In a declining property market, one of the potential pitfalls is the valuation on the completed property not valuing at or near the purchase price on the contract of sale. There are a number of ways you can guide your client through these circumstances.

There are pros and cons associated with buying off the plan properties.

I spoke with a broker recently whose customer had purchased off the plan several years ago and now needed to settle. The valuation had come in at $680,000 which was exactly $100,000 less than what they exchanged for in 2016. That’s more than the 10% deposit that they paid!!

So, what are your customer’s options in these circumstances?

Some might say – “walk away from the contract”. On the face of it, that might appear sound particularly in the above example where on paper the customer has lost $100,000 so they are better to lose their deposit than the paper loss of $100,000 right?


The sale contract will invariably provide that if the customer does not settle, in addition to losing their deposit, they are exposed to legal action from the vendor for any loss the vendor may suffer on the property resale. This includes additional legal fees and re-marketing costs and also the difference between the original purchase and the subsequent resale, if it is sold for less which could be a very real possibility in the current market.

So how can you help?

If your customer had committed to buy a property in an apartment complex, the valuations of those other units may have fallen too. This might cause a bigger headache for the developer as the last thing they want is numerous purchasers defaulting at settlement. Such a situation may lead to them not being able to repay the lender who financed the project.

The solution? Negotiate with the developer. Ask them to decrease the price. In the case above, the vendor agreed to decrease the price by $60,000 – from $780,000 to $720,000. Another option is to seek vendor finance for the shortfall. For example, your customer could request a three-year interest only loan from the vendor which they fund out of their project profits. Sure, it may be a higher rate, but at least your customer settles and the property market will most likely have stabilised in this time.

Another consideration where you as a broker can be pro-active…. you most likely know that there are lenders who will accept a higher valuation over the original purchase price if exchange took place more than 12 months ago. Seek them out and if their product offering is comparable, look to use them to secure your client’s loan.

And remember, in circumstances such as the above, always advise your customer to seek legal advice from their solicitor or conveyancer.