What is the difference between a market valuation and a bank valuation?

The price at which a property would sell in the current open market is known as market valuation, also called fair market value. What interested buyers are willing to pay and what sellers are willing to accept determines this valuation. Factors such as size, location, and comparable sales in the current market, influence the market valuation. Professional Valuers and Real Estate Agents perform these valuations to assist buyers in making informed decisions, and sellers to set the appropriate price.

The purpose of a bank valuation is usually to secure a loan or mortgage and is performed by a bank or registered Valuer appointed by the lender. To safeguard the bank if the borrower defaults on the mortgage, the bank values the property and ensures that the loan amount does not exceed its worth. Bank valuations are typically lower than the market value. This cautious approach takes future market recessions and property depreciation into consideration. With emphasis on long-term stability and resale value, the Valuer will consider similar comparable factors to those of a market valuation.

The main distinction between bank and market valuations is in their respective goals. Market valuations consider current supply and demand dynamics to determine what the property could bring in on the open market. Bank valuations, on the other hand, are risk-averse assessments meant to protect the lender’s capital. The estimated value of the property may differ significantly due to these different approaches.

Both buyers and sellers need to understand the difference between these two valuations. If the buyer’s ability to obtain finance is hindered by a bank valuation that is less than the market value, sellers may become frustrated. Buyers should be aware that if a bank valuation comes lower than the market value, they will be liable to pay the difference to fulfill the agreed-upon purchase price.