Bank Valuation Questions

ncjc · Feb 13, 2017 8:58 am

Hi all,

Currently in the process of getting a house built through a project builder. We have purchased the land and it registers next month.

A couple questions re: bank valuations:

1. On a construction loan at what point does the bank value the future value of the completed property?

2. If I wanted to have, for instance, ducted aircon done separately could I supply a fixed-price quote along with the tender from the builder so that this is factored into the valuation and the loan amount?

3. Do valuers for the bank generally factor in future market value for the expected time the house will be complete — 12 months out from now?

Thanks!

becjarrettdalton · Feb 13, 2017 11:20 am

HI, They value it at the approval stage with the full plans and specifications and either tender or tender and contract.

You can supply your separate quote - and you probably should- depending on how much you're borrowing as a percentage of the value of the property they may or may not include it, and if they do you then have a little juggle to play with paying the tradies - the bank won't pay them until it's installed so you have to negotiate with them.

They don't anticipate value increases - they base it on either cost price for new land + build (and cross checking this against the current sales of second hand property like yours) or the current value of homes like yours through agents locally.

ncjc · Feb 13, 2017 4:41 pm

becjarrettdalton

HI, They value it at the approval stage with the full plans and specifications and either tender or tender and contract.

You can supply your separate quote - and you probably should- depending on how much you're borrowing as a percentage of the value of the property they may or may not include it, and if they do you then have a little juggle to play with paying the tradies - the bank won't pay them until it's installed so you have to negotiate with them.

They don't anticipate value increases - they base it on either cost price for new land + build (and cross checking this against the current sales of second hand property like yours) or the current value of homes like yours through agents locally.

Thanks for the clear answer!

becjarrettdalton · Feb 13, 2017 9:29 pm

Very welcome!

plc · Feb 13, 2017 11:47 pm

Just to add to Bec's post which she nailed on the head, if the land is settling more than 6 -12 months after purchase and has increased in value in that timeframe, there are some banks who will use the land value rather than purchase price at the time of settlement (thereby giving instant equity).

Cheers,

Tom

becjarrettdalton · Feb 14, 2017 8:37 am

Yes good point Tom

ncjc · Feb 14, 2017 10:23 am

Thanks Tom. Not the case in this instance, but good to know.

Really just looking at what my options are to organise certain inclusions (air and landscaping) separately but still have this built into the loan.

Thanks.

epp · Feb 14, 2017 11:09 pm

To extend onto the OP, how do we go about asking the bank to include items that would be done post handover? I know an option was mentioned above with requesting a quote, however for things like driveways, alfresco and landscaping, would the bank generally require you to get quotes when going unconditional on the loan? I would imagine that tradies would be reluctant to give quotes on these items given that they haven't seen the final finishing levels to determine the amount required, nor want to give out a quote that won't be realised for 10 or so months while construction occurs.

Are estimates usually sufficient for banks (provided it's not absurd)?

Also, if I was to obtain a quote from X tradie, would the bank require me to use X tradie to carry out those works if their quote was used in the approval process?

Cheers,
epp

becjarrettdalton · Feb 15, 2017 10:31 am

Yes get quotes, these can be done from the plans & is quite normal and no lenders don't tie you to them.

Alternatively you can have the builder include them in the contract - plusses and minuses - the builder will add a margin and will use their preferred suppliers, but they may also benefit from volume pricing and they would also then have some obligation to warranty it.