Whether you’re selling or buying a home, a property valuation is essential as it lets you know a fair price relative to the market when selling, but as a buyer, it also indicates the competitive method of pricing. In cases of financing through a bank, the bankers would want to get the evaluation of the property done as well.
This is when difference in the amount usually arises. Unfortunately, many homeowners don’t understand the difference between market value and a bank value but it’s vitally important that they do. Sometimes when a homeowner wants to draw some of the equity in their property, they will get upset to find the bank valuation is lower than the market value that they had calculated in their head.
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What Is Property Valuation?
The process of determining and evaluating the probable value of a house, and or commercial property is called the valuation of a property. The valuation process is generally carried out by professional valuers. The valuer will assess your property noting its features, location, and neighborhood.
The valuation of the property is generally made by making a comparison between the value of the property with similar features in the same market and estimate the amount it would attract if it were to be sold.
Market Valuation of Property
The market valuation is an estimation of the highest possible price that a buyer would be willing to pay for your property if it were to be put on sale at the time. The market valuation takes into consideration a number of factors which include; the season (peak or off-peak), market trends, buyer demographics, the location of your property, indoor and outdoor features, size, and age of the property.
A market valuation should be conducted by an experienced real estate agent or valuer, who has a good understanding of particular markets and buyer behavior. If you want to know the value of your property, your best option is to consult a local real estate agent.
Bank Valuation of Property
Bank valuation of the property is a concept that is often less understood by the property owners and is conducted with the help of financiers, experienced in property valuation. Often, when you approach a bank or a lender in a bid to secure a loan, the lender will send a valuer to your property in order to get an estimate of your property’s value. This type of valuation is important to the lender as they have to ensure if they can recover their money from the property, in case you’re unable to pay up.
The bank loan plays a vital role as it determines your qualification for loans. In cases wherein, the property value is less than the amount applied for, then, the lenders may refrain or refuse to finance you. Those finding difficulties in repaying their loan may be compelled to surrender their property’s legal documents. Then in cases of default, the lender sells off the property to recover the defaulted loan.
The bank valuation is generally below market valuation as it does not include factors such as real estate psychology, emotions affecting buyers and real estate peak and off-peak seasons. The bank valuation only include factors such as the property’s features, current market price, its location, and council zoning.
Bank Valuation vs Market Valuation
The various factors that differentiate bank valuation from market valuation have been explained below.
- Different Contexts and Situations
When the sale of your property is carried out through a bank, it would be a ‘distress sale’ as the main intention behind such a sale is to mitigate an existing risk. Therefore in such sales, the renovation works on the property is not carried out by the bank. The lender is also under pressure to recover your loan and must, therefore, sell as soon as possible whether the season is favorable or not.
If you, on the other hand, when you decide to sell your property, the value will be higher than the bank as you have time to stage the house and wait until the price reaches its maximum level. You may also approach the sale with a mindset to increase your profit margin while the bank approaches the sales process with the intention to sell the property for a specific amount.
- The Beneficiaries Differ
A bank valuation is more useful to the lender than the property owner, while a market valuation is favorable to the owner. As a result, the lender will lack any emotional attachment to the house. The bankers often approach the valuation process in an objective manner while the owner values his property in an optimistic manner.
- Factors Assessed Differ
One of the key differences between a market and bank valuation is the factors they use while assessing the property. The bank is more concerned about numbers, a bank valuation will, therefore, consider factors such as agency commission, taxes, legal fees, and the amount loaned to the owner. This explains why a bank valuation leads to lower estimates given that property prices are highly dependent on qualitative rather than quantitative factors.
How to increase the value of your property?
Mostly, homeowners go for bank valuation is when they’ve completed renovations on their home and perhaps want to access the increased equity to buy another property. Cosmetic or structural improvements to a property increase its market or bank value. But there are other attributes to look for in a home that can have a positive impact on its price.
- General location and council zoning
- Overall size and number of rooms
- Vehicle access to the property
- Building structure and condition.
Of course, these attributes are ones that you should look out for during your initial research as they will usually always have a favorable effect on the future price of the property.
There are many ways to increase the value of a house or an investment property
- The use of space – such as open plan living to create the illusion of space
- Update appliances – air conditioning, kitchen appliances, etc.
- A new coat of paint or new flooring
- Update the kitchen or bathroom for a fresh new look.
- Upkeep and maintenance
So, we must accept that market and bank values are often different, that doesn’t necessarily mean that you can’t have a positive influence on both of them.