Valuation directly affects your property loan amount

By Joyce Teo, Property Correspondent - Feb 4, 2007

The Sunday Times

INDICATIVE valuation sounds like a bit of a mouthful, and it is not often at the top of a person's mind when looking to buy a home. Yet, it is crucial in determining how much a bank can lend.

If the sale price exceeds the valuation - which is determined by an independent professional - the buyer will have to make up the shortfall.

This is because banks can only grant up to 90 per cent of the purchase price or valuation, whichever is lower.

Take the case of a potential investor who cancelled a deal to buy a high-floor unit at the posh The Sail @ Marina Bay late last year, before the launch of the record-breaking Marina Bay Residences nearby.

That was because it was priced way above valuation.

'The seller wanted $1,800 per sq ft (psf). However, the banks were only able to support $1,700 psf,' the investor said.

'The banks have the resources to make an informed decision. They will give a balanced view against the airy views of agents.'

If the investor had opted to take out a loan, he would have had to cover the $100 psf shortfall in cash.

The best way to avoid the problem is to get an indicative valuation before committing to buy. This is a basic, independent assessment of what the property is worth; it does not involve a detailed site inspection.

'Banks would be able to help customers obtain an indicative valuation from the valuers,' said Mr Koh Kar Siong, the managing director for secured loans at DBS Bank's consumer banking group.

Banks have their own panel of valuation companies, but you will need to provide some details.

These include the property type, land and built-in area, whether it's freehold or leasehold, and renovation work, if any, and its cost, said Ms Low Kin Hon, the executive director of Knight Frank's valuation department.

'Banks do not perform the valuation, but there is still a lot of misconception that it is done by banks,' said Mr Koh.

If the buyer accepts the bank's loan offer, the bank will then appoint a valuer from its panel to carry out a formal assessment.

This requires the valuer to visit the property and make a detailed report.

Ms Low said that valuers typically take about two weeks to complete the assessment. The report will be sent to the buyer's lawyer and to the bank.

The bank's offer is subject to the formal valuation confirming the indicative valuation, said Mr Koh.

If there is a considerable difference between the two, the loan level might be adjusted.

When it comes to valuing a residential property, valuers typically first consider the current value of comparable projects in the area.

They will then take into account the property's location, size, layout, age and condition, including renovation details and cost, if any.

The property's orientation - such as whether it faces the morning sun (the preferred option) or afternoon sun - and whether it offers a view are also considered.

These days, with prices constantly changing in a rising market, valuers have to watch out for the latest deal in the most comparable projects nearby to make an accurate assessment, said another property valuer.

The challenge is in knowing about that latest deal, he said.

While each valuer will come up with a different report - the process is a hybrid of art and science, after all - the difference will not be very big, said Ms Low.

Banks usually pay for valuation reports for their clients. Otherwise, valuers will charge a fee depending on the price of the property.

Fees at Knight Frank start at $200 for a property worth less than $500,000 and can go up to a few thousand dollars.