Bank house valuation methods

A Guide to Property Valuations

If you are considering purchasing a new property or re-mortgaging your current home, the mortgage lender will carry out a valuation survey of your property to determine what the property is worth and make sure that it is in line with the amount that you are planning to pay for it or the re-mortgage amount. If you are currently in the process of selling your home, it is likely that your potential buyer’s mortgage lender will want to conduct a mortgage valuation on the property to ensure that it is in line with the price that you are asking for it.

What are the Bank House Valuation Methods?

A lender will conduct a valuation of your property in a number of different ways. In some cases, your lender may arrange for a surveyor to visit the property in person to put together a short report. However, more often, surveyors will opt to value properties without visiting them in person, instead, using recent online sales data and, in some cases, driving past the property to check its external condition.

The method that your lender will use to value the property that you are looking to buy can depend on the level of risk. In most cases, a desk-based and drive-by valuation may be sufficient. However, your lender may instruct a surveyor to visit the property if there is anything that might cause an issue with lending, such as if the property is very old or if it is constructed with a non-standard material like concrete. Lenders may also decide to instruct a surveyor to perform a physical visit of the property if they have not lent in that area before, or if there isn’t much information online about the property to make an informed decision.

Bank house valuation methods

Physical Surveyor Visit:

If your mortgage lender decides that a surveyor will need to visit the property to perform the valuation survey, they will take around 15-30 minutes to look around the property. This is a very basic survey where any obvious defects will be looked for, and key details of the property will be confirmed for the lender. Once the visit is complete, the surveyor will assess the market value of the property. They will do this by looking at three sales of similar properties in the area within the past few months. They will also take their knowledge of the local market and supply and demand for properties within the area into account.

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Desk-Based Valuations:

The good news is that if your mortgage lender decides that the loan will not involve much risk, they are more likely to opt for a desk-based valuation rather than a physical visit. This involves an analysis of local house price data using a house price index such as the Land Registry, and an algorithm that will provide the surveyor with an automated valuation. In some cases, the surveyor may be asked to drive by the property and perhaps park to take a look at the exterior, in order to do a final check on the general condition of the house before making an informed judgement on the value. They will not enter the property.

In either type of valuation, the surveyor may also provide your mortgage lender with a minimum reinstatement value, which is an estimated figure for how much it would cost to rebuild the property from the ground up. This figure will not only be useful to your mortgage lender when determining the worth of your home, but you can also refer to it when getting buildings’ insurance cover later down the line.

What Happens if the Bank Valuation is Less Than the Purchase Price:

If the surveyor decides that the property is worth less than the agreed sale price or re-mortgage value, a down valuation will occur. This can sometimes ruin the deal as it can throw calculations out of sync. For example, if you want to buy a property for £250,000 and have a deposit of £25,000, you will need a mortgage for £225,000, or 90% of the purchase price. However, if the surveyor values the property at just £200,00, the 90% mortgage that the lender offers will only be £180,000, which will leave you with a shortfall of £45,000.

Down valuations will typically occur when the house price is out of sync with current market trends. For example, if house prices in the specific area are falling compared to other nearby locations, there can sometimes be a gap between the estate agent’s valuation of the property and the surveyor’s opinion of what the property is worth.

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If you receive a down valuation when the property that you want to buy undergoes a mortgage valuation survey, the first thing to do is try and renegotiate the sale price with the seller. In many cases, a down valuation can actually work in your favour and allow you to purchase the house for less. Many sellers will agree to reduce the asking price to the amount that the lender has determined the property to be worth since they will struggle to get the original amount from another buyer. In some cases, sellers are willing to take less money for the house as they are keen to push the sale through as quickly as possible.

However, if you are in a situation where you’re re-mortgaging a property that you already own or the seller is not willing to negotiate on the price, you may be able to challenge the valuation. To do this, you will need to gather robust evidence to prove that the property is worth the amount that you have applied for from the lender. However, whether or not to accept the valuation challenge is at the lender’s discretion.

If you do not have any evidence that the property is worth more than the bank has valued it at, you might be able to accept the new smaller loan offer and try to make up the shortfall in another way. You could do this using savings, a larger deposit, or borrowing money elsewhere, although it will not be a realistic option for many buyers. You may also want to try using a different mortgage lender that uses a different surveyor, to try and get a valuation that is closer to the sale price.

How to Avoid a Bank Valuation Lower Than the Purchase Price:

Whether you are buying, selling, or re-mortgaging a property, there are several things that you can do to try and avoid a down valuation. Down valuations can be very stressful and put a lot of additional strain on an already stressful process of purchasing or re-mortgaging a property, so it’s worth knowing what you can do beforehand to ensure that the valuation you get is as close to the mortgage amount that you have applied for as possible.

If you are buying:

Research the Value of the Property:

Before going ahead with the purchasing process, spend some time researching the value of the property that you are looking at. Checking the amount that similar properties in the area have sold for over the past few months can give you a clearer idea of what the asking price should be and whether you are likely to get a down valuation from the lender.

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Make a Realistic Offer:

When buying, you should use the research that you carry out to make an offer on a property that is as realistic as possible. If you have seen that similar properties in the area are selling for less than the asking price of the property that you are interested in, don’t be afraid to put in an offer that is lower than the asking price. If the house is ultimately down valued by the lender, it could help you avoid a lot of trouble later on.

Use the Right Mortgage Provider:

If you are planning to purchase a property that is likely to be seen as an additional risk by a mortgage lender, then it’s worth doing your research into lenders that might specialise in this type of property. You can do this by contacting a whole-of-market mortgage broker, who will have access to every mortgage deal available and can recommend suitable lenders based on the property you’re hoping to buy.

If you’re selling:

Get an Expert Opinion:

It is a wise idea to ask three local estate agents to value your home. Ideally, you should choose estate agents who have recently sold properties that are similar to yours since they can use their experiences and knowledge of the local market to come up with a realistic valuation. You will likely end up with three different figures, but rather than going for the highest, it’s wise to calculate the average.

Check With Your Lender:

You can ask your existing lender to check the property value that they have on file for your home before you put it up for sale. This information can come in handy when deciding how much to list your property on the market for.

If you are buying or selling a home, the bank will carry out a valuation to ensure that it is worth the asking price. Understanding how this works and taking steps to ensure a valuation that is close to the sale price can save a lot of hassle in the buying process.