Buying Your First Home? How to Figure Out Bank Value in Relation to Market Value

If you're in the market to buy your first home, you may be learning a lot as you go along. You may understand that there are strategies in place that can help you to buy a property that is worth well more than your current assets may allow. However, you may be increasingly confused by the terminology and by the way that home values are calculated. If you're working with a bank to help you get the home of your dreams, you may wonder specifically how they have valued the property and why it does not appear to reflect its market value. What are you missing here?

What Is Bank Value?

Many banks these days have very strict guidelines, partly as a consequence of the economic difficulties from a decade ago. As they work within these guidelines, they will try to determine how much money they can lend to you or against a particular property and will value that home accordingly. They do this by sending a valuation expert to have a look at the building. They will assess this report and will almost always give you a figure that's at the lower end of the scale provided by the expert.

They do this so that they don't have too much exposure in the event that repayments are defaulted upon. They will be looking to get back much of their outlay as quickly as possible, should they need to repossess and subsequently sell the building.

What Is Market Value?

The market value of the property is the amount that the seller could typically fetch by putting it onto the open market. Usually, this is also the price that you will have offered to pay for this home. The seller will accept your offer, as it is usually reflective of market value, even though it may be subject to you getting financing.

It's always important to remember that a lender will always seek to comply with what is known as a "loan to value ratio," so they will want to see that any preapproved loan is in line with the valuation metrics.

Maintaining Control

Always try to keep control of these negotiations where you can. If you suspect that a bank valuation may be too low, then you should begin by trying to negotiate a lower price with the seller. If you've reached the bottom as far as that goes, don't be afraid to dispute the bank's valuation. You could provide evidence of similar property sales made in that particular neighbourhood. You may also be able to get a separate, independent valuation by a different expert.

Looking Further

Don't be afraid to talk with an independent finance provider, who may not be tied directly to one of the major banks. It's always good to get the input of another party so that you can come up with the best deal and ideally secure your chosen property.