Navigating changing valuations

The Real Estate Institute publishes a monthly house price index and last month we saw house prices down 1.6% and down 5.6% in the three months ending May. This demonstrates the property market is moving, and you may be interested to know what that means for our property valuations at Southern Cross Partners.

We focus on due diligence at Southern Cross Partners. For us, this is about getting the right details at the right time to give us the most accurate picture possible to make decisions on. This includes up-to-date property valuations – which we currently require to be as recent as possible – a conservative LVR, and accurate property information.

There are a number of different valuation methods we’ll consider depending on the circumstances of each individual loan. Valuation decisions are based on the property’s LVR, or the equity the loan holder is putting into the property versus the value of the loan, the type of property and its location within New Zealand, as well as what’s intended for the property as part of the loan. Is it a construction loan, a business cash injection leveraging property, or a bridging loan?

Valuations dictate what a property’s worth and how much we’re willing to lend. Now more than ever, shifting market conditions being a conservative lender comes in handy. Whenever we’re faced with two different valuation methods, we always use the method that gives us the lowest value. We usually value properties using a registered valuation or comparative market analysis.

• Registered value (RV)
  • An RV places a value on a property based on size of the land, condition of the property, and the state of the local market. These valuations are conducted by a certified registered valuer. It’s specific to the property we’re lending on and in almost all cases the valuer needs to visit the property in person to complete their work.

• Comparative market analysis (CMA)
  • A CMA estimates the value of a property by looking at similar recently sold properties in the same area. These valuations analyse and compare information about property such as location, total square metreage, number of bedrooms and bathrooms, the year the property was built and any completed renovations. We use leading property data, information, analytics and services provider, CoreLogic, to determine our CMAs.

• Sale and purchase agreement
  • Sale and purchase agreements are a legally binding contract between a vendor and a buyer when selling a property. This outlines exactly what the purchaser is paying for a property.

• Real estate appraisal
  • A real estate appraisal draws from similar information as a registered valuation, but they are conducted by real estate agents.

We’re confident this approach works. SCP’s been in business for the last 25 years and we’re proudly New Zealand owned and operated. We’ve seen the market ebbs and flows throughout this time and we’re well-equipped to weather any storms.