How can I access my equity gain on recent purchase?

[Emblaze Pete]

I have just purchased a property at a 25% discount to FMV & QV valuation on a 440K property. Other similar properties are trading at the 440K in the area and without a shadow of doubt this was a great purchase. This was a private sale and after some reno work will easily value up to the 500k mark. Both the broker and the solicitor have commented on what a great price this was … yadda yadda yadda

Here’s my dilemma - I was expecting the bank/ mortgage broker to provide finance on the basis of FMV & QV valuation and a registered valuation. I.e. 80% finance of the assets real value as apposed to the S&P price. Obviously this would have allowed me to gear up quickly into a few more properties with the immediate equity gain.

The broker has suggested that the bank will only provide finance to 80% of the S&P
agreement and in his words “the property has been exposed to the market and that the S&P is the value the market has placed on the property”. This is despite the fact, it is very obviously to anyone from novice to expert that the S&P is way under FMV backed up by QV reports, recent market sales , RV etc etc . In fact the S&P is almost the same as latest GV which is over 2 years old. Of course, if I had purchased this property at 10 bucks - would this mean that the bank realistically believe that the property is worth 10 bucks?

Broker has stated that bank wont refinance for another 12 months after settlement date which is in a few weeks time.

What I would like to know, is from all you sharp cookies out there. How do I gain immediate access to the equity gain? Is there a way? should I dump the broker? have I got the hump about nothing?
I don’t really want to wait 12 months to refinance. What if another bargain comes through the door and lands on my lap tomorrow? I am probably just moaning about nought but hey, in my eyes I want access to my equity.

[Stevegoodey]

Hi Pete,

1 12 months is a bit rubish you should be able to refinanace with another bank/broker in 2 or 3 months.

2 You maybe should have gone unconditional and then settled it 6 months later, this way when you go unconditional you are "starting the clock" on this property.

3 lastly and most unpopular the easiest way to release the equity and prove the value "Sell it".

Hope this helps

Steve

[drelly]

I've found that it greatly depends on who you deal with individually. Doing some basic redecorating and then getting a valuation has worked for me.

good luck
Dave.

[revdev]

Hi Pete,

From my experience the bank will take S&P price or Reg Val, or "whichever is the lower", as they see this as a more conservative indicator of true market value.

I would agree with Steve that a 12 month wait for revaluation & refinance seems a bit over the top. Did you cover this with your bank BEFORE you signed on the dotted line?..of not maybe a tough little lesson for the next time.

You mentioned reno work. Are you able to change strategy slightly and look to revalue after reno? This alters the playing field and means you can go back to the bank with some tangible changes to the deal rather than "well all the other houses in the street sold for X so I thought..."

Just a few thoughts for you Pete

All the best
G

[captaincrab]

If you had bought it "off the plan" say 2 years ago then most Banks would allow you to bank it against valuation. Regardless of what you say it worth, what you paid is what you paid and that sale will be recorded at that price. For future sales in the area Valuers are going to have to recognise the price you paid and reflect that in their reports unless they state that this was a distressed sale (was it?)and an aberration in the market.
You should be able to "top up" your mortgage in three months time, if not, go to another Bank.

[whitt]

Agree with everybody.
If you have a good broker you should be able to revalue in a few months after unconditional. If you have photos etc and can prove value has gone up due to substantial work being carried out even better.

[Cliffy]

You could try another broker. Some 2nd tier lenders will lend 80% of RV but it might cost you in interest rate.

[Richcrooks]

Pete,
Agree with Whitt's comments. Give it three months (?) and revalue.
Richcrooks

[Emblaze Pete]

The real issue for me is that the broker has not pushed the bank (first tier lender) to use the RV of this property. I think if I had of been dealing direct with the bank myself ( I’m in London, so it was not a real option ) I could have achieved this. I don’t believe you can always use the S&P as a true indication of market price or where the market is going. This property was brought OFF market. It was not exposed to the market. It was a private sale. Had it been exposed to the market, it would have sold at RV. Simple as that!! .. (RV was 25% above what I paid for it)

Despite mortgage broker telling me I had 12 mths before I could refinance, I always knew I could do it elsewhere in 3mths. Personally I think that he must be on some sort of commission structure that would be detrimental to him should purchaser refinance within x period (just my opinion)

If I could have had bank acceptance of RV, I could have been in a position to buy again within 0-3 months. So maybe a better question is how can i extract my equity in this timeframe without selling the pad. I don’t want to sell. Perhaps I should just be a patient little boy and stop jumping up and down and wait for three months… I don’t see why I should though, when the equity is there ready and waiting for a deal to be done. It’s just not recognised by the bank yet. If the bank can recognise its true value 3 months from now why can’t it recognise it today?

As always, thanks for all your comments guys. Very much appreciated

cheers

Pete

[graemeh]

The real issue for me is that the broker has not pushed the bank (first tier lender) to use the RV of this property. I think if I had of been dealing direct with the bank myself ( I’m in London, so it was not a real option ) I could have achieved this.

I've tried to get the valuation price on settlement before and it has never worked. While you are dealing with the "front line" staff at the bank they don't have the authority to do this and most don't have the initiative either.

In our case we bought the property off the plans, it was finished 18 months later but the bank insisted on using the lower of valuation or purchase price.

Things may change when you're a bigger customer.

[cube]

In a years time, when someone is reviewing 'Recent Sales' on QV, they will see that the house was purchased for $x.

They won't give a stuff about what the valuation was at the time, and certainly won't care whether it was an auction, private sale, tender or whatever.

As a result, the price paid for the house will have an effect on the market - buy enough in the area at 25% off and you'll find, as Ron Hoy Fong did, that the market will fall to meet your prices!

I understand your frustation, Pete, but there are ways to extract the equity you have gained.

1. Sell
2. Renovate and re-value
3. Wait
4. Refinance

My guess is that getting another lender to agree to re-finance based on the RV will be all that you need to make your primary lender step in to line.

cube

[Cliffy]

You could buy again, and have new purchase secured against 'spare' equity in this property (form RV), thereby getting 100% financing for new purchase.

[krispedersen]

Hi Pete,

In the instances i've seen applications approved against valuation (rather than the lower of valuation and purchase price) the key point has been the VALUER mentioning in the written RV that it has been purchased well and for under market value. This probably still won't get you across the line with the lender you are talking to as they sound quite strict (12 months is over the top) but it may give you a chance with other lenders.

Otherwise as already suggested do your renovations and then refinance else where up to 80% as this should get your money out

Note that your broker will probably advise against this as there is a good chance their commission may be clawed back if that lender loses you within a specific timeframe

Cheers

[toby]

I tend to use two lenders once the title has come through I refinance with the second lender.
The other thing is I've found is you need a before valuation and photos then after.
There is a simple system for doing it that works everytime but you do need to have a take it or leave it attitude toward the lenders.
Bankers are ******s.

[Emblaze Pete]

Some great points made here chaps. I think there are probably a few things I could try. And in summary…….

1) Buy another pad, secured against RVof the purchase I have just completed, through a different lender.
2) Just go to another lender with RV in hand and see where the land lies
3) Reno work – this is being done anyway, but may take a while to complete
4) In future, have a 2 lenders lined up. One for the principal loan and the second to refinancing out with.

Not that I am feeling nostalgic, but how would my prime lender & mortgage broker feel, if I rocked up within a week or even a day after settlement date, with finance from a second lender on the RV price? … Wouldn’t they have kitty cats and be wary of lending or dealing with me again in the future? I would feel a tad guilty, sorrowful and weepy towards the lender , specially given they are paying a good portion of my upfront solicitor’s costs and in reality it was hassle free in obtaining the loan in the first instance. The broker on the other hand, I think has just been aiming to discourage me from refinancing and throwing in some curve balls to protect his commission ….

One of my urgencies is that my circumstances are changing i.e. I am moving from London to Wellington soonish …So from a lending/ refinancing prospective my circumstances will change. I don’t think lenders like that, especially as I don’t really want to go get a job if I can help it. I have my property investing career to think about... Will lenders lend to a man without a job, but with some equity? This is another good reason to get the LOC in place ASAP before moving, aside from wanting to buy another pad. At the end of the day I am not one for messing people / lenders etc about, but I really do want to get my grubby little hands on that equity, like yesterday.

Thanks again guys for sharing your thoughts and expertise.

Pete