would be able to do that unless they don't have an accreditation with that bank and wanting to get a valuation through. But obviously, there'll be more demand. So therefore, typically, a standard sort of valuation can be anywhere from $800 to $1,200.

As a real rough, rough guideline in terms of timing, and construction can be more, or if the property is unusual, it can be more. The timing is generally from when you book and pay for it. So, what we do here at Matthew Dawe Mortgages, our team will set up the booking for you. We will make sure it's the correct property and have it all set up. And then we'll send you a payment link. It's at your cost. You pay for that valuation. From when you pay, the clock starts ticking. The next day is the first working day.

The agreed SLA, or service delivery time, is normally five to six working days that the valuation will be completed and sent through to us. You will also receive a copy of that. And then we'll need to get lender clearance on that valuation to get clearance on the property. You can get urgent valuations, which compresses the six working days, plus one for lender clearance, down to three working days from payment, plus one for lender clearance, depending on the speed required. Normally you pay more for that. It's about $250 more for an urgent valuation.

What else can I tell you about valuations?

Normally, and this is never guaranteed, is I tell clients, I've got two quick tips from me on this. We can negotiate a cashback or cash incentive from the lender to reimburse you for the valuation costs. So, I wouldn't worry about it too much. That's not always the case, and it's not guaranteed. It depends on the deal, the timing and the offers that are available, but in general. So, I wouldn't worry about it too much. It is a cost of doing business.

The second thing I would tell you is that probably of the valuations we've done in the last year or two, 95% of clients have only ever had to do one valuation because they were successful on the property purchase. Occasionally, you might have to get a second one on a separate property if you weren't successful on the first purchase. That's okay. And that can happen from time to time. It's just the nature of doing business and the property transactions you need to invest a little bit of time and money. And that's the way it goes. I always just tell people, look, if you're interested in the property, let's just go for it and see how we go. Like I said, you normally get reimbursed for that.

In terms of valuations, normally it's procedural. So, I would say again, out of probably, I don't know, say 40 valuations we've had done in the last 18 months, let's say, 18 months to years, I'd probably say 98% of them go off without a hitch and are fine. In other words, the value is satisfactory to meet the purchases requirements.

So in other words, the valuation was higher or similar or the same as what the client was paying. So, it's normally procedural, but it's independent confirmation that the price is fair. That's all the lender's looking for.

We had one the other day where the lender came back with a couple of questions just because there was some deferred maintenance on the property. Those were sorted out. That was fine. I had one about 18 months ago that was $30,000 to $40,000 short, but the valuer wasn't aware that it was preventing the client from actually proceeding. So, the valuer was comfortable to come up a little bit, still was short within their professional opinion that the price was fair because it's an opinion and also prices can vary. And then the client came up with a little bit more money and that was fine. That worked out really well.

Hopefully that's given you some insights in terms of cost, timing, why it's required. Valuers have a lot of liability because if the client defaults on the mortgage, bank can't sell the property for a fair market price, they might look at the valuation and go that valuation wasn't what we think in the methodology. So therefore, the bank might sue the valuer, for example. That's highly unusual. But as a result of that, the valuer must hold professional indemnity insurance and follow certain standards.

Also, like I said, there's a lot of qualifications involved and it's not easy. I know when the property market increased a lot a few years ago, there was huge demand for valuers and prices were really, really high.

Why?

Because it's not easy to become a valuer, and get your accreditations and making sure you're doing that good job there. So, hopefully that's given you a little bit of information. Like I said, compulsory for under 20% deposit, new builds, construction, or in similar cases where a bank can't get a fair independent feel for the value. We'll help you through that. There's nothing to worry about and it normally comes out in the wash most of the time.

Thanks so much for watching.

If you feel like somebody would get some benefit out of this video, please forward this to them. We're offering free strategy session consultations where you can discuss your situation and talk about next steps.

We look forward to talking soon.

Matthew Dawe
Mortgage Broker | Financial Adviser
Phone: 027 321 4287
Email: mortgages@matthewdawe.com
Facebook: https://www.facebook.com/profile.php?id=61551074134041
Book a free consultation: https://www.matthewdawe.com/contact