The Difference Between Bank & Market Value

The difference between a bank valuation and a market value

A bank valuation will usually be lower than the recent market value because they serve different purposes.   A lender uses a bank valuation to determine the amount they can expect if the property was to be sold.  Obviously, the lender wants to ensure its interests are protected in the event of defaults.  There will need to be extenuating circumstances for the lender to sell a property but may include situations where the borrower has encountered financial difficulty such as late mortgage repayments which could arise from loss of employment.

On the other hand, a property’s market value is the amount the homeowner would get for the home if they were to sell the property.  When a homeowner sells a property, it is in their interest to keep abreast of sale prices for comparable properties.  More often than not a homeowner will be aware of the preferred time to sell the property in order to maximise the sale price.

What is a bank valuation used for?

The lender has to ensure the amount of the loan is less than the value of the property.  The property is treated as collateral for a home loan. In the event of financial difficulty whereby borrower cannot repay the loan the lender may take steps to sell the property.  There may be occasions where the sale price does not exceed the amount of the loan.

In the sale of the home, the lender has to factor in real estate commissions, legal fees and other associated fees.

What buyers seek in a bank valuation

There may be occasions where the lender has to access both inside and outside the property.
Factors that the lender will consider include:

• Zoning
• Size of the property including number of rooms
• Structure
• Access
• Condition

The lender usually does not tell the homeowner the actual valuation.  A bank valuation is done to calculate the amount the borrower can repay.  A lender uses this figure for internal purposes as a means of protecting its own interests.

A bank valuation is designed to meet the needs of the lender rather than the property owner. The market value is more important to the property owner in order to understand the value of comparable property sales.