THE LAST-MINUTE SHORTFALL CATCHING BUYERS BY SURPRISE.

14 May THE LAST-MINUTE SHORTFALL CATCHING BUYERS BY SURPRISE.

Why off-the-plan deals are falling over at the last minute

You’ve done everything right. You found the property, negotiated the price, paid your deposit, and secured finance approval. Settlement is weeks away. Then your bank valuation comes back, and it’s lower than your contract price.

This is one of the most common and least discussed reasons why off-the-plan and new property settlements fall over. In the current market, where construction timelines have stretched and property values have shifted since contracts were exchanged, it’s happening more than ever.

What is a valuation gap, and why does it occur?

Banks lend against the assessed value of a property, not the price you agreed to pay. In a rising or volatile market, the gap between contract price and bank valuation can be significant, and it emerges at exactly the wrong moment, when you’re weeks from settlement and have limited options.

The maths are unforgiving.

1. Purchase an apartment for $1,800,000.
2. Save a $360,000 deposit, which is a full 20%.
3. Your bank values the property at $1,600,000
4. They lend 80% of that: $1,280,000.
5. You need $1,440,000 to settle.
6. You’re $160,000 short and your deposit is at risk.

For buyers, this is potentially catastrophic. For developers, it means a settled project suddenly has rescissions, legal disputes, and cash flow disruption. For agents, it’s a commission that evaporates at the last moment.

A solution built to solve it

HOWZD is a flexible financial solution that can bridge the gap between what a bank will lend and what a buyer actually needs to settle. HOWZD facilitates a loan for the shortfall, interest and fee-free for up to 60 months*.

The buyer settles. They own the property outright with no shared equity.

It’s a clean, commercially sensible solution for what is otherwise a lose-lose situation.

Three scenarios where HOWZD can be used at settlement

1. You have a valuation gap, where the bank’s number is simply below the contract price, even with a full deposit saved.
2. You have a deposit shortfall, where you haven’t been able to save the full 20% by the time settlement arrives.
3. The combined scenario, where you have both a valuation gap and a deposit shortfall. This is increasingly common for buyers who purchased two or three years ago and are settling into a different lending environment.

For developers and agents

If you’re working with buyers approaching settlement, or managing a project with pre-sales exposure to valuation risk, it’s worth understanding how HOWZD works and whether it applies to your situation.

Visit howzd.com.au or send us a DM for more information.

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This article is for information purposes only and does not constitute financial, legal or tax advice. All scenarios are illustrative. Approval is subject to assessment by the senior lender, HOWZD and the developer. Seek independent professional advice. HOWZD Pty Ltd.

*The HOWZD loan is interest-free and fee-free for 5 years. Fees and interest apply after this period.