What is the difference between bank & market valuations?
The lender will usually request a bank valuation when you put in an application for a home loan.
Your lender will send out an independent, qualified valuer (not an employee of the bank) to assess the property you are purchasing. The valuer will provide your bank with a ‘conservative estimate’ of the property’s value.
A market valuation is a representation of how much you would make by selling your property with an ideal campaign under ideal market conditions to an ideal purchaser. A licensed real estate agent usually provides it.
So how are they different?
Remember, they serve different purposes.
In most cases, the bank valuation will be lower than the recent market value.
The bank has to ensure that the loan does not exceed the property value, as the property becomes the collateral for the loan. This means that the property has to be worth as much as, or more than the amount the loan is for.
If the borrower has serious financial issues, or fails to make monthly mortgage payments, the lender may have no option but to sell the property. As the lender has no control over the timing of the sale, they need to look at the ‘worst case scenario’ for the properties worth.
The property's market value however, is based on how much the property could achieve if the owner sold it under ideal conditions.
Why is a bank valuation so conservative?
When selling a property, watching and monitoring the sale of other properties on the market is a crucial step. Under ordinary conditions, the seller has the ability to wait for the right time, arrange an advertising campaign and the right purchaser etc to attain the highest possible sale price before agreeing to sell the property – they can even change their mind and remove the property from sale. The bank is limited with this option.
The bank will only resort to selling the property in extreme circumstances. Should you have financial issues, the bank will do all that it can to assist you over an extended period of time. The bank deals in money, not real estate, so with that as a consideration by the time a ‘foreclosure’ occurs the bank has been losing money for a considerable period of time, so it will need to sell quickly. Unfortunately this may mean that the property has to be sold at a lower price.
Also, in the sale of the property, the bank has to factor in real estate commissions, legal fees and other associated fees. They also have to factor in that the borrower may have also defaulted on local council rates or left the property in a poor state of repair.
What does a bank valuer look for?
For a valuation, there are times when the valuer has to access the interior of the property and sometimes, a valuation can be done on the exterior. Occasionally it can be done purely by internet research. When attempting to assess the value of a property they take many factors into consideration, including:
- General location, including supply and demand
- Recent sale prices in the area
- The age, size and type of property and any associated land
- The amount of rooms and the internal layout
- The structure and condition of the building
- Zoning determined by the council
The bank does not always tell the borrower what the final valuation is. Bank valuations are done in order to work out the amount of money that you can responsibly pay back.
The market value is more for informational purposes – it gives you an idea of what other similar properties are being bought and sold for and what an agent would hope you could achieve.
Can I contest a bank valuation?
Yes, but the bank is not obliged to agree with you. You must be able to present facts of recent, comparable, realistic sales in the area and be prepared to pay for a second valuer that the bank approves of.
How can I find out my property's market value?
A qualified valuation service can certainly carry out a valuation for you but they will usually charge a fee. Other than for a loan, owners might engage a valuer to obtain a value for a unique property for insurance purposes. People usually speak to a local Real Estate agent who will look at the highest possible value of the property in an ideal market. They may also advise you of ways to ‘stage’ your property to present better to potential purchasers.
So how can a Mortgage Choice in Robina help me with a bank valuation?
When you are looking at a home loan its important to have someone with experience and a wide variety of lenders to keep you informed and explain the process – including the valuation. Renee Polden, Owner / Manager of Mortgage Choice in Robina can personally help you find the right property loan to suit your needs and lifestyle – now and into the future. Call 07 5562 0748 today or email firstname.lastname@example.org to make an appointment.