But…can you rely on a property valuation?
It depends…let me explain the answer by sharing a somewhat crazy story.
A client recently purchased a property in an area I considered a sound investment. In fact, I was so confident, I bought property in the same area as well.
Strangely, the valuations for the two properties fell short of the purchase price.
To check the logic, I obtained 6 other valuations of similar properties with similar values. Licensed valuers completed all the valuations.
You’d think the valuations would be similar but they weren’t even close.
One came in at $20,500 more than the purchase price and another came in a staggering $57,500 short of the purchase price.
Same number of bedrooms and bathrooms. Same sizes. Same locations. All valuations requested for the same purpose: “for mortgage security”. The two highest and lowest valuations above came from two valuers who worked for the same prominent firm; in fact, they both worked in the same office!
What Explains the Wild Discrepancy in Valuations?
A few reasons…
- Valuations are traditionally “backward” looking: they look at historic comparable sales personally chosen by the valuer. The valuation rarely takes into account future demand or supply.
- Lenders can influence the valuation: they provide the valuation criteria. This can affect the valuation.
- With limited comparable sales in this particular area, valuers had to use personal judgement; an objective process became somewhat subjective.
- Valuers are human and, when provided with limited data, they tend to be conservative.
How This Affects You
Yes—property valuations are important but they’re just one factor when looking for properties with strong upside potential. If you’re looking to acquire a property, consider areas with:
- Strong, solid demand and supply fundamentals.
- Good employment prospects nearby.
- Good rental yield.
Check these three boxes and you’re on the way to acquiring a solid property with your SMSF.
If you have questions about SMSF property, or a valuation, Go here or call 1300 886 149. You can speak directly with an SMSF property specialist…with no obligation.
To Your Financial Future
Your Friends at SMSF Property Services Australia
P.S. Even if you’ve seen a low valuation for a property and you’re thinking, “this has great upside potential”, speak with us first. We’ll answer your questions about the property, the location, the real upside potential…and more. Go here or call 1300 886 149.