Bank evaluation vs selling price

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kalevra

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Let's say you put an offer on a property for R1 million. The bank assess the value of the property as R950k.

Does this mean that the you are paying too much for the property?
The bank, in this situation, is still offering 100% bond - would this indicate they still have sufficient collateral to loan the cash?
 
Remember that most bank valuations are what they call desktop valuations. In other words, they don't visit the house in question. They look at the erf size, and how much similar properties in the area have gone for.

The valuation is then the figure that the bank would expect the house to sell for if it were on the market today. But it doesn't take into account the actual state of the property itself, just its type, location and size.

Bear in mind that valuations are never 100% accurate, and the bank knows this. They are estimations only. So, the bank will have a tolerance which it is willing to accept. Had you offered R1.5 million, the bank would have refused. But a R50k difference is small enough for them to take the risk, although this may impact your interest rate.
 
kalevra said:
Let's say you put an offer on a property for R1 million. The bank assess the value of the property as R950k.

Does this mean that the you are paying too much for the property?
The bank, in this situation, is still offering 100% bond - would this indicate they still have sufficient collateral to loan the cash?
Click to expand...

I've found that whenever they do the valuation, it is always less. I think it is more likely not the retail value of the property.
 
Ancalagon said:
Remember that most bank valuations are what they call desktop valuations. In other words, they don't visit the house in question. They look at the erf size, and how much similar properties in the area have gone for.

The valuation is then the figure that the bank would expect the house to sell for if it were on the market today. But it doesn't take into account the actual state of the property itself, just its type, location and size.

Bear in mind that valuations are never 100% accurate, and the bank knows this. They are estimations only. So, the bank will have a tolerance which it is willing to accept. Had you offered R1.5 million, the bank would have refused. But a R50k difference is small enough for them to take the risk, although this may impact your interest rate.
Click to expand...

Thanks that's the answer I was hoping for. Obviously as a buyer you don't want to buy a property that's over priced - which will obviously eat into your eventual profits.
 
kalevra said:
Thanks that's the answer I was hoping for. Obviously as a buyer you don't want to buy a property that's over priced - which will obviously eat into your eventual profits.
Click to expand...

There's no way a property valuation is a measure of whether you are paying an overpriced fee. The only way to see that is to compare other properties in the area. You will almost always pay more than the house is actually worth in nice areas in Cape Town. You will however get your money back when you sell.
 
Ancalagon said:
Remember that most bank valuations are what they call desktop valuations. In other words, they don't visit the house in question. They look at the erf size, and how much similar properties in the area have gone for.

The valuation is then the figure that the bank would expect the house to sell for if it were on the market today. But it doesn't take into account the actual state of the property itself, just its type, location and size.

Bear in mind that valuations are never 100% accurate, and the bank knows this. They are estimations only. So, the bank will have a tolerance which it is willing to accept. Had you offered R1.5 million, the bank would have refused. But a R50k difference is small enough for them to take the risk, although this may impact your interest rate.
Click to expand...

Just to add to this.

That is why many agents only accept offers where there is a sizable deposit, because most of them know that banks will never find that amount of value in the property, as the agents are constantly pushing the boundaries.

In our case, after putting down a deposit, we just just made the cut to get the remainder (bond amount) financed.
 
Like was said the valuation itself is more dependent on floor size + erf size + house value in the area.

It doesn't take into account the features and fittings of the house itself. It doesn't care if there are aircons in every room or fancy granite tops in the kitchen and that's there the rest of the selling value comes in.
 
One of the key reasons for this is in the case of a default. When the house is Repo'ed, they would need to sell it to get as much of the investment back. So if over valuated, the bank sits with stock on its hands it needs to sell, thus leads to a loss if the invested value is below actual selling price.

This happened some time ago in the property bubble, massive list of repo houses selling for far less than their "banked" value, thus the banks running into losses.

So the investor is protecting his investment - in this case the bank. Not pretty but it is what it is.
 
kalevra said:
Thanks that's the answer I was hoping for. Obviously as a buyer you don't want to buy a property that's over priced - which will obviously eat into your eventual profits.
Click to expand...

Get them to do an onsite valuation. On paper the price I paid for my house was close to its desktop value, when they came out they could not believe the bargain I was buying and this was from two different valuations (FNB and SA Homeloans).
 
cbrunsdonza said:
Get them to do an onsite valuation. On paper the price I paid for my house was close to its desktop value, when they came out they could not believe the bargain I was buying and this was from two different valuations (FNB and SA Homeloans).
Click to expand...

For my recent purchase one bank gave a 2bar desktop value, another, after seeing the state of the place only valued it at around 1.4
 
Now what happens... I bought a property but the bank evaluated it at much higher?
Did I score a bargain? lol
 
scienide said:
Now what happens... I bought a property but the bank evaluated it at much higher?
Did I score a bargain? lol
Click to expand...

Same here; bank evaluation was little over 10% the original purchase price. I negotiated (with lots of effort) a lower purchase price as well and got down to 7% discount.

Eval, by another bank, was accidentally done on my property 12 months later and the value had increased by another 10% of the original bank's estimation.
 
SauRoNZA said:
Like was said the valuation itself is more dependent on floor size + erf size + house value in the area.

It doesn't take into account the features and fittings of the house itself. It doesn't care if there are aircons in every room or fancy granite tops in the kitchen and that's there the rest of the selling value comes in.
Click to expand...

Those are seen as moveable assets - you can rip those out and sell the house without that. Its like fitting solar panels on the roof - as far as the valuer is concerned, you can take those with you.

Certain items do count - it gets very complicated. The critical factors are the structures itself, the property size and the comparable values. And they do not do desktop valuations - almost all require site inspections as well as photographs of the property. In some cases - especially hostile divorce proceedings or loss controll - a drive-by is allowed.

The tricky bit is finding comparables for sites - I've heard my wife swearing while looking for a equivalent property in a area - when the owner has obviously overcapitalised. And they also do random audits of recent valuations to ensure that the estimated value is correct.
 
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