Nothing is more frustrating than finding the home of your dreams at a price you can afford, only to discover that the bank is unwilling to grant a bond because they don't agree with the valuation of the property.
In these situations, banks will often insist that the buyer puts down a higher deposit (if the value is not significantly lower than the asking price) or insist that the buyer repair any faults that are lowering the value – things that could well sound the death knell for the deal.
Mike van Alphen, national manager of Rawson Finance, the group's bond origination division, says that while today's buyer has a better understanding of how the banks' loan criteria work, they are often surprised by the valuation procedures – and the figures at which the banks arrive.
“Although it is generally accepted that bank valuers are very carefully trained and work to internationally accredited criteria, this does not mean that they will all come up with the same valuation. Nor does it mean that they will agree with the valuations of highly professional estate agents who have many years experience in that particular market.”
Herein lies the rub
The important point to grasp about bank valuations, says van Alphen, is that their aim is to assess whether the property is worth the price being paid so that should the borrower default on his bond payments, the bank will be able to recover the full amount outstanding by selling the home.
He says that in order to arrive at an accurate valuation, the bank valuer will probably do a comparative market analysis. In this he will compare the home price with that of similar properties recently sold in the area.
However, this is where the seller can run into trouble as when doing the valuation the bank may ignore certain undefinable assets such as a magnificent view or close proximity to a certain school. Such valuations may also ignore the highly relevant fact that the home has been very carefully maintained and is in mint condition while those ‘similar homes’ with which they are being compared may have been in poor condition.
“Often the similar homes will have had serious defects which the valuer will recognise but will insist, by means of a cash retention clause, be fixed before the bond is registered. To the enquiring buyer, however, such defects may completely rule out the property or will, in his view, give it a far lower value.”
Fixing the faults
He points out that buyers who are frustrated by a low bank value will often remind the banks that the insurance value is far higher than their valuers. This however is unlikely to impress the banks because they will in turn point out that the insurance value is probably based on the replacement cost, which is often higher than the current market value.
Where a bank supposedly undervalues a home, adds van Alphen, it may be possible for the bond originator to get them to change their minds by quoting his own and the agent’s comparative market analysis.
Alternatively, a bond originator and an agent working together may be able to persuade the seller to put right those defects which, in the bank’s view, are lowering the home’s value. "This tactic has resulted in many a bond eventually being granted and the sale taking place," says van Alphen.
“The important point for the bond applicant to note is that he must not give up. We as bond originators do all we can to keep negotiations open and to reach a solution that will be satisfactory to the bank, the seller, and the buyer. Because we work in a sophisticated, rational society, bond originators are able to time and again to help in these matters and this is one of the reasons why we are popular with the public today.”