Many homeowners don’t understand the difference between a market value and a bank value. This is particularly important when a homeowner wants to refinance a property that was previously unbonded, or paid off.

It can be a shock when the bank valuation comes in below the market value they had already assessed in their head. So, why does this happen? How can two “values” be so different for the same property?

What is “market value”?

Market value is essentially the price that the property will trade for on the current market. A more formal way of putting it is: “The estimated value that a buyer would pay and a seller would accept for an item in an open and competitive market.” The main thing to understand about market value is there’s an element of emotion, and sometimes ego, that can drive up the price. This is particularly the case when they fall in love with a home and are willing to extend themselves in order to purchase it.

Why is a bank valuation different?

Where market value can be impacted by emotion, a bank valuation is purely a numbers game.

A professional valuer will complete a bank valuation on the property without any emotion whatsoever. They will look at four key aspects of your home:

• Location
• Market
• Condition
• Age

The valuer will assess a home in terms of its previous sale history, location, condition, age and comparable sales in the area to arrive at a statistically feasible conservative property value.

In fact, more often that not, the valuer will conduct what is know as a “Desktop Valuation” and not even view the property at all. This is particular common in urban areas of high sales volume, where there are plenty of similar properties and comparable sales to support the assessment.

In our experience, the bank almost always values the property for the price you are buying/selling for. This means that bank value = market value in most circumstances, provided the sales price is in line with comparable sales in the area. The bank’s valuer will rarely go higher than the sale price, as there is no reason for them to do so.

Refinancing issues

Issues can arise when a homeowner wants to refinance their existing unbonded home. The bank valuer is now completing a blind bank valuation, with no recent sale price for the property.

The bank value is often lower than market value because of its objectivity, lack of emotion, tendency to be conservative and ‘as of the moment and condition’ approach.

Of course, this can be annoying to anyone wanting to refinance and access cash from your existing property. Not only will the bank’s lower value of the property affect the amount of cash you can withdraw, it will also affect the interest rate you could potentially receive (higher loan-to-value will result in higher interest rate).

The best way to get around this is to ensure you apply at multiple banks for your refinance application. Multiple banks mean multiple bank valuers assessing the property, each offering their own value assessment and interest rate offering. Multiple offers can also be used to negotiate the highest value at the best interest rate.

Compare multiple offers when you refinance your home

Apply to refinance your home through Phoenix Bonds – we will simultaneously submit your application to up to 10 banks to improve your chances of success. We can also negotiate on your behalf to ensure you get the loan amount you want at the best possible interest rate.

The best part – our services are completely free!

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