Buying HDB Resale : How to Minimise COV
TLDR Understanding Cash Over Valuation (COV) is crucial when buying a resale HDB flat in Singapore. COV is the additional...
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TLDR
Understanding property valuations is crucial for both buyers and sellers in the real estate market. Property valuations involve two types: indicative and actual, conducted by licensed appraisers. Factors affecting property valuation include land value, property characteristics, rental incomes, and potential for redevelopment. Valuations impact loan amounts, taxes, and property decisions for buyers. Sellers benefit from accurate valuations in pricing their properties and supporting loan applications. Seeking multiple valuations from various sources can provide a comprehensive view for decision-making. Additionally, engaging a mortgage broker can streamline the process and potentially save costs. Ultimately, property valuations play a significant role in property transactions and financial planning.
If you’re involved in the property market, you should be well aware of the role of property valuations. Unfortunately, for many home buyers, understanding this concept can seem like an impossible task. You may not have even known about them until you Googled them to try and figure out why your loan is lower from one bank than another.
To ensure that you get the best value from your property-related ventures, you must be aware of how property valuations work and their significance. After all, understanding the value of your property is essential to making the most out of your investments.
What Exactly Is A Property Valuation?
A licensed appraiser can provide an estimation of a property’s worth through two kinds of valuation – indicative and actual.
Indicative Valuations
Indicative valuations are a straightforward way of assessing the value of a property, typically arrived at by analyzing the average cost of properties in the same locality. Such estimations are generally carried out by property owners or agents who use their observation and research skills. For those who prefer, indicative valuations can also be done with the aid of online tools or by looking into the past transactions of a specific property.
Actual Valuations
When applying for a home loan, it’s important to distinguish between an official valuation and a ballpark estimate. While the latter can give you a general idea of a property’s value, a qualified surveyor and valuer will be commissioned to provide the bank with a more accurate assessment, based on a series of quantifiable metrics. Don’t rely on the property agent’s estimate – the bank will only consider an official valuation!
What Are The Factors That Affect Property Valuation?
Licensed appraisers each have their own distinct methods when appraising a property; they won’t reveal the secret formulae they use, yet most will divulge they factor in the following components:
- The land value, which includes current and future amenities, accessibility, and even factors like traffic congestion and pollution
- The price histories of surrounding properties, and of the property itself
- Rental incomes in the area over time
- The size of the property and the facing, layout, number of rooms, etc.
- The quality of finishing, and the overall maintenance standards
- The value of any renovations or additions
- The floor you live on (the topmost floors have the highest value)
- The position of your particular block and the resulting light, heat, and view
- Quality of the facilities, especially for condominiums
- Redevelopment potential
- Remaining lease
Getting the true value of your property can be a difficult task. However, by enlisting the help of a licensed appraiser, they can provide you with a valuation report that covers the structure, land size, condition, and consequent value of your property. For the best results, it’s recommended that you get three different valuation quotes to get a more accurate price indication.
Obtaining a valuation report for HDB flats can be as easy as getting it directly from HDB! Valuation is conducted by one of the qualified, licensed experts from IRAS’ panel of valuers.
If you’re looking for a valuer for private properties, the Singapore Institute of Surveyors and Valuers (SISV) can provide you with one. Big-name realtors like CBRE, Jones Lang LaSalle (JLL), Colliers, and Savills can also offer valuation services, although you may need to pay a fee – typically ranging from S$500 to S$700.
Benefits Of Doing A Property Valuation For Sellers
An accurate assessment of your property, accompanied by an informed awareness of market values of comparable homes, is a surefire way to properly price your home for sale. Besides the obvious advantage of grasping the actual value of your property, getting a professional evaluation will also provide the following benefits to homeowners:
Providing buyers with peace of mind, assurance of a fair price, and avoiding pricing disputes, the document serves to support loan applications and enable the purchase of the property.
How Does Valuation Affect The Property Purchase For Buyers?
The valuation process has three major impacts on your property purchase as a buyer :
- It will affect the loan quantum
- Higher valuations mean more taxes
- It could be cause to re-evaluate your decision
1. It Can Affect The Loan Quantum
When you’re looking to take out a home loan, the amount you can borrow will be based on the lower of the property’s price or its valuation. This is known as the loan-to-value (LTV) ratio. Remember that the lower the property valuation, the less you can borrow.
Essentially, banks will usually allow you to borrow up to 75% of either the property price or valuation, whichever is lower. For example, if the seller’s price is S$1.7 million and the property valuation is S$1.68 million, you would be able to borrow a maximum loan quantum of 75% of S$1.68 million, which would be S$1.26 million. This means you would need to make a larger downpayment of S$440,000 (S$1.7 million minus S$1.26 million).
Because of this, some buyers try to increase their chances of borrowing more by approaching different banks for a higher valuation. If the asking price is much higher than the actual valuation, this could help to reduce their cash outlay.
2. Higher Valuations Mean More Taxes
When it comes to taxes like the Buyer’s Stamp Duty (BSD) and Additional Buyer’s Stamp Duty (ABSD), you pay based on the higher of the property price or the valuation. For instance, if you purchased a property for S$1.5 million, but the valuation was S$1.55 million, you would owe BSD of S$46,600. If you’re purchasing a second property, you must pay ABSD at 17%. Let’s say you get a great deal and buy the property for S$1 million, but the official valuation is S$1.2 million – this would mean paying ABSD of S$204,000. In contrast, if the valuation had been as low as the price, you would have only paid ABSD of S$170,000. This goes to show that it pays to get a low valuation on the property you want to buy!
3. Perhaps It’s Time To Reconsider Your Choice.
The worth of a property can differ drastically from the estimates of a real estate agent. When the final valuation is done, the property could be worth more or less than anticipated. That is why experienced property investors often get a separate appraisal from a third party company, even before the bank requests it.
The Value Of Your Assets Influences Your CPF Withdrawal Limit Too!
The CPF Withdrawal Limit, as it is referred to, sets the maximum amount you can use from your CPF to pay for your property. Currently, this is set at 120% of your property’s price or valuation, whichever is lower. So if you have a flat that is priced and valued at S$600,000, you are only able to withdraw up to S$720,000 from your CPF account. However, it is possible to exceed this withdrawal limit with the purchase of a private property, as there may be other costs such as stamp duties, legal fees, and interest rates of the monthly instalments that need to be factored in.
What Alternatives Do You Have If You’re Dissatisfied With The Valuation?
If you’re not content with the valuations you’re receiving, the best course of action is to contact multiple banks and valuers, until you find the one that best suits your needs. However, you should bear in mind that there is no guarantee that a different bank or valuer will produce the results you’re hoping for. You may have to contact a few before finally coming to an agreement that is satisfactory.
Looking For Multiple Mortgage Valuations? Let A Mortgage Broker Be Your Guide!
Engaging a mortgage broker to apply for a home loan can be a great advantage, as they are capable of contacting numerous banks simultaneously to obtain multiple valuations and interest rates. This is far more efficient than manually seeking out these details from separate banking institutions, and could potentially save you a considerable sum if you are required to pay for the valuations yourself.
Should You Buy, Sell or Wait?
If you’re reading this, you must be trying to figure out the best course of action right now: is it the right time to buy or sell?
It’s difficult to give an exact answer since everyone’s situation is unique and what works for one person may not necessarily work for you.
I can bring you a wealth of on-the-ground experience and a data-driven approach to provide clarity and direction. From beginners to experienced investors, our top-down, objective approach will help you on your real estate journey.
I can help you by:
- Offering Strategic Real Estate Advice – I can help create a comprehensive plan to guide you through your property journey.
- Connecting Your Home with the Perfect Buyers – Through stunning visuals, an effective communication strategy, and an in-depth knowledge of the market, we’ll ensure your home is presented in the best possible way to fulfill your goals.
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