Should I pay for a valuation before buying at auction?
If you are wanting to bid at auction and your preapproval is subject to a registered valuation, you would need to decide if you should get a registered valuation before the auction or not. This is an independent inspection from a Registered Valuer to confirm the market value of the property for the bank. This is at your cost, generally this could be around $750 - $950 for a valuation in Auckland, for an average home.
There are pros and cons to getting the valuation prior to the auction…
- You get an independent professional to give guidance to the value of the home in advance.
- You know with certainty what value the bank will use on the property. The bank will always use the lower of the purchase price or the valuation when working out the loan to value ratio.
- You incur the cost of the valuation even if you don’t buy the property at auction.
- Valuers can be conservative. I’ve seen instances where a valuation done in advance was less than the sale price at auction.
- Valuations tend to come in at the purchase price. So if you were to have the valuation done after auction it would likely be at the purchase price.
- If you were to get the valuation done after the purchase you run the risk that the valuation is done for less than the purchase price. This means that the bank would be lending on the lower value. This can create a shortfall that you might have to make up, if this happened. For example, if you purchased at $850,000 then you would need a loan of $680,000 (80%). If the valuation was then done at say $800,000, the bank would lend max $640,000 at 80%, meaning there is a $40,000 shortfall for you to come up with. THIS IS THE BIGGEST RISK if this was to happen.
If you decide not to get the valuation done until after the auction, then you are accepting the risk that the valuer could value the property for lower than what you have paid at auction.
A registered valuation must be completed by a bank approved panel valuer, therefore it is important that I order the valuation on your behalf.