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Bank Valuation verses agents appraisal

Why is there a difference between how the bank values a property and the actual purchase price of the property? In some cases, this difference can be as high as 20%.

The reason is not too hard to understand if you know how the process works for each valuation. Firstly, Bank valuers must be licensed and do their due diligence when valuing a property. They will carry the risk that their assessment is correct and as such are a little more conservative than a real estate agent.

To properly assess the value of a property, a valuer must first inspect the property and record details of the property’s attributes. Photos will be taken as part of the valuer’s report.  Also taken into account are any unique features as well as its location, building material used and its condition, zoning and any planning restrictions, as well as the general standard of presentation which includes the quality of fixtures. Buildings or improvements that are not certified or council approved on a property will not form part of the valuation.

Once this part of the process is complete, the valuer must use recent comparable sales in the area to base his valuation. Certain sales are disregarded, for example if there was a sale to a family member or even an overseas buyer as well as distressed sales, these are usually not taken into account. Any abnormally high or low price in the area will also be disregarded as an anomaly and disregarded.

What occurs after this process is a reasonable and accurate assessment of a property’s true value.

The real estate agent is not a qualified valuer, and will only give you an appraisal of what he or she thinks your property is worth. This is done through their own experience as well as comparable sales in the area. They are also working for the vendor, which usually adds incentive to appraise the property as high as possible.

At the end of the day, one is based on fact, where the valuer is liable for the valuation report, where the other is based on estimation and feel to earn your business.

One important point to note however is a property is only worth what someone will pay. The valuation might be low, but with the right buyer who falls in love with a property, the purchase price can be much higher. 
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