Property Valuation for mortgage - Charges if valuation fail to match

** applicable to secondary market (subsales) & refinancing

Majority of banks practice a formal valuation report to be submitted to the banks as a part of collateral against the mortgage. Many concerns that what if, the valuation is unable to match the purchasing price, what kind of charges might possibly hit the applicant.

Let's us segment it into several portions to answer this kind of concern:

A. Could a valuation report possibly come out to be a value which lower than expectation?
B. Do I have to pay the charge if such event happen?

(A) Yes, it could happen but the possibility is quite low if the borrowers are doing everything right at a very initial stage. Normally, a valuation report will be imposed for a purchase of completed properties. When an applicant go for a loan application, the mortgage consultant should get a full details of borrower's property and conduct a verbal indication which supported by various valuation firms (associated with the banks). All the details will be provided to the firm and an indicative value will be given base on that.

If the indicative value given is able to match the purchasing price, then the mortgage consultant will proceed on with the loan application and if such application is successful, an offer letter will be produced. If it fail, then the consultant will inform the applicant that the banks are unable to agree on the purchasing price and thus, the application will be halted.

A formal valuation report will only be compiled after the offer letter is being signed (meaning that the applicants agree to take the loan offered by the banks). A valuation executive will make an appointment with current property owner, visit the properties, do some checking, take some photos, verify all the previous details given and conduct some interviews. Within 2 weeks after the visit, a formal valuation report will be dispatched from the firm to the banks.

Now, question is, what could possibly go wrong. Problems might occur if there is any discrepancy happen in properties details. Some of the inexperienced or green agents / mortgage consultants do not have a good picture in collecting full details of properties which result in missing some details or adding something which in fact, is not there, especially when it comes to the size of the property and renovation.

For example, a real scenario that happen to a consultant before. A client apply a loan with the bank and he just merely provide all the property details to the consultant via written and no supporting documents to verify such information, stating that the build up of a double storey house is  8828 sqft but in fact, it is just 8288 sqft. The consultant just did indicative valuation based on former information and an offer was accepted based on that info. When it comes to the time of visit, the valuer notice that the size of house is smaller than the given info, thus, he slash the value and in turn, slashing the financing margin. This is because the bank give a 90% loan based on the valuation report, if the value lower, then the loan amount will be slashed as well.

How do we avoid such kind of problem?
Providing correct property information to the banks is essential in making the things right at the first place. Some of the documents shall be collected and verification should be done. It might sounds troublesome but it will save borrowers from any potential problems.

Documents which essential in avoiding such chaos:
i. previous copy of Sales & Purchase Agreement
ii. copy of land title
iii. copy of receipt from renovator
iv. photos of significant renovation

(i) All of the basic information about the property could be found within this agreement ranging from basic fitting, land specification, ownership, floor plan, so on. Especially from First Schedule to Fifth Schedule.
(ii) Reveal all the facts about the land ranging from its type, remaining leasehold tenure, land office, ownership, charge to which financier, so forth
(iii) Reveal any significant renovation that had been done with the pricing. Such receipt must have the details of renovation and corresponding pricing. Better if materials are stated as well. This kind of documents is meant to be kept if borrowers plan to renovate their house in the future especially when the investment is huge (more than RM 100k) because with such a solid proof, it will boost the selling price of the house.
(iv) Some of the valuers might not be comfortable to give a higher indicative value for the properties which have significant renovation because they don't have any proof. Sometimes, the borrowers have to send them some photos as proof in getting a higher value for the property.

It is every parties' responsibility in getting everything correct. During the first stage of purchase, right after purchasers sign the booking receipt, the agent should have provided the purchasers with these documents (i),(ii),(iii) for the ease of loan application. The owner has the responsibility to furnish the agent with these kinds of documents prior the deal is confirmed. While for the photos, purchasers can take it on the spot during the visit. After all, the consultant would have to verify all the info is correct for the indicative value to be given.

(B) Yes, borrowers have to pay for it even if the formal valuation report went wrong. An offer is signed with the terms stated that if borrowers don't want the offer, they have to pay all the cost which had incurred (including legal fee as well). Assuming something wrong with the properties info and eventually, the valuation cannot match the purchasing price and the borrowers don't want the offer anymore. They have to pay for the cost that incurred by the firm.

How much would it be?
The valuation report is charged based on the property price. Same for this as well.