With property values down in parts of New Zealand, getting a property valuation right now might seem like the last thing you would want to do. But if you’re looking to buy, renovate, use your equity or make your next move, knowing what your property is actually worth could be an important part of understanding your options.
Why get a property valuation when the market is down?
When property prices fall, there can be opportunities for buyers, but there’s also a catch: the value of the property you already own may have fallen too.
That matters when you’re relying on equity to fund your next purchase. You might see another property as a bargain, only for the bank to ask where the deposit or usable equity is coming from.
So why would you get a property valuation while prices are down?
Sometimes, it comes down to needing to know where you stand before making a move. Waiting for your existing property to increase in value may improve your equity position, but the property you want to buy could increase in value at the same time.
For homeowners wanting to take advantage of opportunities in the current market, understanding the value of their existing property can help establish what is actually possible.
What actually happens when you get a property valuation?
A registered property valuation will usually be ordered online by your mortgage broker through a panel of valuers approved by the banks.
The bank needs an independent valuation because it may use that figure to determine how much equity it is prepared to lend against. You generally can’t simply choose someone you know to provide the number you want.
A registered valuation can cost around $1,200, although the exact amount can vary.
There are also different ways a valuation can be ordered. In some circumstances, it can be ordered for you personally rather than addressed directly to a bank. This means you can receive the valuation first rather than having it automatically sent to your lender.
What if the valuation comes in too low?
A valuation coming in below expectations doesn’t necessarily mean the conversation is over.
Valuers use comparable property sales and other evidence to establish what they believe the property is worth. If you believe the comparables used don’t accurately reflect your home, you can review them and provide evidence of more appropriate recent sales.
For example, some comparables may be older, further away or different in quality or specification from your property.
That doesn’t mean negotiating simply because you want a higher number. Any challenge needs to be evidence-based. If there are more relevant comparable properties that better reflect your home, these can form the basis of a discussion with the valuer.
Ultimately, the valuer has to be comfortable putting their professional name to the figure.
What if you don’t have enough equity?
For homeowners with less than 20% equity, a lower valuation can make the next move more difficult, but it doesn’t necessarily mean it’s game over.
One option is to renovate the existing property to increase its value. This could involve talking to the valuer about what the property might be worth after specific improvements have been completed.
In some circumstances, it may also be possible to borrow against the future value of the property. If spending money on renovations is expected to create a larger increase in the property’s value, that future value may help create usable equity.
The important point is that a low valuation doesn’t always leave you without options. It may simply change the strategy required to make the next move.
Moving home with less than a 20% deposit
A common misconception is that lending above 80% of a property’s value is only available to first-home buyers.
That isn’t necessarily the case. Someone moving from one owner-occupied property to another may also be able to buy with a 10% deposit.
There can be a higher interest rate associated with having less than 20% equity, although some banks have removed low-equity margins and instead use carded rates.
The goal may then be to have a plan for building equity back towards 20%, allowing you to access cheaper interest rates sooner rather than later.
This can be particularly relevant for homeowners whose circumstances have changed since they purchased their current property. They may need a larger home, a different location or access to particular school zones, but feel stuck because their existing property has fallen in value.
Do you always need a registered valuation?
Not necessarily.
If you’re looking to move home, you may be able to approach the process differently. Instead of immediately ordering a registered valuation, you could seek pre-approval for the next property based on what you believe your existing property could sell for.
A real estate agent can then give you an indication of what your home might achieve on the market.
A registered valuation is ultimately an assessment of current market value without actually testing the property on the open market. The final sale price can be different because buyers themselves determine what they’re willing to pay.
This distinction can also matter at auction. A registered valuation completed before an auction may arrive at one figure, while competitive bidding could ultimately push the sale price higher.
When might you actually need a valuation?
If you’ve completed a major renovation, are using your equity to help your children buy their first home, are separating and buying out a partner, or are selling a property to your children, a valuation may be necessary.
Related-party transactions can be particularly important. When property is changing hands within a family, an independent valuation can establish a fair market value and reduce ambiguity around whether someone paid too much or too little.
On the other hand, simply seeing an online estimate showing your property has fallen in value isn’t necessarily a reason to spend money on a registered valuation if you aren’t planning to do anything with the property.
The key question is whether you’re actually taking action.
Key takeaways
- Getting a property valuation while the market is down can still make sense if you need to understand your equity before making another move.
- A registered valuation generally costs around $1,200, although costs can vary.
- If a valuation comes in lower than expected, you may be able to challenge the comparables used, but you need evidence.
- Renovations may create additional usable equity, and in some circumstances you may be able to borrow against the property’s future value.
- Having less than a 20% deposit doesn’t automatically prevent you from buying your next owner-occupied home.
- Registered valuations aren’t always necessary, particularly if there is no transaction or action taking place.
- Independent valuations can be especially important for family and other related-party property transactions.
Next steps:
If your property value has changed and you’re wondering what that means for your next move, get in touch with the Lighthouse mortgage team to talk through your lending and equity options.
If you’d like to watch more, check out this episode below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
