A disappointing property valuation can have grave consequences. As the report serves as definitive proof of the subject property’s value, it can put a significant dent in forthcoming plans for home and business owners alike.
If a property valuation comes in less than you expected or paid for a property, you’ll need to know what to do.
An independent valuation in South Australia is a report prepared by a highly qualified professional. These experts are registered with the Australian Property Institute (API); a board overseeing thousands of property professionals in the country.
A valuation report from a qualified valuer is seen as a certified document in the eyes of the law. The reports are considered official proof of the fair market value. As such, the last thing you want is for the final amount to be significantly less than you were hoping for.
A low property valuation can have severe implications on loan applications, sale negotiations, settlement negotiations, and more. If a property valuation comes back as less than you were hoping for, you may have to rethink a few things.
The best way to escape a low valuation is to understand the process behind analysing property. With that, you can do your best to avoid a disappointing final figure being attached to your home or business.
What happens when a house valuation is under the purchase price?
If you’re not careful, you may find yourself dealing with a low valuation. This means that the valuation shows an amount less than what has been paid for or estimated for a property.
This can be significantly detrimental to property owners. A few of the potential consequences include:
- Decreased borrowing capacity: A financial lender will likely base its loan approval on the valuation rather than the purchase price. Buyers are often left with a shortfall in these cases as the lender is unwilling to assist.
- Selling difficulty: Sellers may not be able to secure the value they were hoping for and ultimately have to compromise on the price point.
- Lower return on investment: A low valuation can lead to lower rental income, decreased capital gain or potential loss, and ultimately impact your financial position.
So what can you do when your valuation has come in too low? Consider these steps:
- Check for potential errors: If you notice any mistakes or miscalculations in the valuation report, be sure to contact the valuer immediately to request a re-assessment.
- Find an alternative lender: If you can find a lender willing to offer a more comprehensive loan package, the shortfall may be reduced.
- Wait out the market: In cases where the market is suffering, it may be best to wait it out and request a new valuation when things are looking better.
- Make improvements to boost the value: Any obvious improvements you can make such as tending to repairs or modernising the kitchen and bathroom may lead to an increased valuation.
How often do valuations come in low?
The outcome of a residential or commercial valuation is dependent on the property itself and each report is prepared on a case-by-case basis. As the reports are prepared from an entirely objective point of view, the results are entirely in accordance with the state of the property and market.
The frequency of low valuations isn’t really something you can pinpoint. But there are a few things that will increase the likelihood of a low valuation, such as:
An undesirable location
A property in an undesirable area will instantly have its value reduced. Places with high crime, high unemployment, a lack of public transport, and unpredictable surrounding infrastructure are all off-putting for investors. Houses in an isolated area far away from facilities such as schools and hospitals may also be valued at less.
A deteriorating building condition
The age and condition of the building have a large influence on a property’s value. If it’s clear that the materials are old or damaged, the worth of the property likely to be reduced. The significance of good property maintenance should therefore never be underestimated.
A badly designed house
The interior and exterior design of a house is crucial when it comes to value. If the inside of the house does not maximise the space, and the outside does not look appealing, a low valuation is possible.
A failing market
The housing market never stays exactly the same. This means that valuers have to constantly stay up to date with the existing conditions when preparing reports. As such, if the overall market is suffering, a valuation is likely to be less valuable than usual.
What happens if property valuation is higher than the purchase price?
If you’ve recently had an offer accepted for the purchase of a house, and an independent valuation indicates that the purchase price is lower than the market value, you need not worry. Instead, you should be happy that you’re getting a property for a cheaper price.
An independent valuation does not mean that a property must be sold at that price. The valuation is merely an indication of the fair market value. There are other factors that can influence a property’s price such as:
- The offers that have already been made
- The urgency to sell
- The financial position of the seller
As far as loan applications go, banks will generally only be concerned if the valuation was lower than the purchase price.
You are also under no obligation to inform a seller of the true market value if an offer has already been accepted and they have made no such request. A seller who is truly concerned with the existing value would have purchased a valuation themselves.
What if a property valuation is not accurate?
As independent property valuations are prepared by highly qualified professionals, the chances of inaccuracy are minimal. Registered valuers have been trained to consider hundreds of factors when preparing valuation reports. But mistakes can happen.
If you believe that your valuation report is inaccurate, your first move should be to contact the valuer to request a detailed explanation of the final figure. A qualified valuer explaining the process may provide you with the clarity you are seeking.
If you are still of the opinion that your report is not representative of the property’s true value, there are steps you can take. Government agencies exist in each state to which you can submit a written formal objection.
A complaint should only be lodged if you have enough reason to believe that the attached worth is inaccurate.
In conclusion
Valuations can be a great help to many, but there are situations where the report shows a lower amount than you were expecting. This makes it important to understand what can negatively impact your property’s value.
A low valuation is more likely to occur in cases where owners don’t understand how a property’s worth is determined. Location, design, maintenance, and market conditions all directly impact the market price of a home.
If you believe a valuation of your property is inaccurate, there are steps you can take to lodge a complaint. First, make sure you speak to your valuer to request an explanation of the attached figure.
For more information on independent property valuations, speak to one of our experts. We’re more than happy to assist.