Bank valuation of property based on price just paid or real value ?

gigino

Should a banks valuation of a property for mortgage purposes be based on
(A) what the property could reasonably be expected to make if immediately put on the market by the new purchaser
(B) what the purchaser paid for the property ?

In the case of one example I know, there is a big difference between the two, as the purchaser was not familiar with the area / current market conditions, and got carried away for emotional reasons, acted like a fool, was taken for a ride + paid way too much, maybe by as much as 60% compared to comparable properties.

Of course the auctioneer was correct in trying to get as much as he could for his client. However, for the purchaser getting the mortgage, should the bank base the valuation of the property on what the purchaser paid, which exceeded everyones expectations .....or what the vendor would have been lucky to get from anyone else at the time, maybe 40% less ?

stepbar

gigino wrote: »

Should a banks valuation of a property for mortgage purposes be based on
(A) what the property could reasonably be expected to make if immediately put on the market by the new purchaser
(B) what the purchaser paid for the property ?

It's based on what a bank appointed valuer states it's worth. That's also open for argument too, especially nowadays.

coylemj

If banks were to only take the purchase price into account, they would be wide open to fraud because a crooked vendor could conspire with a buyer to pay an inflated price. Then as soon as the money is handed over, the buyer would do a runner and the bank would be left with a large unpaid loand and a property in negatve equity.

Market value as determined by an independent valuation is all the bank cares about.

Supercell

Its based on what you say its worth.
We just bought a house and had to get a valuation as part of the process.
The bank gives you a list of approved evaluators so we naturally went with the cheapest one.
All of them asked us what price we offered for the house...
The one we went with at the end gave a valuation exactly the same as we offered.

I suppose that unless your offer is ridiculous then they just go with a value the same as what you offer.

killers1

The value of a property is subjective as their is no formula to work out what a property is worth. In reality a property is worth what someone is willing to pay for it. In the case of a sale/purchase the valuers job is a lot easier in so far as the purchaser is willing to pay a specific price for the property so therefore the valuer is happy to put that down as the value for mortgage purposes. It's a different ballgame when someone is remortgaging and the valuer tends to be more cautious in determining the value for fear of being removed from the banks panel. Although I did have a case recently where the valuer would not sign off on the agreed purchase price for a property as he didn't feel it was worth that amount. This is most definitely the exception to the norm where a purchase is involved.

gigino

killers1 wrote: »

....valuer would not sign off on the agreed purchase price for a property as he didn't feel it was worth that amount

fair dues to him, he probably saved the purchaser a lot of money. Not many people have that integrity to tell the truth, rather than toe the line and make easy money for the valuation along with the mortgage broker and solicitor and vendor and everyone else except the purchaser.