Valuations: spending a few hundred can save you thousands of dollars.

The fastest way to destroy an investment strategy is to pay too much for a property.

Paying too much is one of the easiest - and costliest - mistakes to make in real estate. And it's all too common.

It happens because buyers don't take proper steps to ascertain the market value of the property they're buying.
They don't get an independent valuation before committing to buy.

A refusal to spend as little as $250 to $400 can end up costing an investor $25,000, $50,000 - or over $100,000
in some documented instances.Buyers are caught out because they ....

• Over-rate their own knowledge and believe they didn't need advice; or
• Believe the bank won't lend them the money if the property is over-priced; or
• Rely on the value estimate from the developer or real estate agent; or
• Use a valuer recommended by the developer, agent or marketeer; or
• Get a valuation which doesn't support the price but buy it anyway.

All those problems can be avoided if buyers pay for an independent valuation and follow the advice in the report.
The key word is "independent".

NSW financial advisor and author of books on real estate investment, Margaret Lomas, urges clients to get a valuation before making decisions.

"If you're going to become an investor, one of the commitments you have to make is to pay for a valuation that may give you a result you don't want to hear," Lomas says. "It may be that they shouldn't proceed - that the property is over-priced or there's something else wrong with it."

Melbourne solicitor Peter Mericka of Lawyers Real Estate says: "People must get a valuation from an independent accredited valuer - because they are the only ones who won't tell porkies."

A family from rural Victoria who bought an apartment in Melbourne are typical victims. They were approached by a real estate agency to attend an investment seminar run by a marketing company which claimed it could source investments for people at discounted prices - typically $55,000 below market value.

The family paid almost $5,000 to access the marketing company's services, which included investment courses and mentoring. They were convinced by the marketing people that they should buy an apartment for around $570,000. They were shown a valuation that indicated it was actually worth $630,000. They were not shown the local council's valuation (for rating purposes) which assessed the apartment at only $420,000.

They used the solicitors recommended by the marketing company (lawyers from this firm were involved in running the investment seminars) and also their recommended financier, which valued the apartment at the purchase price.

An independent valuation commissioned by the buyers, after they had signed the purchase contract, found the unit to be worth only $515,000, while local real estate agents told them it was worth in "the high $400,000s".

The process described above involves five different assessments of value, ranging from $420,000 to $630,000, and illustrates how dangerous it is for property buyers. Thousands of Australian investors have been misled in this way, with inaccurate or dishonest valuations playing a key role.

Tens of thousands of Australian investors have been ripped off by two-tier marketeers and other fraudulent schemes based on selling over-priced real estate. Often a key component in selling property at inflated prices is the use of a "valuation" which gives the buyer comfort that they paying the right price.

To safeguard themselves, buyers must not rely on a valuation provided by someone associated with the property being bought. Many people caught out by two-tier marketeers on the Gold Coast and elsewhere throughout the 1990s and beyond, were duped by valuations provided by the marketing people. These so-called valuations were grossly inflated, by anything up to 50%.

The buyers in these cases could have saved themselves from making a serious mistake by insisting on commissioning their own independent valuations.