Whether you’re buying your first home, next home or an investment property, you might need to get a registered valuation to finalise your home loan. What happens if that valuation isn’t high enough?
If you’ve purchased a property at auction and there’s a shortfall between the amount you need to borrow and the amount supported by the registered valuation, you’ll have to find the difference yourself or let the sale fall through and suffer the penalties. If you’ve purchased by negotiation or tender, subject to finance, you can go back to the vendor and try to negotiate them down. It might also be possible to appear the valuation, if you’re sure it’s incorrect.
What is a registered valuation?
When a bank or lender is deciding how much they could lend for a particular property, they assess all the information available. In particular, they want a credible valuation for the property. A registered valuation performed by a bank-approved certified registered valuer lets them know, as closely as possible, what the property is really worth.
A registered valuation requires four or five working days, and involves a full, onsite inspection by the valuer. As well as figures that indicate the probable valuation of the property, the report issued back to the bank also includes sales figures of comparative properties recently sold in the neighbourhood. With this assessment completed, the bank can compare the property market price to the mortgage value and determine the loan-to-value ratio percentage. Once this is done, they can say whether they will approve the mortgage amount you need.
Who can perform a registered valuation?
Until recently, a valuation could be undertaken by any property valuer to evaluate market value for the buyer or vendor. Unfortunately, the bank couldn’t be sure if these assessments were made without influence from the party paying for the service.
These days, banks need valuations performed independently, to provide the most accurate information. So it’s the bank or mortgage broker who coordinates a local registered valuer to perform the valuation. This reduces the risk of valuation outcomes being swayed.
It’s worth noting that vendors may arrange their own property valuation, which they can make available for prospective buyers. Usually this happens when significant value has been added to the property since any previous valuation. Improvements that add value may include landscaping, renovations, the addition of rooms or any number of enhancements. While the vendor’s valuation report can provide the buyer with an up-to-date property valuation based on enhancements and local market sales, it will not be deemed independent enough for the bank to use.
When is a registered valuation required?
A registered valuation by a bank-chosen valuer will be required for the circumstances described below:
- If you are constructing a new property
- If you want to borrow more than 80% of the property price
- If you are borrowing more than 65% if purchasing privately (no agent involved)
- If your purchase price seems significantly higher than the estimated property value
What if the registered valuation isn’t high enough?
If the registered valuation comes in lower than the figure you hoped for, you may not get the mortgage amount you need. The risk would be deemed too high for the bank. If you’re adamant the valuation is incorrect, you can make an appeal to the bank providing evidence to be reconsidered. Otherwise, try these strategies:
Purchasing by tender or negotiation
Purchasing at auction
It’s always smart to get a registered valuation done before the auction if you’re really keen on a property and are pretty sure you can afford it. This means you and the bank mutually understand how much the property is worth and, therefore. how big your mortgage can be.
If you go to auction without getting a registered valuation first, there’s a risk you’ll pay a price that won’t be reflected by the eventual valuation. If this happens, you’ll be liable to cover the difference; it will not be covered in your mortgage amount.
In rare situations, if agreed in advance with the vendor and their solicitor, you may be permitted to bid with a financing clause. Otherwise, your bids at auction will not be subject to a financing clause, meaning you’ll be liable to purchase at the winning bid value.