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1 property + 3 valuations = market chaos

Posted by Paul Wilson

Quite frankly, the property valuation system is inequitable.

Thankfully, the Finance Brokers Association of Australia (FBAA) has recently called for the Australian Prudential Regulation Authority (APRA) to investigate how mortgage valuations are calculated, as it believes home buyers are being disadvantaged.

They are not alone in this regard, as I know many frustrated property investors who have had to deal with the utter chaos of receiving a report of huge variations in a valuation for the same property, sometimes by hundreds of thousands of dollars.

I’ve had a recent experience with a client whose situation looks like this:

The property
Land price: $189k
Build price: $303k
Combined price: $492k
Rent: $580 per week (yes this property makes money) 

The first valuation was completed in March 2014 and it reported that the land was valued at $137,000, and the build at $303,000.

The second valuation upon completion in November 2014 reported that the land was now worth $170,000 (an increase of 25 per cent in eight months), but the build was now only valued at $220,000.

My question, that I feel many have asked, pondered and fumed over, is how can a land valuation increase by $33,000 at the same time a build valuation drops by a staggering $83,000?

The third valuation, also in November 2014 one week apart from the last, reported that the land was worth $145,000 (dropping by $25,000 in one week) and the build was now worth a whopping $295,000 (increasing by $75,000 in one week!).

In all cases, despite the combined valuations, the replacement insurance required is $365,000 on two of the valuations and $315,000 on the $220,000 valuation.

The thing is, banks are actually willing to lend to buyers who are willing to buy, as all transactions are arms-length and based on real costs supported by bill of quantities.

I have many other similar examples where one valuer values a property at full contract price and another values the same property at $40,000 below contract price.

I’d love to know how it came to this – valuations should reflect the true value of a property as incorrect valuations can in some cases prevent buyers from being able to purchase the home they want.

It slows a property investors momentum and metaphorically speaking, robs them in broad daylight.

I fully support a review of the valuation system and from what I hear, so would the banks themselves as they actually do want to lend money, but this current system is not supporting them to do so.

Do you agree? Have you had an undesirable experience with varying valuations? Share your experience below.

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