| Bank Valuation vs Market Value

A property can have 2 different valuations.  

  • A market valuation – This helps provide an indication of what the property may sell for.
  • A Bank valuation – is done by a lender to help determine their risks.

About Bank Valuations
More often than not the bank valuation will be more conservative and does not reflect the market value of the property.  Remember the Bank valuation is designed to protect themselves from the risk of you defaulting on the loan.

A bank valuation is an internal business tool that estimates what a lender can expect to recoup if they ever need to repossess the property and sell it.  They also factor in agent commissions and legal costs – so it is quite a different perspective than market value calculations.

If you default on the mortgage they need to sell the property and incur all the costs involved in the sale. So the bank valuation is just the amount they think they could reasonably recoup quickly should it need to repossess and sell the property.

If you unfortunately encounter financial hardship and you default on your mortgage payments, you will be best to try and sell the property yourself for “market value” before the banks steps in and sells it for whatever they can quickly get.

A bank valuation, although not an accurate reflection of the true property value, is a major determining factor in whether you qualify for a loan or not.  Some lenders will charge you for the bank valuation, some offer free valuations when you apply.

About Market Valuations
A market valuation is an estimation of a property’s value on the real estate market.  It will most times be higher than the Bank valuation.  It takes into account local fluctuations, location, buyer demographics, comparables and desirability.  All of which the Bank valuation doesn’t factor in.  The bank valuation is simply cold hard numbers.

A market valuation provides either a buyer or a seller an indicative price that will be paid for the property. It is designed to help you make a decision how much to buy or sell a property for.

What if there is a Large Difference?
The conservative bank valuation is what the bank uses to determine if it will lend you the money.  Even if you have a pre-approved loan, if there is a substantial discrepancy between what you have agreed to pay for the property and what the bank values it at, you may run into some difficulties.  If you cannot meet the lenders required loan to value ratio (LVR), you may not get final approval for the loan.

You can try a number of avenues – including

  • Going back to the vendor and try to renegotiate.
  • You can request a second valuation by another valuer approved by the lender.
  • It is possible to dispute the Bank valuation – This will require very solid evidence and research to prove your point. (This is not often successful)
  • You can find a way to add extra deposit to cover the shortfall in the LVR.

When buying property research is the absolute key.  In the case of market value vs. bank valuation – Proper research will reduce the likelihood of agreeing to pay substantially more than the Bank valuation and in turn having issues with final loan approval. 


Disclaimer:  Although all care is taken.  We do not give any warranty whatsoever to the accuracy of any content.
This is not meant to be financial or professional advice and is only of general nature.  You must seek professional advice before taking any actions. The above information comes with no warranties whatsoever.  We take no responsibility for any actions you may or may not take. All content is of general nature only and is NOT to be taken as advice whatsoever

Martin & Austin
Waldhoff

0422 426 065
MWaldhoff@areaspecialist.com.au

336 Main Road,
Glenorchy 7010 TAS

 

Martin & Hans recently welcomed the addition of a 3rd generation Waldhoff, Austin, into the team. Inviting him to learn from their 40 years’ experience in the real estate industry. Austin is keen to establish himself alongside these two reputable & knowledgeable representatives of the Hobart property market. Acting as their protégé & personal assistant for the time being as he strengthens his skillset regarding client management, negotiations, and legal procedure.

Martin brings 15 years of experience to the table and prides himself on negotiating the best outcomes for his clients. Empowering his vendors with the most modern marketing strategies available during the listing and selling of their property. Being a strong supporter of local produce and community growth, Martin is a member of the New Town Community Association & other groups. He’s down-to-earth, literally & figuratively, enjoying spending time in the garden as much as inside your home to help evaluate its place on the market.

Hans has been in real estate for 25 years. Receiving multiple awards as Tasmania's No. 1 Salesperson during his reign as 'King of the Hill' in Sandy Bay. Previously a civil engineer and accredited valuer in Germany, Hans has a deeper understanding of property than your average agent, and you'll find his insights invaluable whether you're buying or selling property in Hobart. Now over 80 years old, Hans’ enthusiasm for real estate has never waned and he continues to prove himself as one of PRD’s top salespersons monthly, effectively bolstered by his son & grandson.

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