Bank valuations are a complete mystery to many home buyers. In fact, we’re willing to bet you didn’t even know what they were; you’re only now Googling them to find out why your loan is lower from one bank than another. Here’s how it works:
What is the bank valuation?
When you want to take out a home loan, the bank will engage someone to check out the house, and conduct a valuation*. This can result in a different number from, say, getting a property agent to look over your house and give you a ballpark figure.
Most of the valuers will come from the Singapore Institute of Surveyors and Valuers (SISV), and you may be asked to pay for the valuation yourself – this often falls in the range of $500 to $700.
(*Unless the property is still under development. In these cases, the bank will usually accept the developer’s price as a fair valuation. )
This valuation process has three significant effects on your property purchase:
- It will affect the loan quantum
- Higher valuations mean more taxes
- It could be cause to re-evaluate your decision
1. It can affect the loan quantum
The Loan to Value (LTV) ratio determines the maximum amount you can borrow, when buying a house. The key thing to remember is that the lower the property valuation, the less you can borrow to buy it.
Under normal circumstances, the maximum LTV is 75 per cent. This means you can borrow up to 75 per cent of the property price or valuation, whichever is lower. For example:
Say the seller’s price is $1.7 million, whereas the valuation places the property at $1.68 million. Your maximum loan quantum is 75 per cent of $1.68 million, or $1.26 million. This leaves you with a much larger down-payment of ($1.7 million – $1.26 million) = $440,000, versus just $425,000 (75 per cent of $1.7 million).
For this reason, some property buyers will seek a higher valuation; especially if the asking price is greatly in excess of the actual valuation.
2. Higher valuations mean more taxes
Taxes such as the Buyers Stamp Duty (BSD) or Additional Buyers Stamp Duty (ABSD) are applied to the higher of a property price or valuation. For example, if you purchase a property for $1.5 million, but the valuation is $1.55 million, you would pay BSD on $1.55 million (approx. $46,600).
For this reason, some buyers don’t want a high valuation on their property.
3. It could be cause to re-evaluate your decision
The actual valuation can differ quite a lot from what a property agent claims. After conducting a valuation, you may find the property is worth less or more than expected. This is why seasoned property investors often hire valuation companies of their own accord, even before the bank asks for it.
What can you do if you’re not happy with the valuation?
Each valuation expert has their own process for valuing properties. For example, one valuation firm may rate the freehold nature of a property much higher than another; another firm may consider bottom and top floor units more valuable than mid-floor units. Consulting five valuation firms can result in five different valuations.
This means that, if you don’t get a valuation you’re happy with, you can use different companies (or approach different banks), until you arrive at a valuation you’re comfortable with.
There’s no guarantee, however, that using another valuer will give you the results you desire. You may need to talk to several banks or valuation firms, before finally settling on a number you’re happy with.
Use a mortgage broker to help you find different valuations
Loan comparison sites often have mortgage brokers, who help you to apply for your home loan. But these brokers can also call many banks at once, and get multiple valuations – this is much faster than manually obtaining valuations from different banks.
(It may also save you a lot of money, if you have to pay for the valuations yourself).
Would you want a higher or lower valuation for your property? Voice your thoughts in our comments section or on our Facebook community page.
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