Understanding the differences between a bank valuation and an agent appraisal

A valuation is an important element in the process of buying or selling a property. It’s fundamental to understand the difference between a bank valuation and an agent price appraisal, how they typically work and what to look out for.

The different types of property valuations

There are two common types of property valuation:

  1. A bank valuation
  2. An agent or market appraisal

 

When do you need a bank valuation?

A bank valuation is useful for buyers and sellers. If you are looking to buy a property, the bank valuation is usually done after you’ve found a house you wish to purchase and are organising finance with your lender.

Prospective lenders are likely to want to obtain a valuation, as they want to be sure the value of the property is greater than the amount you want them to lend you. They are covering the risk for the loan. Usually your bank or lender will arrange for this to be done with an approved independent valuer (not your real estate agent).

For an existing property, a bank valuation is done when looking to top-up or refinance a loan. Or it may be that you are wanting to use your current home as equity in some way – such as if you’re purchasing an investment property. It is also carried out by a specialist bank-approved valuer to determine its value, and therefore the loan amount.

Banks use the valuation to work out the loan to valuation ratio (LVR) or how much they will lend you, compared the valuation of the property.

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What is an agent or market appraisal?

An agent or market appraisal is typically done by a local real estate agent and it tells you how much a property would sell for in the current market. This type of valuation is highly influenced by the current market trends, even if they are short lasting. The agent will usually also analyse demand for similar properties, potential improvements to increase the value, alternative uses and other recent valuations and sold priced for comparable properties in the area.

NSW Fair Trading state that there must be written procedures to set out the steps the real estate agents must take to substantiate any estimated selling price.

How is an agent or market appraisal different to a bank valuation?

A bank valuation takes into account a property’s value over the longer term. This type of property valuation is used to figure out how much money to loan the borrower and how much the lender might get if the property were sold.

A bank valuation will usually be lower than an appraisal. This is because the lender will only sell the property to recoup the outstanding debt if there were issues with the repayments, so it may not be able to sell at the right time or wait for market conditions to get the best price.

Overall, an agent or market appraisal gives you a good indication of the price your home could sell for in the current market. Whereas a bank valuation may be more conservative, as it is based on what they know they could get for it, and is done in order to secure or increase your mortgage or home loan, or use your house for security in any way.

If you’re keen to know what your home could sell for and interested in a market appraisal contact our team today.

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