Browse Forums Building A New House 1 Oct 26, 2022 8:41 am Hi All, My wife and I have been on quite the journey and since we cancelled our Metricon contract, we've gone with a custom home builder to get a better personal experience. We're at the stages where we're getting bank valuations for the loan and I was quite surprised to see the valuators undervaluing our build quite a bit, so much so that we're asked to get second opinions. We've gotten 4 valuations done and all came in under and our mortgage broker has said these valuators go off a standard metric and don't take into account the details and inclusions custom home builders deliver. I wanted to ask here, for those who have done a custom build and gotten a loan, did you see the banks undervalue the build costs, or were you seeing a closeness to the build cost? With the interest rates skyrocketing, our future mortgage has gone up significantly and I think I want to get a second and/or third opinion. With all the said, I'm very happy with the builder and the process, and I did ask him if he could revisit his pricing but he declined, so now I want to see how others are experiencing this. Thanks all and appreciate you taking the time to read! Re: Custom builds vs bank valuations - Your experience? 2Oct 26, 2022 9:01 am Hey TimLavelle Welcome to the forum The only thing that came out of last nights budget is housing prices are tipped to drop 20%+ over the next couple of years. it should be clear that the banks are unwilling to start repossessing half complete/unfinished homes in an economic downturn. I would be waiting for economic, supply and price certainty before you sign up. When the prices drop, join the queue for the 1 million affordable houses promised? (humour) 'Aspirational' target of 1 million affordable rental homes unveiled in federal budget. Here's what the plan looks like Cheers Chris Designer,Engineer (Civil,Const & Envir),Builder,Concrete & Masonry Contract.Struct Repairs Re: Custom builds vs bank valuations - Your experience? 3Oct 26, 2022 9:08 am We didn't receive the actual valuations from our bank, just confirmation that we were within the parameters, so I can't comment on that aspect. However, what I think is happening is there is a time lag between rising construction costs and decreasing purchasing power (interest rates) hitting completed home prices. Building is still going up, but completed homes (many of which were built at lower prices) are coming down. Not a great time to be building for sale I guess; but if you can service the loan and intend to live there, that should not be an issue. Re: Custom builds vs bank valuations - Your experience? 4Oct 26, 2022 9:20 am Thanks both... we intend to live in this for at least 10 years once built, so it's definitely not a build and sale, but I am concerned that with the interest rates and how it's already added quite a lot than we were originally estimating for. Is it serviceable, yes but am looking to see if the norm is for valuators to always undervalue custom homes vs project homes. Thanks again! Re: Custom builds vs bank valuations - Your experience? 5Oct 26, 2022 9:22 am If you've got the money and can find a fair and reasonably priced builder, then next year would be a great time to build. But you'll need access to build data on your own design.. then monitor key build indicators and move quickly Designer,Engineer (Civil,Const & Envir),Builder,Concrete & Masonry Contract.Struct Repairs Re: Custom builds vs bank valuations - Your experience? 6Oct 26, 2022 9:34 am StructuralBIMGuy If you've got the money and can find a fair and reasonably priced builder, then next year would be a great time to build. But you'll need access to build data on your own design.. then monitor key build indicators and move quickly Thanks StructuralBIMGuy - When we think about next year, are we saying second half, once the rates have settled and inflation has come down? (I'm starting to consider this anyway) Re: Custom builds vs bank valuations - Your experience? 7Oct 26, 2022 10:30 am timlavelle yes but am looking to see if the norm is for valuators to always undervalue custom homes vs project homes. we haven't seen this to be the case with our build. they definitely take into account the quality of finish/inclusions, but there might be some specific items that don't add as much to the house value as they cost. Re: Custom builds vs bank valuations - Your experience? 8Oct 27, 2022 9:42 am timlavelle Hi All, My wife and I have been on quite the journey and since we cancelled our Metricon contract, we've gone with a custom home builder to get a better personal experience. We're at the stages where we're getting bank valuations for the loan and I was quite surprised to see the valuators undervaluing our build quite a bit, so much so that we're asked to get second opinions. We've gotten 4 valuations done and all came in under and our mortgage broker has said these valuators go off a standard metric and don't take into account the details and inclusions custom home builders deliver. I wanted to ask here, for those who have done a custom build and gotten a loan, did you see the banks undervalue the build costs, or were you seeing a closeness to the build cost? With the interest rates skyrocketing, our future mortgage has gone up significantly and I think I want to get a second and/or third opinion. With all the said, I'm very happy with the builder and the process, and I did ask him if he could revisit his pricing but he declined, so now I want to see how others are experiencing this. Thanks all and appreciate you taking the time to read! is a common issue and actually stems from a person’s misunderstanding of the valuation process/methodology and purpose. Many owners also have an inflated view of what their build is worth because of what they’re paying for it. What do you think is more likely; a valuer who has valued tens of thousands of homes and has been doing it for years is wrong and all the second opinions are also wrong, or that you’re wrong, and your house is not worth what you think it is? Value of a home is not really the cost of the build or contract, it is what it can be on-sold for in the market that it occupies. I.e. a mansion in a low socio economic area is effectively worthless as the likelihood of someone buying it is exceptionally low. The main reason a bank gets a valuation is to make sure that the money they lend you is covered in the event they need to foreclose on your house in a worst-case scenario. Your fundamentals (income/expenses, debt to income ratio, the fact you plan on residing there for a long term etc.) may be excellent but should something unexpected happen that leaves the bank holding the bag, they need to know that they can recover what they lent you in a reasonable time frame (usually inside of a month or two. The longer the bank holds a property trying to recoup costs above the market starts resulting in a loss for the bank. Banks, in aggregate, don’t lose. They know what they are doing. Often what happens is people simply overcapitalise on a build. The fact that the home has all these amazing things in it that in your eyes increases the value beyond what the valuer has valued, just doesn’t matter. For example, you may build a custom home for 1.5M, but if the average price of the houses in the area of similar size and quality are selling for 1M, the fact that you have nicer finishes or a spa, marble floors or a grand alfresco doesn’t mean squat. The market dictates that the majority of the homes in the area of similar size and quality have been selling for 1M with X days on market. Now “quality” is a bit subjective and isn’t based purely on features, architectural elements or finishes. It relates to connections, amenities close by, noise levels, school zones etc., whether your eon a main road, how far to the main road etc. Finishes or features can be changed, added, removed etc. So, say you install a 10k Japanese toilet that washes your butt for you, doesn’t mean your home is 10k more valuable on market. There is a possibility that someone may absolutely fall in love with it and pay the 1.5M the bank needs to recover, but statistically the chances are low because the people buying in specific ranges generally don’t expand their searches to areas that are too far from their budget, and those looking in the area are usually driven by a budget that reflects the majority of that area. So your outlier of a home won’t get the traffic so to speak, to make a sale. There are lots of amazing homes on the market that sit there for years, not because the asking price is too high, but the price doesn’t reflect the local market. There is also the aspect of what you’re being charged may be well beyond what is normal for what you are getting. The fact that you don’t think so, doesn’t make it true. Valuers have an exceptional data set to refer to and will know if you’re over-paying, if if you don’t think you are or think it can be justified. A valuer can’t really objectively qualify the quality of a finish on say a hypothetical yet to be built outdoor entertaining area that a builder is charging 250k for, but they can compare it to the 100’s that they have valued in the last couple of months that have come in at 100k for similar materials, size etc. So a delay between material costs/build really have nothing to do with it either. They see the movements in material costs daily and build in buffers when making assessments. So now you’ve got the issue of what to do. Your options are stump up more capital, scale back your build, negotiate a better price with your builder (this is possible, my builder tried to sell me a 15k aircon unit for 32k, we got it down to 19k you just have to do some legwork and prove why the charge is unreasonable), or provide more assets as security to the bank (e.g. Cross collateralise - secure against additional equity in an existing investment/ personal property). This last scenario is exactly what I did, but recognise that is not an option for many people and introduces other risks – I.e. I can’t sell the other home until the value of the new one increases pas a certain point. It also means if something happens and I can’t pay, both houses may be disposed of b the bank to recoup funds. In any case, just remember this is nothing to do with you, your intentions or your ability to pay over the term, it’s just a numbers game. If the key risks don’t stack up in the banks favour, they won’t take the risk. Sometimes its lineball and can be worked through, often the variation is so exceptionally large that you won’t get what you want without more skin in the game from yourself. Good luck with it, hope this has been insightful. Dark matter scientist, can breathe underwater, mind reader and can freeze matter just by willing it. Trust me, its in my sig. Re: Custom builds vs bank valuations - Your experience? 9Oct 28, 2022 4:06 am timlavelle Hi All, My wife and I have been on quite the journey and since we cancelled our Metricon contract, we've gone with a custom home builder to get a better personal experience. We're at the stages where we're getting bank valuations for the loan and I was quite surprised to see the valuators undervaluing our build quite a bit, so much so that we're asked to get second opinions. We've gotten 4 valuations done and all came in under and our mortgage broker has said these valuators go off a standard metric and don't take into account the details and inclusions custom home builders deliver. I wanted to ask here, for those who have done a custom build and gotten a loan, did you see the banks undervalue the build costs, or were you seeing a closeness to the build cost? With the interest rates skyrocketing, our future mortgage has gone up significantly and I think I want to get a second and/or third opinion. With all the said, I'm very happy with the builder and the process, and I did ask him if he could revisit his pricing but he declined, so now I want to see how others are experiencing this. Thanks all and appreciate you taking the time to read! Morning Tim & Everyone else, What I have noticed in the past couple of months with a few of our clients is that the banks are pushing back on their LVR's and starting to scrutinise progress payment schedules more. For instance, as we do the demolition for our clients we normally have a demolition stage payment which covers the demolition and pool shell. In this example the contract value is $1.3m and the demo stage is $65,000, and yesterday the client's bank was outright refusing that. Not a problem as we will increase the slab payment stage ( just means we carry the costs for a little longer), it is just that I have never seen this before. My guess Tim, is that the area you are in has probably been downgraded by the banks in terms of outlook for land values and that they are trying to to stop people over capitalising. In our area, prices are still holding up. St Ives and Turramurra there have been a number of $6m plus sales recently, North Ryde good duplexes are still going for the $2.5m mark but there is a story every day in the papers about prices dropping by 20%. I have sent you an email. Call me and I will take a look at your pricing to make sure it is on point. Cheers Simeon Architectural Homes & Duplexes - specialising in custom designing homes to your budget Get a Free Onsite Consultation Today or send a PM for information, questions or advice. Re: Custom builds vs bank valuations - Your experience? 10Mar 11, 2023 2:21 pm I have been working for three years on the design and planning process for a custom new build (mainly the timeframe is due to all the specialists being so, so busy). I have designed a very basic, 2-bed house, all Bunnings fixtures, nothing fancy at all. And yet the bank has just come back with a build valuation which is more than $250,000 below my builder's quote - for a basic 2-bed house! I'm pretty devastated because I'm probably unable to find another valuation that will plug that scale of gap, which means the whole build is suddenly no longer feasible. Has anyone else experienced this? I think its worse in Tas where builders and other building trades are in such short supply they are all putting their prices sky high. Even the big box builders can't build in Tas for what the bank is valuing at. Re: Custom builds vs bank valuations - Your experience? 13Mar 12, 2023 9:18 am Budapest Also for ours we had final valuation completed last month. Ours was also custom. The improved value wasn't as much as we spent, it was down by about 75k/14%. were there any consequences out of that, or is it pretty much an amusement point at that stage? Re: Custom builds vs bank valuations - Your experience? 14Mar 12, 2023 12:12 pm Nah no drama with ours. It was just to confirm final LVR for a better rate. The overall value was higher than we expected, land value was really high, so I take it all with a pinch of salt. Re: Custom builds vs bank valuations - Your experience? 15Mar 13, 2023 6:32 pm Budapest What has the builder quoted per square metre vs the bank? Have you gotten another builders quote? I haven't gotten another builder's quote because there's a two year waiting period for builders in Tasmania. My current builder is a friend who is doing this job as a favour and he's not overcharging at all. There's no builder who is going to give me a quote for a 2-bed house that's $250k cheaper. I'm really at a point where custom design just isn't an option. The only way to get a construction loan at this point is to swap my custom design for a low-spec, off the shelf housing product. Re: Custom builds vs bank valuations - Your experience? 17Mar 14, 2023 11:29 am strannik have you asked which specific items cause lower valuation? maybe you can just ditch those and do them later? that's not how valuation works. Read the post Noname made further up, thats how the whole thing works. In short or the TLDR version - valuation is based on comparisons to houses that have actually sold in the immediate area. Blocks size, size of home, number of bedrooms, age of building, access to amenities, environmental detractors etc. What you put into a house is of *almost* no relevance to the valuation. Removing things wont swing the valuation in any meanngfull way other than by reducing the overall cost of the build price bringing it closer to the market value. Re: Custom builds vs bank valuations - Your experience? 18Mar 14, 2023 11:56 am ponzutwo strannik have you asked which specific items cause lower valuation? maybe you can just ditch those and do them later? that's not how valuation works. Read the post Noname made further up, thats how the whole thing works. In short or the TLDR version - valuation is based on comparisons to houses that have actually sold in the immediate area. Blocks size, size of home, number of bedrooms, age of building, access to amenities, environmental detractors etc. What you put into a house is of *almost* no relevance to the valuation. Removing things wont swing the valuation in any meanngfull way other than by reducing the overall cost of the build price bringing it closer to the market value. i think you misunderstood the post from Noname. as far as i know quality of finish matters too. i find it hard to believe that the run off the mill project builder's house with standard inclusions/selections will be valued the same as a quality house with a similar floor plan/block size but high quality finish/appliances. sure, you're not going to get 100% of the difference in price, but they aren't going to be the same. there is a reason some valuers actually go inside the house and look at it when making a valuation, and don't just look at the plans. but i wasn't even talking about that. i was talking about features that may cost a lot but not add anything to valuation. like a swimming pool or a spa, or a fireplace, or fancy skylights. or the 10k Japenese toilet he mentioned. and yes the whole point isn't to change the valuation, it's to remove stuff that you still have to pay for, but that doesn't contribute to valuation being higher. and then do it later when you have money if you still want it. Re: Custom builds vs bank valuations - Your experience? 19Mar 14, 2023 11:59 am strannik ponzutwo strannik have you asked which specific items cause lower valuation? maybe you can just ditch those and do them later? that's not how valuation works. Read the post Noname made further up, thats how the whole thing works. In short or the TLDR version - valuation is based on comparisons to houses that have actually sold in the immediate area. Blocks size, size of home, number of bedrooms, age of building, access to amenities, environmental detractors etc. What you put into a house is of *almost* no relevance to the valuation. Removing things wont swing the valuation in any meanngfull way other than by reducing the overall cost of the build price bringing it closer to the market value. as far as i know quality of finish matters too. i find it hard to believe that the run off the mill project builder's house with standard inclusions/selections will be valued the same as a quality house with a similar floor plan/block size but high quality finish/appliances. sure, you're not going to get 100% of the difference in price, but they aren't going to be the same. there is a reason some valuers actually go inside the house and look at it when making a valuation, and don't just look at the plans. but i wasn't even talking about that. i was talking about features that may cost a lot but not add anything to valuation. like a swimming pool or a spa, or a fireplace, or fancy skylights. and yes the whole point isn't to change the valuation, it's to remove stuff that you still have to pay for, but that doesn't contribute to valuation being higher. and then do it later when you have money if you still want it. It matters *somewhat* but only where there are comparable sales, ie homes with a similar level of finish that have recently sold in the area. If there are no comparable sales, the finishes don't mean squat. Like I said there are more important factors that drive a homes market value. Eg. If you put marble everything in and your house, costs 1M more to build than the next house in the locality, it doesn't mean it's worth 1M more. Supply and demand. People aren't looking for 1.5m dollar houses in suburbs where the median price is 500k. MaKe sense? Re: Custom builds vs bank valuations - Your experience? 20Mar 14, 2023 12:01 pm ponzutwo strannik as far as i know quality of finish matters too. i find it hard to believe that the run off the mill project builder's house with standard inclusions/selections will be valued the same as a quality house with a similar floor plan/block size but high quality finish/appliances. sure, you're not going to get 100% of the difference in price, but they aren't going to be the same. there is a reason some valuers actually go inside the house and look at it when making a valuation, and don't just look at the plans. but i wasn't even talking about that. i was talking about features that may cost a lot but not add anything to valuation. like a swimming pool or a spa, or a fireplace, or fancy skylights. and yes the whole point isn't to change the valuation, it's to remove stuff that you still have to pay for, but that doesn't contribute to valuation being higher. and then do it later when you have money if you still want it. It matters *somewhat* but only where there are comparable sales, ie himes with a similar level of finish that have recently sold in the area. If there are no comparable sales, the finishes don't mean squat. Like I said there are more important factors that drive a homes market value. i'm not talking about driving the home value up, i'm talking about driving the construction cost down. but doing it in a meaningful way, so instead of removing something that has virtually no bearing on the valuation, remove the items that don't add anything to it. Hi, We are looking for a builder that can build a small home (smaller length) on a sloping site. We came across Mojo's Zephyr design 10.6 m wide and 11.5 m length. Does… 0 23041 How much are you ahead in payments compared to where the build is at? Have you fully drawn down the loan? 5 12099 I apologise for any confusion, but your understanding is correct. We approached our situation differently based on advice from… 11 53837 |