Property Valuation Farce ExposedAn independent sworn property valuation is required when buying investment property, assuming you are borrowing money.
This information will help you understand the valuation process and understand that it is a farce; and that is exactly why it is important to know this information The Banks Valuation Process Most banks apply this or a similar system. Regardless of the slight difference that one bank may have from another, they all end with the same result:-
So now here is the reality, Valuation's are a FARCE! I could not make it any bigger than that. Why are valuation's a farce? To answer and prove this for yourself, you would have to order two other valuations to the one the bank ordered for each property, meaning three or more valuations on one property. What you would discover, is that the valuationfigures are inconsistent and most time, not even close to each other. I have seen many properties, with at least three valuations from different valuation companies, only to find the valuations vary as much as $100,000 or more. There is no science or standards to the valuation process In writing this page, it is only a week or two ago that a poor client experiencedthis problem. On the same property, the banks valuer marked a property down by $90,000. Another valuer had already valued the property at the purchaseprice. BUT..... because the later valuer was not selected by the banks random system, the higher valuation could not be used, despite the fact that it was done by one of the largest valuation companies in Australia. How can that happen? Realise this, you and I are held hostage to the inept, lazy, frightened valuer'sthat are rife within the industry! There is no science or consistent valuation process. It depends on the luck of the draw, which valuer you end up with. It is pot-luck!If you get one of the few good ones, you are very fortunate. Now why would I say that there are frightened valuer's Because many valuer'sare so worried about over-valuing that the chronically under-value just so they cannot be wrong. That way they cannot be sued by the bank should there be a default. I believe this will be a misguided strategy as one day, I am sure a valuer will end up being sued for under-valuing. Not by the bank but by a smart, already wealthy would-be borrower who has been declined by a bank due to low valuations. Anyway, so what to that. The reality is that most people are just held hostage to the system.... Many people who should be receiving loans are denied a loan because of inept, lazy and/or frightened valuer's who do not do their job properly. Now I have briefly explained the frightenedvaluer but what about the inept and lazy? Well, the system makes them that way. The bank may pay a valuation company a few hundred dollars to do a valuation. However, the individual valuer often only receives a pittanceshare of the fee or is on a wage/salary. The problem is that they are under pressure to produce valuations like sausage machines. It is a production line. Consequently, they do not have the time to do a professional job. So, lazy and/or inept practices are employed to come up with 'safe or frightened or ill-informed valuations, fast. Whichever, is the reason, there is no doubting that it means one thing to you, under valuations and unrealistic valuations. I guess the only good thing there is that you will never get an over valuation. Do All Properties Suffer This?
No, but many do and certainly investment properties. There seems to be a culture among valuer'sthat sees them incapable of determining a reasonable valuation on property that is for investment purposes or to be constructed. Probably this is because they fear investors will default easier than home-owners. There may be minor truth in that but certainly not enough statistically to justify this inept system. Remember - it is inept because there is not consistency. If it were consistent, meaning two or more valuer'scould be within say $10,000 of each other on the same property, I could cope and work with the system. But that is not reality. The valuations are the proverbial dogs breakfast i.e. all over the place. What Can You Do About It? Be prepared, and sadly, if you receive a bad valuation, you most often should go to another bank and see if their randomly selected panel valuer is more professional. I have had many clients who have done that with success. It is a pain in the backside to do it but don't roll over, go for it with another bank/lender. One memorable client with their home worth about $350,000 receiveda valuation of around $255,000. Only to then to try another bank and receive a valuation of $345,000! Figure that, same house, dramatic variation in valuations. So, other than trying anotherbank, there is not much you can do. You are hostage to the farcical valuation industry. Hopefully, you will still have enough equity to cover the shortfall in borrowing due to the inept valuation. I am sorry I don't have any magical answer but at least this information will help you to understand what happens out there in the world of bank finance and valuations. Oh, by the way, there is a way of buying and at least getting your own valuation that will give you a realistic valuation. Why? Because it is prepared by an independent but competent valuer. It won't help your loan application but it will give you peace of mind!
Click here to buy a property with your own independent valuation
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