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Quite often an applicant becomes perplexed when their property valuation returns less than they expected as part of their mortgage application. Yet it is wise to note that a bank valuation is not the same as market value and discrepancies may arise between a valuation performed by a licensed valuer as opposed to a market appraisal received from a realtor.
Bank Valuations 101
The way a lender values a property is quite simply a numbers game based on an objective assessment. Furthermore, as it is assessed “as is”, meaning any areas of disrepair or inferiority will be factored into the valuation amount.
The valuer will, in the case of a Full Valuation, attend the property and evaluate it based on four key factors which include the following:
Land – Location and elevation of the site along with the outlook, size, topography, and accessibility.
Dwelling – Condition, age, accommodation, and overall layout.
Ancillaries – Any site improvements which may include pools, tennis courts, landscaping fencing and the like.
Comparative Sales – Similar property sales in the area are used as a comparison to determine what the property potentially is worth.
Due to its lack of subjectivity and emotion there is a tendency for a bank valuation to be conservative. By their very nature, valuations also are risk averse as per the instruction given by lenders so valuers are likely to err on the side of the lower end of the spectrum when settling on a figure.
What is Market Value?
Market value of a property relates to what the property will sell for in the current real estate market.
Unlike a bank valuation, the market value of a property is underpinned by a certain element of emotion which can drive up the price. As an example, consider the auction process where the outcome is derived from buyers being pitted against each other – it may become personal and even combative in some instances which can impact the final price achieved. Additionally, emotion comes into play when a buyer chooses to overextend themselves after becoming emotionally connected to a property because it satisfies an aspirational desire.
This emotional effect on buyers is reflective in current methods of marketing properties, with not only auctions becoming more common but selling methods being used such as Expressions of Interest or Set Date Sale. These sale tactics seek to create a certain “Fear of Missing Out” mentality in buyers to create more competition and consequently enhance the potential sale price.
Arbitrary factors such as on trend décor may impact the market value of a property as well as a hot property market where real or perceived demand may create intense interest and higher prices as a result.
What if you still do not agree with your Bank Valuation?
There is the capacity to dispute a bank valuation should the applicant feel the returned figure does not reflect the value accurately. This should only be a consideration if the valuation amount will affect the successful outcome of your loan submission. It must be noted, however, that, in disputing a valuation you must be armed with substantial evidence to support a figure different from the report. Unless the valuer has made a clear error, it is unusual for a dispute to result in an amended figure, though the ability to challenge is available.
When it comes to the valuation your property is assigned as part of a mortgage application, remember that it is only for the purpose of that application. If it is enough for you to secure the finance required there is no need to take it personally should the amount be less than you anticipated. Your mortgage broker can provide more information about the valuation process with different lenders and remember we can order valuations upfront to understand your equity position before you apply for a loan which is another way we are able to make the process so much easier.
Get a great deal on your home loan with the Perth Mortgage Broker who is in your financial corner.
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