Worried about Land Valuation

Hi everyone,

Me and my partner paid 5% deposit for a 300sqm lot with Newpark last year for 430k due registration in Aug19.
Now with the current property market we are quite worried about the land valuation coming well short under what we paid for.

We spoke to a broker and they said that we have to wait and look at market trends & hope we can get valuation same as what we paid for. Now we are also looking at builders now as well but haven't finalised.

As first home builders we do are not experts at lending/mortgages. So we are kind of not sure how the whole thing works.
If the land valuation comes under then we have to pay the shortfall & bank will do the loan for rest of it?
And we will have to pay LMI then as far as I know, can someone please advise whether the LMI amount is included in loan or we pay separate for it?

Also the building contract bit, if we start the land mortgage. Would the builder wait till the building mortgage is approved?
Most builders ask for 5% but I guess we would have to pay more as the bank cannot pay the remaining 95% towards building?

Has anyone heard of asking the developer to reduce the price as the current lots are being sold at 370k? We do not want to forfeit the deposit but I guess the developer with the getting the deposit will still have to sell the lot & be short a few.

Sorry we are new to all this so will appreciate some advice on the above.

tia
S

Hi Sarah,

Fingers crossed for a decent valuation for you.

Basically the valuation will be based upon comparable sales of 'like' properties in the area - so vacant land compared with same size vacant land, or your proposed house compared with a house with the same attributes and same (similar) land size.

If the valuation comes in low that becomes the price your percentage is calculated against - and depending on what deposit you have you hopefully you just have to borrow more as a percentage of the value.

Lenders mortgage insurance can be added to the loan up to particular points.

In regards the build, if you have the contract, plans and specifications ready to go there are lenders who can consider lending 95% + the mortgage insurance (subject to approval of course) of the valuation. Your broker will know how to guide you and when you should pay your build deposit but it might be an idea to look with your broker at whether it will be better from a valuation perspective to settle on the land first or as a construction loan with fully approved plans and contract.

Asking for a reduction... you can ask - they don't often give it. Unfortunately this is the risk of off the plan and I do feel for you.

Fingers crossed it all works out for you.

Thanks Rebecca. Hopefully the valuations is favourable. Do you know any tools available for checking valuation history in an area or we basically scour the property websites for sold prices. I know about the CBA property app.

Tricky in a new estate - otherwise onthehouse.com.au or the "sold" section of realestate.com.au to compare sold properties with like attributes in the area, sorted by most recent and referencing land size off onthehouse

Tricky in a new estate - otherwise onthehouse.com.au or the "sold" section of realestate.com.au to compare sold properties with like attributes in the area, sorted by most recent and referencing land size off onthehouse

Have to say that current lots being sold for $370,000 compared to the $430K you paid doesn't bode well for any valuation if they are of a similar size and dimensions to what you bought.

When it comes time for the valuation, it would help if you or your broker could try and find some comparable sales in the preceeding months that match what you paid, and advise that to whoever is conducting the valuation. That will show that what you paid isn't over the top.

If the valuation does come up short, then whatever that value is becomes the "price" that the lender will borrow against, and you might need to come up with more funds to meet any maximum LVR's that they allow.

Someone else had a similar situation in another thread. Keep in mind you don’t just lose your deposit if you walk away, you will also be liable for the shortfall in any price they resell it for under what you paid. IE - you paid 430, they resell for 370 after you pull out, you lose your (assumed) 10% deposit (43k) plus you may have to pay the 60k shortfall if the vendor pushes. Good luck.

that is the land I was planed to buy last year, I did some research, since the north west link will extend through Marsden park to new airport, I think this will be a good factor, and now the coalition won the election, the land value price should be picked up soon