An Overview
Today I’m going to reveal more than one common construction mistake people have made in 2020.
In fact, earlier this year we saw a troubling trend: 1 in 2 construction loans were being declined by the banks because of bad construction valuations.
And by using the strategies in this guide, we able to get these construction valuations back on track – and help get their loans approved!
So if you want to build the house of your dreams without the stress, you’ll really love this guide.
Construction Mistake 1: Not Doing it All at Once
Having made the decision to build a new home the first thing you’ll want to avoid doing is rushing.
This is a big construction mistake.
When buying land, there’s always pressure to settle as quickly as you can.
In Queensland generally, sellers want this done in either 30 days from the contract date or 14 days from registration.
So the first thing you’re going to do is change this!
Have both finance and settlement terms line up with the construction start date.
This means rather than owning your land first and months later getting applying for construction loan approval. You’ll have the ability to get approval for both land and construction loan.
This is hard as will need time to allow your builder to prepare the fixed price building contract, plans and specifications.
The time this takes ranges from builder to builder but by in large takes between 3 and 20 weeks depending on the level of customisations you’re after. Using someone like a builder broker will help expedite this.
It was only mid last year that a customer of ours had bought a block of land and settled 30 days later.
At that point, the bank had valued the land at purchase price and all progressed without a hitch.
Fast forward 3 months later when they were ready to build the bank completed another valuation and undervalued the land by $20,000. This was the same valuation firm who months earlier valued it at the same price they bought it for! Sometimes, construction mistakes like this are not entirely the customers fault.
In short the market’s fluid and never stands still. So the only way to know what you’re in for is to do it all at once!
Construction Mistake 2: Not Knowing the Recent Sales
If you’re in a new estate the bank’s valuers will have trouble valuing your property.
The valuation report is known as an as if complete valuation.
That is to say, when the property is completed, in that market, what will it be worth. Now you see if its a new development, there may not be any properties in the area that can be completed, as they’ll look at the past 6 months history.
How to avoid this is to offer the valuer sales history from the suburb over, thus giving the valuer context and for something to work with. It’s best to do this upfront as once the report is produced the horse has bolted.
To do this you’ll want to attend between 5 – 7 different open homes in your area.
Be sure that at each open home that it’s a different agent. From there you’ll want to discuss what the agent is seeing in the area and see if they’d be able to appraise your property.
Many will decline and say they’re unable to do this until it’s completed, if this is the case see if instead they can collate comparable properties which have sold recently.
Once you’ve all the comparable sales, list between 7 – 9 which have been sold within 6 months, preferably 3, and which are comparable to yours. Explain your reasons beside each property for the value.
From there you’ll want to email this to the valuer before inspecting the land as will have essentially done their research for them and whilst this seems to be overkill, it will reduce the pain of a low valuation and ensures against potential issues.
Construction Mistake 3: About Your Beds, Bath and Car
The bank’s valuers when valuing the property will look at data to complete their valuation.
The primary data they use to confirm the value of your property is the number of bedrooms, bathrooms, car spaces, floor area and size of your block. So an easy tip to help increase the value of your yet to be built home is to increase these numbers.
So for example, if you’re looking to have a study in your home, rather than build a study, invest a little more and build a bedroom (with the main difference in it either having a wardrobe or not).
Not only will this help come valuation but also when you sell.
Construction Mistake 4: Too Many Variations (and Cost Blowouts)
A common problem is that people rush to get their plans into the bank. Only to change the plans of the house again take it slow and look to get every detail sorted before getting the approval.
As in most cases once the banks approved your loan any changes to the contract will result in you footing the bill rather than bank.
Over to You
Which construction mistake did you find the most surprising?
Let me know with a comment below.
Or if you need any help with your build, get in touch.
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