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Buyers' costs at risk

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  • Buyers' costs at risk

    Buyers' costs at risk

    First home buyers risk losing the cost of a valuation when they go to auction to buy a property and fail to get it.

    By GREG STACK - Waikato Times | Saturday, 24 January 2009

    Real estate agents are continuing to push auctions as the best method of selling but there is a catch for first home buyers.
    Mortgage brokers are reporting that when banks tightened lending conditions last year they also added mandatory registered valuations to home loan criteria.
    The reports particularly affect first home buyers who may find a bargain at auction but not factor the pre-home loan cost of the report into their budget. They may also fail to realise that if they are unsuccessful at auction the money spent will be lost and they will have to pay for a new valuation for the next property.
    That can amount to hundreds of dollars before their home loan has even been approved.
    Mortgagelink director Michael Paris says compulsory valuations are beneficial in most circumstances but they did provide a financial hindrance in some cases.
    "The only thing that has changed dramatically (since tighter lending criteria was introduced) is that some banks were lending up to 85 per cent with no valuation this doesn't happen anymore. If you are going to bid on an auction you need to bid unconditional. It's too dangerous to go to an auction without all of the conditions confirmed and approved by the bank so you need to have a valuation done."
    While valuations are standard practice, designed to protect banks and borrowers, they become an issue when purchasing property through auctions. Most banks now require those who have applied for large mortgages (more than 80 per cent finance), or in some cases any home loan, to get valuations. "The cost of valuation differs from valuer to valuer," says Mr Paris, "it usually ranges (in Hamilton) from $450-$550. So it will cost you if you lose."
    Ray White agent Lynn Eagar says when a market is retreating the banks will want to protect their money which is where the valuations come in.
    "I do see it at as having advantages for both parties it gives purchasers' piece of mind. It tells them that they are paying a fair and reasonable price for the product."
    Auctions have been on the rise since the property market collapsed.
    Westpac's Craig Dowling says valuations have become a necessary part of the buying process during the property slump.
    "It is very much for their (the borrowers) protection as well as the banks."

    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx