If you wish to fund a development project such as a new residential dwelling, your lender will require you to
obtain a valuation off plans.
You will need to provide the Valuer with a set of plans, elevations and outline specifications of the building
to be erected. There needs to be sufficient detail included so that the Valuer can fully describe the finished
project.
At this point the valuation is entirely the same as the valuation of an existing dwelling. The likely selling
price of the property once as it is completed is estimated by referencing sales of similar properties.
However the valuation is entirely contingent upon the following:
The lender will only release monies as construction progresses and there are some tangible work
completed on site.
If you are having the dwelling erected as part of a 'full contract', you will need to agree to a progress
payment schedule with your builder as part of the initial contract documentation. It is vital to ensure that
the progress amounts agreed to be paid out to the builder do NOT EXCEED the value of the actual work
completed.
Go to our simple to use progress payment calculator BEFORE agreeing to a progress payment schedule.
It is FREE to use.
Cost to complete
An important construction loan concept and one which is poorly understood is that of the 'cost to complete'
figure. The cost to complete is the amount that would have to be paid out to complete the job even if the
existing builder abandons the job. The importance of this figure to the lender is rooted in the concept that a
partially completed dwelling will never sell for it's true value. Any buyer would be seeking a discount. The
cost to complete is the amount that would need to be spent to finish the job and thus attain 'full market
value'. Most lenders will hold this amount back from approved loan monies at various stages.
Construction loans should always be treated as HIGH RISK.
Further protect yourself by taking out Construction insurance and a Performance Bond.
obtain a valuation off plans.
You will need to provide the Valuer with a set of plans, elevations and outline specifications of the building
to be erected. There needs to be sufficient detail included so that the Valuer can fully describe the finished
project.
At this point the valuation is entirely the same as the valuation of an existing dwelling. The likely selling
price of the property once as it is completed is estimated by referencing sales of similar properties.
However the valuation is entirely contingent upon the following:
- The dwelling (or building) to be erected in a satisfactory tradesman-like manner within a specified
time frame (usually 3-6 months). The time frame is put in there to reflect that market conditions can
change over time. We have seen some construction projects take years. Clearly in these instances
the original valuation figure will differ from the value on the date of completion simply due to the
passage of time. - If the new dwelling is part of an infill subdivision, the valuation might also be contingent upon a new
certificate of title being issued.
The lender will only release monies as construction progresses and there are some tangible work
completed on site.
If you are having the dwelling erected as part of a 'full contract', you will need to agree to a progress
payment schedule with your builder as part of the initial contract documentation. It is vital to ensure that
the progress amounts agreed to be paid out to the builder do NOT EXCEED the value of the actual work
completed.
Go to our simple to use progress payment calculator BEFORE agreeing to a progress payment schedule.
It is FREE to use.
Cost to complete
An important construction loan concept and one which is poorly understood is that of the 'cost to complete'
figure. The cost to complete is the amount that would have to be paid out to complete the job even if the
existing builder abandons the job. The importance of this figure to the lender is rooted in the concept that a
partially completed dwelling will never sell for it's true value. Any buyer would be seeking a discount. The
cost to complete is the amount that would need to be spent to finish the job and thus attain 'full market
value'. Most lenders will hold this amount back from approved loan monies at various stages.
Construction loans should always be treated as HIGH RISK.
Further protect yourself by taking out Construction insurance and a Performance Bond.
Would you like to learn more about Construction Insurances? ...... CLICK
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| Construction Loans |
Would you like to learn more about Construction Loan Risks? ..... CLICK
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Innovation + Experience |
| PO BOX 9018, Wellington 6141 | phone: (04) 240-0124 | fax: (04) 232-4414 | email: valuer@ vcnz.co.nz Innovation + Experience |