Bank Valuation versus Sale Agreed amount

Walshtm

Hi all, appreciate any feedback on this one please. We have in the last few weeks gone sale agreed on a property in Dublin. We entered into a bit of a bidding war during the bidding process with one other bidder in particular upping the bids on us over a period of over a week. After the other bidder reached their max we went sale agreed.

At this point we were happy that we now had reached the point of going sale agreed but I did feel that the current agreed price was probably too much to pay for the property by a margin of at least 10% of the property price compared to properties in this region which have sold in the last couple of years according to the PPR.

Over the last week the bank that we are hoping to lend from did a bank valuation on the property and low and behold he has come back with his valuation on the property and his valuation is about 10% lower than the sale agreed price. We are in a bit of a pickle now as to what to do next because the bank will more than likely only lend to us 90% of the bank valuation rather than 90% of the sale agreed price.

Valetta

Walk away would be my advice.

You have acknowledged yourself that the price is too high.

drunkmonkey

Have you put a deposit down? Lots of fake bidders trying to over inflate values, If there's no money down back out and give it to the other bidder, house will still be there in a few months, offer 20% less than you were willing to pay this time..

There'll be other houses don't worry...

Deise Vu

Jesus, in all fairness where have you been for the last six years? You have probably outbid a genuine bidder with money you haven't got approval for. That is unfair to the other bidder and the vendor who might be back at square one. Plus you have potentially landed yourself in a world of bother with legal issues regarding specific performance.

Is it too much to ask that people know what they are getting into when they bid on a property that they will most likely be paying off over 25 years?

kennyb3

Deise Vu wrote: »

You have probably outbid a genuine bidder with money you haven't got approval for. That is unfair to the other bidder and the vendor who might be back at square one. Plus you have potentially landed yourself in a world of bother with legal issues regarding specific performance.

Where do they say they don't have approval?

They probably have approval in principal from AIB.

They send out a valuer after going sale agreed before issuing the mortgage contract/pack.

The issue here is the price - not approval.

The valuer is clearly saying it's not worth the full amount.

Walshtm

Deise Vu wrote: »

Jesus, in all fairness where have you been for the last six years? You have probably outbid a genuine bidder with money you haven't got approval for. That is unfair to the other bidder and the vendor who might be back at square one. Plus you have potentially landed yourself in a world of bother with legal issues regarding specific performance.

Is it too much to ask that people know what they are getting into when they bid on a property that they will most likely be paying off over 25 years?

Trust me I'm well aware of the property market and how it has gone over the last few years, I'm a long time lurker on thepropertypin, need I say anymore.

Just to clarify we actually got approval for about 100k over the final agreed price but ultimately the bank will only lend 90% LTV i.e 90% of the bank valuation on the property so whatever we got approval for initially for is now pretty much irrelevant.

In terms of the legal issues, there are none, we simply paid a booking deposit to the estate agent and can back out at any time as this is fully refundable.

What i'm looking for really is if anyone has or knows anyone in a similar situation and how this panned out in terms of negotiation etc...

chris85

Walshtm wrote: »

Trust me I'm well aware of the property market and how it has gone over the last few years, I'm a long time lurker on thepropertypin, need I say anymore.

Just to clarify we actually got approval for about 100k over the final agreed price but ultimately the bank will only lend 90% LTV i.e 90% of the bank valuation on the property so whatever we got approval for initially for is now pretty much irrelevant.

In terms of the legal issues, there are none, we simply paid a booking deposit to the estate agent and can back out at any time as this is fully refundable.

What i'm looking for really is if anyone has or knows anyone in a similar situation and how this panned out in terms of negotiation etc...

What negotiation you mean? You clearly know the value is less than your offering price yet you want the bank to allign with you? Wouldnt see them budging here, these LTV are very important to the risk profile of the mortgage agreement.

Henry Ford III

Why did you bid over the value of the property OP?

Walshtm

chris85 wrote: »

What negotiation you mean? You clearly know the value is less than your offering price yet you want the bank to allign with you? Wouldnt see them budging here, these LTV are very important to the risk profile of the mortgage agreement.

Negotiation mainly with the vendor but also to get an idea if the bank stick 100% to the valuation or is there room here in the lending parameters for example 3% above etc?

pwurple

It's unusual for a valuer to do this. Who was the valuation done by, can you speak to them about it?

To put it fairly basically, the value of a property is what someone is willing to pay for it.

We had a valuation done for a bank before, where the valuation came in lower, because they had valued it as a 1 bed, when it was a 3 bed. This was because a dormer conversion did not have planning permission, so on paper, it was a 1 bed. Obviously there is a large difference in value between 1 and 3 bed house.

The vendors had to go off and get retention for their alteration before we could proceed.

Is the different something like this?

kennyb3

Go back to the EA. Unless the other party is a cash buyer - they'll know that the other party will face this problem too.

The other option is a different bank - different valuer. (assuming you've approval with more than one)

Still given you know you're overpaying so i'd reconsider the whole transactions - as the valuer is the only cost to date i'd imagine.

If I was you i'd also try save a greater deposit.

Deise Vu

Walshtm wrote: »

Trust me I'm well aware of the property market and how it has gone over the last few years, I'm a long time lurker on thepropertypin, need I say anymore.

Just to clarify we actually got approval for about 100k over the final agreed price but ultimately the bank will only lend 90% LTV i.e 90% of the bank valuation on the property so whatever we got approval for initially for is now pretty much irrelevant.

In terms of the legal issues, there are none, we simply paid a booking deposit to the estate agent and can back out at any time as this is fully refundable.

What i'm looking for really is if anyone has or knows anyone in a similar situation and how this panned out in terms of negotiation etc...

Apologies, I thought you had just gone off on spec. You need to clarify this with your bank straight away.

This is a completely new one on me. Market value is the price at which there are willing sellers and willing buyers not the opinion of some valuer who 5 years ago said the same property was worth twice as much. If your bank approved uou for €100K more they should not have any issues. It defies belief that there are banks out there who are approving loans of €X but will only lend 90% of what their valuers say. How can anyone confidently bid on a house in that situation?

On the other hand, I would believe anything of our banks these days. As I said, contact your bank and pull out as quickly as you can if there is an issue.

Walshtm

pwurple wrote: »

It's unusual for a valuer to do this. Who was the valuation done by, can you speak to them about it?

To put it fairly basically, the value of a property is what someone is willing to pay for it.

We had a valuation done for a bank before, where the valuation came in lower, because they had valued it as a 1 bed, when it was a 3 bed. This was because a dormer conversion did not have planning permission, so on paper, it was a 1 bed. Obviously there is a large difference in value between 1 and 3 bed house.

The vendors had to go off and get retention for their alteration before we could proceed.

Is the different something like this?

Thanks for your feedback. No this is a different situation, the valuer actually rang me directly to give me a heads up. He outlined exactly his reasons for valuing the property at this price taking into account PPR and sale agreed prices in this area over the last number of weeks/months so there is a lot of data there to work with. I was very confident that he knew what he was talking about, has been in the industry a long time.

pwurple

Deise Vu wrote: »

It defies belief that there are banks out there who are approving loans of €X but will only lend 90% of what their valuers say. How can anyone confidently bid on a house in that situation?

?????

Ok, first off, the bank is not employing a value internally.

The valuer is another estate agent. There is usually a 'panel' of valuers. Two or three valuers who the bank suggests, and you chose and PAY for yourself. You are their client.

Bank have always lent a % of LTV, so I don't know how this is news to anyone.

RainyDay

pwurple wrote: »

It's unusual for a valuer to do this. Who was the valuation done by, can you speak to them about it?

To put it fairly basically, the value of a property is what someone is willing to pay for it.

Where have you been for the last 8 years? Do you reckon that 2 acres in Ballsbridge was ever worth €171 million? http://www.irishtimes.com/business/sectors/commercial-property/91-off-vet-college-site-in-ballsbridge-1.1318186

Supercell

OP the person/s you outbid will likely face the same problem unless they are cash buyers.

Be honest with the seller and show them the valuation so they don't think you are trying to gazump them. Most reasonable people will see sense once faced with the valuation on paper. If not, walk away, you haven't signed yet so no obligation from you to close.

Walshtm

Supercell wrote: »

OP the person/s you outbid will likely face the same problem unless they are cash buyers.

Be honest with the seller and show them the valuation so they don't think you are trying to gazump them. Most reasonable people will see sense once faced with the valuation on paper. If not, walk away, you haven't signed yet so no obligation from you to close.

Thanks Supercell. I'm pretty sure the other bidder would have the same issue as us because I know they had just gotten mortgage approval before the bidding process so they are not cash buyers.

flutered

the lessons of the past will never be learned, no wonder the country is in hock.

pwurple

RainyDay wrote: »

Where have you been for the last 8 years? Do you reckon that 2 acres in Ballsbridge was ever worth €171 million? http://www.irishtimes.com/business/sectors/commercial-property/91-off-vet-college-site-in-ballsbridge-1.1318186

I've been nowhere near flippen ballsbridge, that's for sure anyway!

It's a fairly simple definition. Value = what someone is willing to pay. If you have a new definition I'd love to see it.

I agree with poster above. Approach vendor with your issue and use it to negotiate.

Supercell

I'd say in this case, from the banks perspective valuation is what someone else, not the OP, would pay for it in a default scenario. A pretty crucial difference.

Deise Vu

pwurple wrote: »

?????

Ok, first off, the bank is not employing a value internally.

The valuer is another estate agent. There is usually a 'panel' of valuers. Two or three valuers who the bank suggests, and you chose and PAY for yourself. You are their client.

Bank have always lent a % of LTV, so I don't know how this is news to anyone.

Like I said previously, market value is the price at which there is a willing seller and a willing buyer. In this case we know there were two bidders so presumably there at at least two people who would have paid the final price +/- say €5K. So how can a 'valuer' come along and say this is not the market price?

Obviously the banks need to guard against crazy bids or even fraudulently inflated prices (pity they weren't so stringent about it 10 years ago) but in this scenario I am utterly baffled. Effectively you are sayign you need to agree your bid with your valuer beforehand. You wouldn't want to be making too many auctions at that rate.

khards

pwurple wrote: »

It's a fairly simple definition. Value = what someone is willing to pay. If you have a new definition I'd love to see it.

No, you are clearly wrong, for it is the banks who price property and not the vendor or potential buyer.

Value = What the bank are willing to lend.

You want the house but clearly you have the ability to pay for it, because if you did you would stump up the 10% difference in cash.

I think it is rather sensible of the valuer and bank, because if the bank needs to repossess the house in the future they will need to sell it again to recoup their money. After all it will be mainly the banks house and not yours.

pwurple

khards wrote: »

No, you are clearly wrong

Here is 'Intro to economics' Read the first section entitled 'Value'.
http://en.wikibooks.org/wiki/Introduction_to_Economics
"Something is worth what someone is willing to pay for it"

See also 'Economics for Dummies', or a dictionary.

for it is the banks who price property and not the vendor or potential buyer.

The buyer offers a price. The bank never bids.

You want the house but clearly you have the ability to pay for it, because if you did you would stump up the 10% difference in cash.

I think it is rather sensible of the valuer and bank, because if the bank needs to repossess the house in the future they will need to sell it again to recoup their money. After all it will be mainly the banks house and not yours.

Oh dear lord. I'm not even the buyer. You are extremely confused.

RainyDay

Deise Vu wrote: »

Obviously the banks need to guard against crazy bids or even fraudulently inflated prices (pity they weren't so stringent about it 10 years ago) but in this scenario I am utterly baffled. Effectively you are sayign you need to agree your bid with your valuer beforehand. You wouldn't want to be making too many auctions at that rate.

Part of the problem of our property bubble is that it is in the short-term interest of the banks, or more specifically the bankers, to lend as much as possible. The more they lend, the more interest they earn.

It's strange to see that the penny hasn't dropped for some people yet.

ted1

WE got a mortgage with AIB last year, the valuer we got (from off their list) asked us what the price is, and bingo thats th eprice he came with, he said we wer paying about 20% below market price but that if his value was anyway different it might cause a problem.

perhaps a 2nd valuer will give a better value.

it would have been yourself who sent in the value to the bank, TBH honest you shoudl have noticed the difference and asked the question before hand.

khards

pwurple wrote: »

Here is 'Intro to economics' Read the first section entitled 'Value'.
http://en.wikibooks.org/wiki/Introduction_to_Economics
"Something is worth what someone is willing to pay for it"

See also 'Economics for Dummies', or a dictionary.

If I was an unemployed bum, I have no means to pay for it but I up your bid to a million then is the house worth a million?

I thought not.

Walshtm

ted1 wrote: »

WE got a mortgage with AIB last year, the valuer we got (from off their list) asked us what the price is, and bingo thats th eprice he came with, he said we wer paying about 20% below market price but that if his value was anyway different it might cause a problem.

perhaps a 2nd valuer will give a better value.

it would have been yourself who sent in the value to the bank, TBH honest you shoudl have noticed the difference and asked the question before hand.

The bank chose their own valuer to go and value the property. We had at no point any say in who was doing the bank valuation and we did not send in the valuation ourselves, it was the bank valuer who sends this in. He rang to give me a heads up as to what he was handing into the bank in terms of a valuation.

GreeBo

Walshtm wrote: »

Thanks Supercell. I'm pretty sure the other bidder would have the same issue as us because I know they had just gotten mortgage approval before the bidding process so they are not cash buyers.

I wouldnt bank on that, you have no idea what their circumstances are.
Perhaps they have been saving for 15 years and were only looking for a 70% LTV anyway?
so now it goes up to 80%, makes no odds to them (bar probably a higher rate)

pwurple

Walshtm wrote: »

The bank chose their own valuer to go and value the property. We had at no point any say in who was doing the bank valuation and we did not send in the valuation ourselves, it was the bank valuer who sends this in. He rang to give me a heads up as to what he was handing into the bank in terms of a valuation.

What bank is this out of interest? I've dealt with AIB and KBC in the last few years and they both gave us a choice.

pwurple

khards wrote: »

If I was an unemployed bum, I have no means to pay for it but I up your bid to a million then is the house worth a million?

I thought not.

So explain to me how are you willing to pay in that scenario?

If two starving people get to a sandwich stall in the desert at the same time, with only one sandwich left... the one willing to part with the most cash gets the sandwich. No matter what the price on the tag is.

khards

Basic theory of economics state willing and able to pay.

In this case the potential buyer is not able to pay, regardless of the bank or valuer said x,y,z... Point being if the banks stopped issuing mortgages from tomorrow due to to many defaults then what would the house be worth? It would be worth what you or the other bidder are able to pay for it in cash.

StillWaters

khards wrote: »

Basic theory of economics state willing and able to pay.

In this case the potential buyer is not able to pay, regardless of the bank or valuer said x,y,z... Point being if the banks stopped issuing mortgages from tomorrow due to to many defaults then what would the house be worth? It would be worth what you or the other bidder are able to pay for it in cash.

That's absolutely irrelevant.

khards

StillWaters wrote: »

That's absolutely irrelevant.

I disagree, because if you are not able to pay for it then it will not sell for what you're offering.
Like I say I could offer a million for it, the bank wouldn't loan me the money and likewise it will not sell for what I am offering.

It is worth what someone is willing and able to pay - that will be what the selling price actually is.

GreeBo

the bank is valuing it as collateral, so the jumped up price it went to is largely irrelevant.
The value the bank is interested in is related to similar prices in the area, etc.


Also it is not worth what someone is willing to pay.
It *was* worth what someone *paid* for it, that is all you can ever say.

killers1

Bank Valuation reports are subjective, there is no formula to work out what a property is worth. Where a mortgage is involved the only person who's opinion matters is the banks Valuer, the seller & buyer can have their own ideas but ultimately it's the valuer who confirms whether or not the property is acceptable to the bank as security at the purchase price agreed. OP, the Valuer has done you a favour in preventing you from going ahead with the purchase of a property that you knew was overpriced. Valuers themselves allow some leeway and have a margin of +/- 5-10% on the price versus comparable properties & market conditions at the time. The fact that the Valuer was unwilling to sign off on the purchase price would lead me to believe one of 2 things, either the house is hugely overpriced or else the Valuer is afraid of their lives of being thrown off that particular banks panel and may have been in trouble with them before over previous valuation reports. The fact that the Valuer has refused to sign off on the purchase price does not necessarily mean you have a tool for renegotiation of the price. Another purchaser may be borrowing a lower ltv which means they have scope to take a lessor valuation report and still buy at the same level or alternatively they may find a Valuer who is willing to sign off on the property at that level. The best advice I can give you is sit on it for a week or two and hope that any previous interested parties have moved on to different properties and then send a copy of the valuation report to the EA and tell them your Bank were unwilling to lend the amount you need because their Valuer is of the opinion that the house is vastly overpriced. I can tell you that in 99% of cases Valuers are willing to sign off at the purchase price so when a Valuer is unwilling it's something you should taking serious consideration over.

drunkmonkey

Walshtm wrote: »

I know they had just gotten mortgage approval before the bidding process so they are not cash buyers.

How did you know that? The estate agent?

Seriously if the Valuer is saying you paid too much take it as he's doing you a favour.
With the property market the way it is at the moment your LTV should be well under 90%.
Your paying way too much, walk away.

If it's a 100k what about the value but if your up in the 200/300k + bracket your not going to have a good time with your mortage.

The_Conductor

Sigh.
Where is the property (general area)?
Bank valuers are currently paranoid of over valuing property anywhere- but their valuations and sale price differences are most pronounced in the Dublin area.
The Dublin property market has decoupled itself from the rest of the country- and in some areas would appear to be rising in double digits- while even with apartments and less desireable areas- its pretty much stabilised. Against this backdrop- you have continuing falls elsewhere in the country (with a few notable exceptions).

OP- the valuer did you a favour- whether or not you realise it. I'd suggest walking- if you are in the market for a property like this one- save a larger deposit- which will lower your LTV requirements, and potentially unlock this property segment, even with lower bank valuations.

Henry Ford III

The lenders concern is realisable value should they need to call in the loan/mortgage.

2 overkeen bidders pushed their offers a good bit above that.

There's your difference. The issue I think is that the bidders lost track of the real value of the property, just like in the boom.

I'd be dissapointed if I paid too much for a tank of fuel these days and utterly horrified if I overpaid for a house.

The_Conductor

We do have boom times in certain very small market segments. For example- 2 reasonable (but not stunning) small enough properties in Sandymount- have recently sold for 200k and 300k over asking prices. It is a tiny market segment- but it is happening. In these instances- its lack of supply being chased by people eager to live in a particular post code.

Henry Ford III

The_Conductor wrote: »

We do have boom times in certain very small market segments. For example- 2 reasonable (but not stunning) small enough properties in Sandymount- have recently sold for 200k and 300k over asking prices. It is a tiny market segment- but it is happening. In these instances- its lack of supply being chased by people eager to live in a particular post code.

Seems to be the case ok, and frankly it's madness, but as the old adage goes "fools and their money are easily parted".

RainyDay

khards wrote: »

It is worth what someone is willing and able to pay - that will be what the selling price actually is.

So you're saying that Veterinary College site in Ballsbridge IS worth €171 million - right?

khards

RainyDay wrote: »

So you're saying that Veterinary College site in Ballsbridge IS worth €171 million - right?

If it was sold for €171 million, then it was worth €171 million at the time.

Next time it sells, if people are only willing and able to pay €100k then that is what it will be worth then.

Ray Palmer

Judging from people arguing about "valuation" and going on about the exact definition in economics terms they may actually missing what economic science is. It is a social science about predicting human behaviour. It's definitions are not real world terms. Like with maths and common language use of probability and possibility.

The bankers valued it by what it is worth to them as they see the market it is not an actual accurate valuation. The purchaser basis their valuation to them. Neither valuation is actually wrong. When you get passed the basics of economics you realise that it is not the basics and their are extra layers to the theory. So a definition of valuation from basics economics is actually not the definition of valuation in the real world. It is a dumbed down version for the purposes examining economic theory not a true world meaning. It is not like the value of gravity or speed of light.

desertcircus

This seems to be the result of two different understandings of what constitutes value. Value in economic terms is what someone is willing to buy for and someone else is willing to sell for. That's not what banks (or indeed most normal human beings) use the word as, though; for us value is something less academic and more concerned with the future. And with good cause: the economic definition is of limited worth in making decisions about whether to buy something.

flutered

property values are similar to car values, a car has a price tag of 10k on the fourcourt as soon as you shell out the 10k it decreaces in value to roughly 7.5k, the same applys to property.

Pawwed Rig

flutered wrote: »

property values are similar to car values, a car has a price tag of 10k on the fourcourt as soon as you shell out the 10k it decreaces in value to roughly 7.5k, the same applys to property.

No it doesn't.
Or can I look forward to my rust bucket increasing in price in the next few years?

The_Conductor

Pawwed Rig wrote: »

No it doesn't.
Or can I look forward to my rust bucket increasing in price in the next few years?

Depends- is it a Delorean?

khards

Pawwed Rig wrote: »

No it doesn't.
Or can I look forward to my rust bucket increasing in price in the next few years?

Then ONLY thing that made prices of old houses rise in the past was credit expansion. The actual house behaves much like a car, but it is the land that gains value when there is credit expansion.

The reason for this is that the supply of land is fixed and when you create more money via mortgages the money is used to bid up the land price.

Since Ireland is currently experiencing credit deflation, expect to see land/propert prices continue their downward drift.

Pawwed Rig

khards wrote: »

Then ONLY thing that made prices of old houses rise in the past was credit expansion. The actual house behaves much like a car, but it is the land that gains value when there is credit expansion.

For that to be true there would be a significant difference between the price of a new house and a second hand house. The evidence just does not exist to back up this assertion.

RainyDay

khards wrote: »

If it was sold for €171 million, then it was worth €171 million at the time.

Next time it sells, if people are only willing and able to pay €100k then that is what it will be worth then.

Sorry, but common sense outweighs economic theory. It was never worth €171 million, regardless of what some fool with more credit than sense paid for it.

berrecka

I was in a similar situation a few years ago OP. It was in the UK, but shouldn't make too much difference. I offered the asking price which was accepted. Then my mortgaging bank came in and valued it at £15k under this price - a huge undervaluation at a time in 2009 when UK Valuers were under pressure for overvaluing houses and were being overly cautious. This meant that, while I had a pretty good deposit, the bank weren't willing to offer me the loan to make up the difference in the original asking price and what they had it valued at. So I went back to the seller, who accepted a revised offer from me, £10k under initial bid and asking price, £5k over banks value, to also include a good deal of furniture, fixtures and fittings which would not have otherwise been included (certainly not worth £5k though).

The difference in our situations is that I knew the original asking price was fair and was happy to offer my original bid. So while I still paid over what the banks suggested it was worth, I was confident I was getting a bargain with the reviewed price.

Talk to the seller and see if you can come up with some sort of deal on this. Banks, rightly in my opinion, wont invest in something that is overpriced. Not for you or for anyone else looking for their assistance in buying this house.