Do you know how property valuation works for Australia properties? Before you purchase and accept a mortgage, you should familiarize yourself with the valuation procedures. It is very different from Singapore properties, be cautioned!
Purpose of property valuation
When you purchase an off-the-plan property in Australia, a valuation is required before the loan contract is offered. A lender valuation is a procedure mandated by banks and non-bank lenders to determine the amount they can lend on the specified property. The purpose is to reasonably reflect what a lender can recoup should it need to repossess and sell the property. It may not reflect what the owner may actually sell the property for.
A valuation is carried out by an independent qualified valuer and shouldn’t be confused with a property appraisal carried out by a real estate agent. The former is for the lender while the latter is for sales. Naturally, one would expect a gap between a valuation and appraisal.
Valuation and its impact
To assess a property’s value, a valuer will use the size, the number and type of rooms, along with fixtures, fittings and any improvements. The valuer combines these attributes, together with recent comparable sales in the surrounding area and prevailing market conditions, to produce a valuation report and a value for the property.
A key difference is the valuation takes place upon completion while you might have bought the property few years ago. The market might have strengthened in your favor since the purchase, however it could have gone south, thus affecting valuation and your loan amount. This is very different from Singapore property. An apartment under construction will be valued at the point of purchase, not during completion in the future.
A lender will then on lend up to a percentage for the type of property. The lender will accept the valuation as-is. Very rarely, they may consider another valuation and even if the valuation is higher, they may accept the lower one. Such situation may arise if there are valid and strong dispute factors. If the valuation is lower than the purchase price, then the loan amount will be revised downwards based on the valuation. You will pay the difference in cash. Your eligibility to service the loan is computed and then the contract is issued with the loan terms for your acceptance.
Protect yourself
Yes, we have seen valuations differ from the purchase price, especially for CBD apartments. Up to 20%-30% below purchase price is possible. This would greatly impact your budget and investment dreams. To protect yourself from possible lower valuation, we advise our customers to explore multiple banks. Each bank has its own policy too, so an experienced Australia mortgage broker like us will help you save time and possible headaches. Have a read on our guide to Australia mortgages or view our Australia Mortgage Portfolio.