What Is Cash Over Valuation?

Buying a house with Cash Over Valuation (COV) basically means, the house that you are interested in has an official valuation of $500,000 but you just agreed to buy the house at $515,000 instead. Buying a house with COV happens almost exclusively with HDB Resale flats.

When you buy a flat direct from HDB (BTO Flat), the sold price will always match it’s valuation.

Take note that your CPF and/or Loan cannot cover the cost of COV.

Because when you buy a house for $515,000 (but valued at $500,000), you can only take a loan of up to 90% of the valuation amount and minimum 10% deposit of valuation amount by cash/CPF is required. That means:

  1. 10% Deposit : $50,000

  2. 90% Loan: $450,000

  3. Balance $15,000 HAS TO BE PAID in CASH.

Now when I first started in the industry back in 2009 and all the way till sometime in 2014, buying a house with COV WAS EXPECTED. Sellers and Buyers of resale HDB flats negotiated almost exclusively based on the COV amount, instead of the total selling price.

It came to a point where it was common to hear simple houses being transacted with $40,000-$60,000 COV.

Many felt home prices were running too far from what the average Singaporean could afford, thanks to rising COV cost. Then there were others who felt that, since resale market was a “Free Market”, sellers and buyers should have free reign to transact at any price they were happy with. Because if I want to pay the seller $40,000 cash over valuation, why should anyone stop me?

Home affordability became a very strong narrative in the 2011 General Elections, and years later (it probably wasn’t linked) new policies related to COV was released. It was a little complicated, but after getting the hang of it, it was actually quite a smart move by our policy makers.

Instead of allowing sellers to obtain their home valuation and subsequently asking for specific cash amounts over the valuation price, they required sellers and buyers to negotiate and sign off on a specific price before buyers could apply for valuation.

In fact, today, the only way for sellers to obtain a valuation of their flat, was to first sell off their flat to a buyer, and the buyer will scan the signed contract to HDB to prepare a valuation amount.

This is tricky becuase sellers and buyers are negotiating on a price without knowing what the valuation amount of the flat was. So an uninformed seller or buyer might unknowingly agree to transact a property for $500,000 when the value was only $450,000 - incurring $50,000 worth of COV.

What usually happens after this is, the buyer will simply walk away and forfeit his deposit.

Mr Seller: “What if I sold my flat for $500,000 , but the valuation turns out to be $510,000? Can I get the buyer to top up to match the value?”

Me: Since this new change was implemented, we’ve never seen a house that received a valued amount that was higher than the agree selling price. It almost ALWAYS matches the selling price. Even if you sold your flat at a weird $484,500 price tag, the buyers will receive a valued amount of $484,500 as well. It won’t be higher.

In the past, median COV prices were released so we could track the average market price for COV of a certain estate. By 2016, 80% of the HDB resale transactions were sold with NO COV. And as of today in 2019, COVs are becoming a rare occurance, unless a flat was grossly overpriced.

Mr Seller, would you want to sell your flat to a buyer, only to release 2 wks later they did not have enough cash set aside for the COV? The answer is No. That’s why we have to correctly price our flat according to the market rate, not to your own liking or based on some “news” your relative/neighbour/RC Member told you.

COV is rare, but is still around! Especially for high floor and super renovated unit, located in highly desirable locations.

Engage an experienced agent to avoid paying over $15,000-$25,000 of COV.