Why does the bank need to conduct a valuation of a property I wish to purchase?
If one were to use finance to purchase a property, the lender will conduct a valuation for that property. When using a loan to purchase a property, that property becomes collateral for the loan. In the instance that the borrower defaults on the loan, the bank can sell the property to recoup as much or all the loan as possible. A property valuation in Canberra or elsewhere in the ACT or NSW helps the bank determine how much the bank can recoup from the sale of the property, in the event the borrower defaults on the loan. As a bank valuation is useful only to the bank, oftentimes they will not make the valuation available to the borrower.
Why are bank valuations more conservative in the estimations of property value as opposed to market valuations?
To protect their investment, banks will tend to value a property conservatively. In the event of an economic downturn, a conservative valuation on a property will increase the likelihood that most or all of a loan can be repaid through the sale of the property, taking into account the possibility of deteriorating property prices or deteriorating economic conditions. A conservative property valuation in Canberra or other regional areas of the ACT and Sydney on a property minimises the risk exposure of the bank. When selling a property to recoup a loan amount, banks are not concerned about getting the best price possible for the property. Instead there is an urgency of selling a property to recoup potential losses.
What is a market valuation?
A market valuation determines the best value for a property based on existing market conditions. When conducting a market valuation, a valuer will consider sales of comparable properties and existing market trends to determine the property value. A market valuation does not assume a level of urgency to sell the property, unlike a bank valuation.
What can I do if the bank valuation is lower than the purchase price?
As bank valuations tend to side towards a conservative value of a property, the situation may arise where the bank valuation is lower than the purchase price. Consequently, the bank may not lend you enough money for the property you wish to purchase. This puts at risk any deposit you have placed on the property.
If the bank property valuation in Canberra is lower than the purchase price, these are some of the options available to you:
- Dispute the original valuation: you can request the bank’s valuation report to determine if it was conducted to a reasonable objective standard. Determine if a proper physical inspection was conducted of both the interior and exterior of the property. You may also be able to challenge the bank valuation by citing comparable sales that may indicate that the value is too low.
- Request a valuation from a different valuer: most lenders will use multiple valuers. Another valuer may provide a different result. It should be noted however that a secondary valuation may result in a lower property value than the first valuation.
- Seek another lender: it is highly likely that another lender will use a different valuer, which may result in a different valuation result.
- Use equity from another property: using another property as equity can reduce the loan to value ratio. If should be noted that the new property used as equity will be considered as collateral should the borrower default on the loan.
A clear distinction between a bank valuation and a market valuation:
A good distinction is this: Bank valuations are useful for banks, not for the borrower. Independent valuations are helpful for buyers and sellers, allowing you to decide on whether you would like to purchase or sell a property. For property valuations in Canberra and around the ACT, you can be confident in Vanguard Valuations as an independent valuation company.