It’s an exciting time of year and finally homeowners have something to smile about. After a few years of hearing about declining property prices, we have seen signs that prices are back on the rise and auction clearance rates are back above 80%. With the year coming to a close, we enter the final flurry in the property sector, as prospective buyers and sellers make a mad dash to close out the year.
Despite the joy of being the successful bidder as the auctioneer’s hammer falls, the leadup to this is often filled with doubt and anxiety. There is one question that always comes up in the weeks prior; Can we organise a valuation on the property before the auction?
The answer is simple. Yes, you can. It’s the details that get complicated.
This question is usually provoked by a fear of overpaying at the auction, and a belief that by undergoing a valuation prior, you can minimise risk. While this is true, it opens up other unforeseen complications. Despite the fact that having a valuation before the auction gives you a lendable figure to make credit enquiries with, the valuer is valuing the property before the day. There is no sale price for them to work towards, and they will often adopt a more conservative value than the commotion and competition of the auction might produce. So, whilst you have an estimated value to work with, it may not be very valuable.
Your valuation in action
Let’s imagine that there is an auction approaching, and you’d like to order a valuation upfront. The report comes back at $975,000. The number seems fair, and you’re thinking ‘Great. I’d be prepared to spend that on the day’. So, you turn up to the auction with your cheque book in hand, nerves of steel, and strategy in your mind on how you’re going to outsmart the other bidders.
The auctioneer starts proceedings at $850,000 and you’re feeling comfortable. $850,000 turns into $900,000 and then to $935,000. At this point your thinking great, I’ve got this, the bank has already given me approval for $975,000. You zone back into the auction and before you know it the number is at $970,000, and you’re thinking what do I do? Do I press on or call it quits?
Let’s say that the hammer falls at $1,010,000. It’s likely that if you asked for a valuation now, it would look a lot more like the purchase price.
By having a valuation before the auction, the valuer is compelled to value the property at a level which guarantees and protects a lenders position. Therefore, if this is done before auction, a valuer will more than likely be on the conservative side.
Another outcome to consider is what happens if you are successful at auction and you have bid higher than the upfront valuation. The short answer is that if the valuer won’t amend the report after seeing the sales contract with the agreed purchase price, then the shortfall will need to be covered with cash.
Can you influence the valuation and value of your property?
Simply speaking, the answer is both yes and no. You can improve the sale price of your property by ensuring all elements look their best and by making the valuer aware of any differentiating factors of your property vs surrounding suburban or apartment features. This could be land size, number of bedrooms, extra storage space or perhaps your home has size and zoning that would allow future development.
So, what do you do if you’ve fallen in love with a property and plan to go to auction? Do you get a valuation done or not?
We all prepare for an impending auction differently. The choice comes down to which option makes you more comfortable and whether you will accept unpredictability before or after the auction. Will you lock down a price with your lender or leave it to chance at the end?
Everyone can benefit from surrounding themselves with experts, doing homework on the area and comparing what similar properties have recently sold for. You can also engage an experienced lender, as they will also have valuable information when it comes to property prices and can even generate reports to help you through the process.
So, if you are buying or selling this season, good luck and enjoy some down time over the new year.
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