7 tips to maximise bank valuations and increase equity in your property
Renovations are great. You can spend limitless amounts on improving your property, then you go to the bank to re-value it, only to have your property come up a lot shorter than you were expecting! This is why managing the valuation can, in some cases, be the most critical part of the overall process – we have recently seen as much as $200,000 discrepancies between 2 different valuers, literally 2 days apart – so don’t sell your property short, and check out our top 7 ways to maximise bank valuations and increase your property’s equity!
What are the main points here?
- You can use lazy equity in your home for renovations, with redraw or offset accounts being a great way to accumulate funds.
- Utilising a line of credit can also help access additional cash from your home, or try to refinance your home with another bank.
- The amount of redraw or line of credit increase is going to be determined by your properties valuation. Even a 1-2% reduction in your properties price can cost you hundreds of thousands of dollars.
How do banks value properties?
Use fair market value, but this is sometimes based more on opinion than the numbers. There are a few different types of valuations the banks can complete including a desktop valuation, where the bank will use data from online portals such as RP Data and Core logic. They will overlay your properties number of bedrooms, land measurement and bathrooms to determine similar properties that have sold recently in the area and the value of your property.
There is a driveway valuation which, as the name suggests, means that valuer doesn’t go through the property, but simply drives past to get the overall impression of the property and surrounding area. They then use the data similar to the desktop valuation and determine an end value. In a flat or falling market, these valuations are usually 5-10% lower than a full valuation so be wary when using this method.
A full valuation is when the appraiser goes inside and through your property, inspecting and taking photos of every room. They will note down the measurements of the property and take into consideration the quality and types of finishes; however, their ultimate decision on the properties value remains largely driven by the data and recent sales in your suburb, so it is worth talking to some real estate agents before the valuer comes in to give them the most recent comparable sales from your suburb.
How to get more equity from bank valuations?
Getting a poor valuation on your property is the last thing you want. Here are a few tips for you to avoid this result.
- Research: The general rule of thumb with Real Estate is that researching is key! You should visit a couple different realtors in the local area and find sales of similar properties to get an approximate figure. Note: Realtors will most likely price properties slightly above what they are originally worth, giving investors the ‘best price on the day’ valuation. Some may even show sales of properties which may not be comparable. Our advice would be to visit the properties cited by the realtor and see for yourself if they are in fact similar.
- Private valuations: Banks will not accept valuations carried out by investors or appraisers who are not listed on their pre-approved panel. Speak to the lender and ask who is in their pre-approved panel of appraisers and select one that is closest to the property. Although it may not be acknowledged by the lender, investors can meet the appraiser at the property and speak with them at length to gain a better understanding and receive a fair valuation. The chances are, the lender will then use the same person to run their own valuation, and come back with an identical figure.
- Estimating the value of your property: With all lender application forms, you will have to state how much you think your property is worth. Provide a slightly higher estimate (no more than 5-10%). If you go above that, the application will most likely be ignored.
- Timing: If the current housing market is on a decrease, there is a high chance the value of properties will be less than appealing. For investors who are looking to use the equity from other properties to purchase a new one, wait until the property appreciates in value before getting a valuation.
- Types of valuation: Newly renovated properties will gain a more favourable valuation with a full valuation as oppose to an outside valuation. But if your property has poor interior, it would benefit from an outside valuation. Note: Investors can potentially influence which type of valuation their property receives. E.g. opting for a loan of 80% with mortgage insurance will guarantee the bank will perform a full valuation. Investors can later reduce the amount borrowed after valuation has taken place. We suggest asking the bank if they can provide a full valuation first before going down this road.
- Challenging valuations: If you feel the valuation that was conducted on your property is unjust, you can appeal as long as you have supporting evidence. The evidence can include comparable sales that happened recently which may have been overlooked by the appraiser. Without any supporting evidence, the case won’t go very far. Another option is to ask the lender to run a second valuation of the property (usually at the expense of the investors), though they may not always agree to this.
- Changing lenders: If you’ve applied all these tips and you’re still managing to get poor valuations, change lenders and try again!
Should property owners take bank valuations seriously?
It shouldn’t come as a shock that lenders will almost always provide conservative valuations – after all, it’s in their best interests. In our expert opinion and experience, if a bank values the property lower than the original purchase price, make sure you are provided with some sort of supporting evidence. With the access that Australia currently has to properties, investors should never risk overpaying. From our own experiences, it’s very rare that we see a bank valuation come in lower than the asking price, and when it does, we suggest that you are very cautious.
Red & Co’s finance brokers are all individual product specialists, that deeply understand each individual banks policies and procedures – the banks have different appetites for credit at different times in the year, so it pays to get a second opinion and chat to a Red & Co. finance broker to improve your chance of getting finance easily and avoid getting your loan application declined. Contact our team today on 1300 88 73 28 or use our contact page here.