The Valuation Game - How bank valuations work & 3 strategies you can use to get the best result
VALUATIONS ARE THE BUGBEAR OF MY EXISTENCE.
AN INDIVIDUAL'S PERSONAL OPINION ON THE VALUE OF A PROPERTY CAN COMPLETELY MAKE OR BREAK SOMEONE'S FINANCE APPLICATION.
THIS POST WILL SHED SOME LIGHT ON HOW BANK VALUATIONS WORK AND SOME OF THE STRATEGIES YOU CAN USE TO GET THE BEST RESULT FOR YOUR PROPERTY.
THE VALEX SYSTEM
In order to remove bias, when a bank orders a valuation, they do so through a computer system called valex. The valex system randomly assigns valuations to registered valuers of a particular area so that one company is not doing all the valuations of that area.
Once a request is sent through to the valex system there are three types of valuations that can get completed:
- Modelled Estimate valuation. This is a computer-generated valuation where valex pulls data of local sales from properties that match similar characteristics of your one.
- Kerbside valuation. As the name suggests, the valuer will do a “drive by” look at your property and review comparable sales to complete their estimate.
- Full valuation When the valuer will book an appointment and physically walk through your property.
TRICKS OF THE TRADE
None of these strategies are full-proof but they’ve worked in some instances so are worth giving a go depending on your circumstances.
1. Changing the valuation type
Only last week I was organising a refinance plus cash out for a client of mine, ordered a full valuation and the valuation company (who shall remain nameless!) grossly undervalued the property, killing the deal with the lender I wanted to recommend.
My client is in the building industry and knows his local area like the back of his hand, so he was very confident his estimated opinion was spot on. Not to mention, he could just tell the valuer was a pork chop!
Now you can’t request your valuation type but when ordering valuations, but valex will ask you what the loan amount and LVR is. I’m only basing this off my own experience but when the LVR is <80%, valex will tend to order a modelled estimate valuation.
That’s what happened in this case. Because the modelled estimate simply pulled data of local sales and had no human bias, the valuation came in $150K higher than the full valuation.
I’ve also seen the reverse happen whereby we changed the LVR to 90% and the full valuation came in higher than the modelled estimate.
2. Increasing your figure
It’s funny how it works but if you give a valuer a Contract of Sale, 99 times out of 100 guess what the valuation figure comes in at? Drum roll please…..That’s right, the figure that’s on the Contract of Sale!
However, if you are refinancing, valex will ask you what your estimated value is. When this happens the vast majority of the time, the valuation ends up coming in $20K - $50K less than the figure on the valuation request.
As such, it’s worthwhile always putting down a figure slightly higher than what you think your property is worth.
3. Going with a lender who doesn’t use valex
All major banks run off valex but there are some smaller lenders who will tell you the company names of the valuers in the area of your property and ask you to pick one.
This can be particularly useful for off-the-plan properties.
In these situations, all valuation appointments are organised through the onsite manager. As valuations roll through, he will start to see which companies value apartments under market and which value at contract price.
Knowing this information and picking the company that is valuing at the contract price is obviously a big advantage to have and may make the difference between someone losing their deposit or successfully settling.
At the end of the day, the best and worst thing about property is that it’s very subjective. Depending on the day, your property could either increase or decrease in value by 10-15% purely based on one person’s opinion of the property.
So if you do get a low valuation, try using the above three strategies to change the result for the better.