Valuations are a fundamental aspect of property purchase hence it is crucial that you have a good understanding of how they work as well as the impact of valuation on your potential investment or sale if you are looking for the best way to sell a house fast.
Thus, before you request for a property valuation, there are six things you need to know about valuations that will ensure you have a good understanding of bank and market valuation. These are as follows:
- The difference between a bank valuation and a market valuation
The market value of property refers to the amount of money that a liability or asset should exchange on the date when the valuation is done between a willing seller and a willing buyer at an arm’s length transaction after appropriate marketing and when parties have acted prudently, knowledgeably and with no compulsion. On the other hand, a bank valuation is the amount a lender is ready to lend against for a specific asset.
- Are they usually the same?
In some cases, property that is valued two weeks apart by the same valuer will have a substantial difference. Even then, this is usually the case if the valuation was instructed by two separate entities for instance the bank and an investor.
The difference is brought about by the desire by banks to protect themselves so that they are covered in case they are forced to sell property quickly due to foreclosure so that they easily recover the selling costs as well as any other potential downward movement in the market. This is the reason we have had different valuations for the same property.
Overall, bank valuations are bound to be significantly less if the purchaser is intending to borrow 95 percent against property than when borrowing 70 percent hence the risk to the lender is much greater.
Valuers are able to offer subjective opinion of value and support the figure with subjective comparable properties.
- Valuation of New Versus established Properties
If the property that is being valued lies within a new development or subdivision and is to be purchased from the developer, sales or re-sales from similar development need to be provided and taken into account for cross reference.
Although, valuers must compare sales or re-sales this hardly happens. Instead, they rely on the sales of established/existing properties that does not reflect value added to the new property.
- Why valuers are conservative with bank valuations
The major reason why valuers are conservative when carrying out bank valuations is that they are likely to be held liable in the event that the bank suffers a financial loss. Sadly, this does not protect the buyer especially if they are relying on the valuation to determine the purchase price.
If the bank valuation comes in at the asking purchase price, it should be considered a good result. Even then, the lender has the power to reject a valuation and does not have to justify the decision they take. Where the mortgage insurer for the lender is involved, they can override the valuations figure and state the amount they can comfortably insure.
- What to do when dissatisfied with a bank valuation
In cases where the bank valuation is not satisfactory, you can consider the following:
Appeal for a reassessment of the valuation, even though this is rare. While at it, you must be willing to provide evidence supporting your request like comparable properties that reflect a higher value.
You may also want to consider cancelling the finance application and reach out to a different lender. This usually works with the new lender offering more.
If your concern is that, the price being offered for the property is far above the market price based on the low bank valuation you will do well to instruct as well as pay independent valuers to carry out a market valuation of the property.
- How to tell the amount the lender will give
To determine the amount you can receive from a lender, submit an application. Some lenders may give you the figure immediately even though you must take note of the following:
If you are making an off plan purchase, the bank valuation is likely to be significantly lower compared to the purchase price as it gets close to settlement/completion. Should you go unconditional for the purchase contract, you need to have room to move.
Keep in mind that the situation can change from the time of purchase to the time you prepare to settle on the same. Take into account that for property that is off plan for longer has a higher change of letting this happen.