What is a property valuation and how is it done for mortgage purposes?
Property valuations are central to the home buying process as well as to mortgage refinancing. Any property purchase or renovation or mortgage refinancing will require a property valuation. The list price or the real estate agent’s valuation are indicators only and a bank or credit union or building society will, in most cases conduct their own valuation. The valuation needs to support the price being paid in the case of a home purchase or a mortgage refinance application.
If the valuation comes in at significantly below the borrowed amount, the application may fail. Or the loan offered may be less than the asking price of the property. In the case of a mortgage refinancing deal, other factors apply, including the loan to valuation ratio (LVR) and the amount sought. If the valuation from the lender comes in at a value which makes the LVR exceed 80% then the bank may require the borrower to pay a premium for mortgage insurance.
A property valuation is a valuation supplied by a professional valuer. The valuation derived is not necessarily the same as the property’s sale price. A valuation is needed to secure the home loan. After going though the home loan comparison exercise and looking at various mortgage companies, an application is made though a mortgage provider or a mortgage broker or to a bank or non bank lender. A lender may have staff valuers or may use the services of a firm of valuers.
A valuer relies on market sales evidence to form opinions when applying direct comparison valuation methods. This evidence comes from private and public sales records, real estate agents and the valuers own local knowledge. The valuer should be aware of most sales, however he/she may miss recent sold signs and other nearby real estate properties that are “under contract”. Noting any recent information like this could be very helpful to the valuer.
Valuers may err on the side of conservatism. A home buyer today should be leery of valuation advice provide by selling agents. Most people seek the expert advice of a real estate agent with the ability to read these conditions and supply an appropriate market appraisal. A good agent gives a realistic evaluation of worth. The bottom line is that a vendor should be confident that an agent is being realistic and professional in appraising the value of their property. Although some real estate agents offer such information, they are, generally, not qualified valuers and their view is only an ‘opinion’. Ultimately, the bank’s valuation is what matters.