When securing a mortgage for a property, the bank will require a valuation to be carried out, where an independent valuation firm is appointed to assess their opinion of Market Value (MV). What may come as a surprise to potential buyers, is the valuation figure they expected maybe in disparity with the valuation done by the bank’s appointed surveyors.
What is Market Value?
The first thing to understand is what Market Value (MV) means. Essentially, it is the agreed-upon price between the buyer and the seller determined through demand, supply, and the current market conditions, or rather the price at which the property is being sold at a particular time. MV also assumes that the property has been properly marketed.
With that being said, when determining MV, there is sometimes an element of emotion that affects the price. A buyer may fall in love with a property and will therefore be prepared to pay a higher price. A buyer may also get tired of trying to find the ‘perfect‘ property at their budget, so will compromise and increase the budget. Alternatively, a distressed seller may get worried if their property is not selling, and will reduce the price. As such, these personal, human elements can have an effect on the actual purchase price.
How do ‘market valuations’ differ from ‘bank valuations’?
While market value can be affected by emotion, bank valuations, on the other hand, are purely concerned with numbers. A person will usually get a bank valuation when they are looking to get equity from their property or to secure a mortgage for a house they want to buy. A key difference between market and bank valuations is that market value tends to be higher than a bank’s value. The bank has to ensure that the mortgage does not exceed the value of the property, as it will serve as collateral if you are unable to make the loan repayments. Their main goal in valuing the property is to determine how much they can recoup if an individual were to default on their mortgage payments and the property needs to be repossessed in distressed circumstances. If the situation arises, the bank may be forced to sell below market value in order to avoid accruing interest over a long period of time. Generally speaking, bank valuations tend to be on the lower end of the pricing spectrum.
A ‘market valuation’ you receive from a broker is simply their opinion of value based on experience. A valuation from a bank is typically undertaken by an independent valuation company that provides a valuation report, which includes Market Value (MV) based on reliable evidence. A person will usually use a bank valuation when they are seeking to release equity from a property or to secure a mortgage for a property. The bank ensures that the mortgage does not exceed the value of the property, as it will serve as collateral if the borrower is unable to make the loan repayments. If the situation arises that the bank is forced to repossess the property, they will likely attempt to sell the property to recoup the loan.
You may require a bank valuation to secure a mortgage or release equity in a property. In this instance, an independent valuation is carried out to ensure the amount to be borrowed is within the bank’s loan-to-value risk appetite. A deposit will be required from the buyer and combined with the mortgage should cover the purchase price. The loan-to-value ratio is capped by the Central Bank and will differ depending on various factors including property type, the value of the property, and if the property is an investment or to be lived in. It is important to remember that a bank is typically risk-averse.
Can anything be done to improve a bank valuation?
The process of releasing equity or gaining a mortgage that works for the borrower can be frustrating. Borrowers may have to pay a higher deposit than originally thought. That withstanding, there are some things a homeowner can do to improve the value of their property.
First impressions matter, so make sure your property is clean and tidy. Give your property a minor face-lift with some cosmetic updates. This might include a new lick of paint on the walls, a bit of landscaping and fixing any minor repairs. You should also make sure that all unfinished renovations are completed before a surveyor visits. Should you wish to upgrade your property, the kitchen and bathrooms, generally speaking, add the most value internally. Further to this, a private swimming pool, patio and/or a well-landscaped garden is always better than a sandpit. It’s important to note that cost does not necessarily equal value as everyone has different tastes and preferences. Also, note that furniture is not included in a typical mortgage valuation.
One step further would be to highlight the benefits of a property when compared to similar properties in the neighborhood. A list of any upgrades, renovations, and maintenance not easily seen can help the valuer build a better picture. Also, it’s worth highlighting the community/building facilities and amenities. If you are the type to leave nothing to chance, you can also do your own research on the community and get the details of any recent, comparable transactions in the area to support the valuation. You should approach your role in the valuation as helping the valuer see the benefits of the property.
If you are looking for an independent and impartial valuation on a property, book a consultation with one of our Chartered Surveyors.