How better property valuations can help you make millions more by retirement.
Believe it or not, property valuations can vary between lenders by an astonishing 5-25 per cent, especially if the property is being revalued for the purpose of refinancing, or to access equity. This can mean a difference of $50,000 to $250,000 for a property valued at $1,000,000, simply because of a difference of opinion between a very conservative and a more confident valuer.
Most Mortgage Brokers and property experts will know that if you were to arrange three valuations from three different lenders for the exact same property, most of the time there will be at least 5 per cent difference between valuations and sometimes up to 25 per cent or greater!
If you consider that you only require around $50,000 to invest in another property worth around $500,000, it quickly becomes apparent that learning how to influence a better valuation is extremely important. If this extra $500,000 property you invest in with the equity from a better valuation grows by only 5 per cent per annum, that is $25,000 more you could make each year, or more than $500,000 over the next 20 years.
Imagine the potential difference if you own a number of properties over many years? Learning how to get better valuations can literally help you make millions more by retirement, as well as helping you do it more safely by having access to extra equity to borrow against as a buffer.
Unfortunately, if you go directly to a lender to arrange a valuation of your properties, most of the time they will require you to submit a full loan application. This can take a lot of time and effort and start to damage your credit rating, especially if you do it across a number of lenders.
This is where a specialised investment finance mortgage broker is worth their weight in gold, as they may be able to arrange valuations on the banks behalf without having to submit a full loan application. They can also help educate you on how to encourage the valuer to legitimately value the property up to its full potential.
There are two key ways to improve a property valuation outcome.
1. Set informed expectations with the valuer
This is done by finding out what properties most similar to yours in your area have sold for and clearly pointing out how they compare to your property. Obtaining an RP Data report from your broker or advisor can also help. If you present this information to the valuer when they visit in a polite but confident way, there is a good chance it will help encourage the valuer to be less conservative and value the property according to recent comparable sales;
2. Get multiple valuations
While it is good to set informed expectations, some valuers are far more confident than others, so are not afraid of valuing a property closer to its full potential. An experienced broker or property investment advisor should know which valuers are more confident and can steer you to the lenders that use better valuers.
Despite this, you don’t know how they will value the property until it’s done, so getting at least three valuations for each property is the best way to increase your chances of a more positive result. While this may sound like hard work, it will almost certainly pay huge dividends in the long run.
Richard Sheppard is the CEO and Chief Property Wealth Planner of inSynergy
Property Wealth Advisory. Phone 1300 425 595 for a free chat with an advisor.