Bank valuations are used to determine the loan-to-value ratio in a home loan application, this will impact the amount the bank will lend to you.
Here are a few things to help you understand:
- Lower than a market valuation The bank is estimating the price that it would get for that property if it sold and the buyer couldn’t make the repayments, unlike a private seller the bank is motivated by the urgency of selling a property to recoup their potential losses.
- Selling costs The lender must factor in for any selling costs like the real estate commission, legal fees and other costs.
- More useful to the bank With a bank valuation, this isn’t really for the buyer at all. They might not even choose to share the valuation price with you.
A bank valuation is used to ensure that your home loan does not exceed the property value, this is because the home than becomes collateral for the home loan, and in some cases where that borrower isn’t able to make the repayments, the lender will then resell the house to recoup the amount for the loan to be paid.
Bank valuations are there for mortgage purposes only, so it’s not the best idea to rely on this for any other purpose.
