TPC Gold | Bank Valuations vs Market Value: What’s the Difference?

What is the best way to assess the value of your investment property?  

In this week’s bonus snippet, we delve into a question from our listener Laura, who wants to know which is the more reliable method for evaluating capital growth: relying on a real estate agent’s sales appraisal or opting for a proper bank valuation?

Join us as we explore the nuances of each approach and discover why the purpose of your valuation—whether it’s for portfolio building or something else—can influence which method to choose. 

For more tips on how to make informed decisions about your property investments, tune in to the full episode here: Episode 122 | Q&A – A Transitioning Market, Money, Habits, Tax Deductions and What It’s Really Costing You. 

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Bank Valuations vs Market Value – Which Do I Rely On? 

Now that you know the difference between bank valuations and market valuations, you are better equipped to know which to rely on when assessing your investment property! 

Here’s something that might also be of interest: our Masterclass on How to Build a Property Portfolio and Retire on $2,000 a Week. Discover how you can avoid making costly investment mistakes and start optimising your wealth.

Have a burning question of your own? 

We’d love to hear from you! If your question is answered, you’ll get our premium Start & Build course (RRP $497) for FREE! 

 

Similar Episodes to TPC Gold | Bank Valuations vs Market Value: What’s the Difference?

• Ep 67 | Property Valuation Process and the Journey of a Property Investor – Chat with Kieran Clair  
• Ep 182 | Everything You Need to Know About How to Value Your Property – Chat with Greville Pabst 
• Ep 302 | Back To The Future: Lessons From 50 Years At The Top Of His Game – Chat with Scott Keck 

 

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Transcript

Ben Kingsley
All right, next (question) here from Laura. “Hello. I have a question which you may like to answer on your podcast. When monitoring an existing investment property’s capital growth, and trying to do this in an objective, non-biased, and reliable method, can you please compare and contrast just relying on a real estate agent’s sales appraisal versus a proper bank valuation? Thanks in advance for your time and expertise, love the podcast and have recommended it to numerous people.” Thanks, Laura.  

Bryce Holdaway
There’s a few moving parts in that. I spoke to a real estate agent this week in a suburb that we’re looking to go to find a property (in) this week. I’ve done some deals with him to build up a professional relationship and I just said, “Hey, Smith Street in Smith Suburb, what do you think?” And he goes, “I know it, it’s on 691 square metres, it’s with one of the competitors.” Intimately knew it and goes and gave me an indication of price within sort of a $30,000 price gap, but reckoned he gave me a number. So, when you’ve got the local real estate agent who knows their patch, they know the streets (such) that if I say 22 Smith Street, they can visualize what it looks like and they are subject matter experts in four, five, (or) six suburbs. So they’re at the top of their game (and) if you get an appraisal from a real estate agent who’s not trying to buy the business, they’re usually bang on because they are so on the spot.  

Ben Kingsley
They’re in the market daily.  

Bryce Holdaway
The reason I say it’s got moving parts is because from that perspective, (the agent has) got no agenda to buy the listing.  

Ben Kingsley
Whereas if it’s a listing that I’m chasing… 

Bryce Holdaway
Yeah, he may have a different dialogue. Versus the valuer who quite often has a much larger patch, who then has to go and do the same thing. Now, we’ve probably got some valuers listening to this and going, back off Bryce! But the point is that the valuers are doing a terrific job, but they go out and do some comparable analysis on properties and to determine their market. And they throw in some environmental risks and economic risks and all those sorts of things, and they’re also ultimately responsible to the bank. So for me it depends on what they actually need the valuation for, because if they’re just a portfolio builder and they want an idea, then the local real estate agent would work. If it’s you know, a bit more formal and for bank lending (then go with a valuer). But there are pros and cons for both. Ultimately just the person who’s on the spot does have that intimate local knowledge of knowing exactly what it’s going to be, whereas a valuer might just have to come in a bit more blind.  

Ben Kingsley
I agree. If I wasn’t interested in selling my property and I was just looking to get a fair appraisal, I would front foot that with a couple of agents and say, “Hey, it’s Ben here, I’ve got this property in Flemington, can you give me an indication of what the sort of market’s doing in this area?” Now they’re going to give me a ballpark, and if they know that there’s not a listing behind it, you probably think they’re going to be a little bit more realistic in terms of what they’ve seen and evidence of sales in that area. Coming back to the valuer, if you were to engage a valuer where you paid the professional fee, the reality for that valuer is there is a different bias. And I want to explain this, Bryce mentioned it a minute ago, but if I’m paying $300 or $400 for a valuation on a property (or more depending on the value of the property), I’m getting an independent appraisal, which in a way, the valuer is not technically fully liable for as much as they are when it comes to getting a bank valuation. The bank asks the valuer to value the property subject to a distress sale or a quick sale. So their job is to assess the market. Now naturally, they’re also on the hook for that. Let’s say the valuer says the property’s worth $600,000 and then it sells for $550,000 three months later and the bank doesn’t get their money returned to them, (then) the valuer is on the hook for the difference. They’ll be called in on their professional indemnity. The reality is that even if the valuer is trying to do the best professional job, it’s for bank valuation purposes and they put that down based on the conditions that the bank is asking for that valuation. If I’m getting a valuation based on the market at that time, it might be a relationship separation or whatever, effectively the valuer is sort of saying, “Well, I can be a bit more bullish and subtly bullish on the valuation of that.” So you can potentially get two different valuations from a valuer as well. So that’s why I would do the appraisal with the local market expert, and I would sit on that as a good indication for now. I wouldn’t necessarily pay for a valuer unless I had some need for a contract or a separation or whatever.  

Bryce Holdaway
As you know Ben, when we travel around the country talking to audiences, I ask the question, who’s the most important if you’re a buy-and-hold property investor versus a buy-and-sell? If you’re a buy-and-hold, who is the most important person in the entire equation? I get (answers like) the tenant, the tax man, the property manager, the accountant. But ultimately in my view, the most important person is the valuer. Because if I’m a buy-and-hold, ultimately I’m playing the finance game, I’m playing the harvest equity game, and the valuer is the person that stands in between me and getting my outcomes. So ultimately, think about the valuer being the most important person in the entire equation, and then reverse engineer that every time you make a decision on what to buy. Remember, a person who’s a valuer is going to walk into your property, and they’re going to assess that with comparable sales around the area. They’re going to make a determination, and as you said, send it off to the bank, which will determine how much money you can actually get. So make no mistake, they are, without a doubt in my view, the most critical person for someone who’s building a portfolio for a buy-and-hold strategy.  

Ben Kingsley
100%. And if we are talking about some markets that are coming to the top of their cycle, this is probably a time you need to go back to your mortgage broker or your banker and potentially look to get a valuation on the property at the top of the cycle. So you can lock in that value and potentially release some of that equity for future opportunities. Because as Bryce was saying, the tide is swinging in the buyer’s interests. So over the course of the next couple years, there could be some phenomenal opportunities. You want to be poised to be able to take action on those opportunities.  

Bryce Holdaway
And as Dean said in our training yesterday, Ben, he said, “The question to ask an investor is: do they have a borrowing capacity or do they have a lending strategy?” And the difference is enormous. Because the people coming to our Buyers Agency team (are saying), “Yeah, I’ve got the finance covered.” Well, okay, let’s unpack that a little bit. Do you have a borrowing capacity or do you actually have a strategy that’s looking at the big picture when it comes to lending?  

Ben Kingsley
Dean’s one of our mortgage brokers, just for everyone’s benefit.  

Bryce Holdaway
Very subtle point that Dean made, but a very crucial point. Very, very important point.  

Ben Kingsley
So thank you, Laura, that’s a great question.