In this video I’m going to show you why it’s important to settle your land and build all at once if you are constructing or building a brand new home.
In fact, buying land then building months later is a huge mistake, today I’ll show you how doing this cost one of our customers $10,000 and what you can do to avoid making the same mistake.
00:00 5 Reasons why you SHOULD NOT buy land then build later in 2022 00:33 What we are seeing this year? 02:26 Real Life Case Studies 04:33 You need to Focus on the Builder 06:03 Speak with the vendor 07:36 The Process which will get your home built
1 - What are we seeing? Bank valuations are erratic at the best of times.
Construction valuations have more risk for the banks - and their valuers - so an as if complete valuation - that’s the type you get when you”re building a home that hasn’t yet been built - is falling short, consistently.
This means new home buildings are being valued lower than it costs to build them by the bank valuers and because of this would mean you’d need a substantially larger deposit... or worse, your application declined.
Let’s take a look at a few recent examples.
So here we have two different valuations. Off the bat you can see that there’s a $37,000 difference with the biggest being in what the valuers believe the land to be worth, one saying $405,000 the other $370,000.
When buying in a new development, the valuer relies on recent sales. Unfortunately they’re unable to use the sales in the same development as evidence. As the valuation is done based on recent sales close by and of a similar size. With vacant land being so scarce is a common reason why they fall short.
A different problem, in this we see the valuer’s differ in opinion as to what the actual building is worth. One believes it to be worth $271,000 and the other $286,000.
So whilst land value may not be an issue, the building potentially could be.
And when it’s not the land, nor building it can be the landscaping! We’re also seeing valuers reduce valuations when your builder hasn’t included miscellaneous items such as air-conditioning, curtains and fencing!
In this specific example without these items the valuer reduced the valuation by $25,000 as believed the property was ‘incomplete’.
Half the trouble is that there’s no science in completing a valuation, it's more of an opinion, a person's best guess.
But stick around as we’ll uncover what you can do to avoid short falls, so keep watching
2 Case Study Earlier this year I met with a couple who were looking for help with finance.
At that time they were still shopping around builders but had bought a block of land and needed it to settle by the end of July. Helping them with the land everything went to plan and without a hitch.
Fast forward two months and we were ready to build. The first thing we did was to arrange a bank valuation and were relieved in getting the same firm who valued the land.
Previously this firm had valued the land at the purchase price. Which gave us a lot of confidence that we wouldn’t experience any difficulties.
But this would be short lived.
Upon completion the valuer had under valued the property $20,000. But this wasn’t for the build, they had devalued the land. This was from the very firm who had two months earlier valued the block of land at purchase price and now reduced this to by $20,000. That’s all in the space of two months!!
Having picked up on this discrepancy we immediately challenged the validity of this. We evidenced the original valuation given two months prior and noted the subsequent reduction of the land by $20,000. The market hadn’t changed nor the valuer so why the short fall?
Whilst the valuer admitted fault, and amended the valuation they still stood behind their overall valuation of the property. So in the end just moved the short fall from the land to the build. Even though we took this all the way to the top, the valuation stood and our customers had to wear the $20,000 short fall, which was no fault of their own.
Let this be a lesson, for once a valuation is completed, even if the valuer is unequivocally wrong, know the ship has sailed and to change this, is as rare as hen's teeth.
For this customer it meant, we needed to switch banks. Ultimately costing them close to $10,000 in both non refundable mortgage insurance and switching fees.
