What is a valuation?
Officially, “Market Value” is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. Valuation calculations take into account recent transacted prices from the Government’s Valuations and Property Services Department (JPPH). Additionally, launch prices of new and upcoming projects in the area play a factor. Once a valuation is done, a bank would usually extend a mortgage loan of 90% margin of finance based on the figure.
How valuation affects you
Say you’ve got your eye on an apartment unit, and after negotiating with the seller, the two of you agree on a price of RM500,000. A 90% home loan means that you would need to fork out a down payment of RM50,000, aside from other entry costs. Now here’s where the valuation comes into play – for a housing loan, a report by a real estate valuation firm recognised by the bank you’re dealing with is needed. If a valuation firm only prices said property at RM450,000, you would only be eligible for a loan of 90% of RM450,000. Basically, this means that if you were to go ahead and purchase it, you would need to bear the price difference and come up with RM95,000; not the RM50,000 you were initially expecting.
Why the disparity?
If you were an observer of the Malaysian property market, you would know that prices in in certain areas surge quite quickly. Herein lies the issue, because it takes up to 6 months for JPPH to collect and analyse transaction data, which valuation firms rely on in their calculations. Basically, this means that valuations would be centred on out-dated prices up to 6 months earlier, and would most likely be lower than current prices. Although many firms take the trouble to ensure an accurate and fair valuation by taking into account as many relevant factors as possible, many others only do as much as they need to, resulting in common cases of disparities between valuations and negotiated prices.
What can you do?
Here’s the bit where you have control. If you want to secure a property but are not sure if you can get the valuation that you want? Make sure that there’s a clause in your booking receipt, which states that you would be entitled to a refund of your holding deposit in the event you aren’t able to get a loan.
It’s also a well-known fact among veteran property players that different banks can provide different valuations on a single piece of property. The more aggressive bank sales agents would push up their valuations of your property, just so they can obtain more transactions. Take advantage of this – go ‘shopping’ for valuation rates, and remember to mention what the other banks are offering; you might just end up with the valuation that you want.
Loanstreet provides a convenient platform for you to apply for housing loans online and to get multiple valuations from various sources conveniently. Remember to use it to your advantage!
Note: The cost of valuations by professional valuers are passed on to the customer. The cost is explained in this article on the Entry Costs of Getting a Property.