Bank Valuation versus Sale Agreed amount

Walshtm

Hi all, appreciate any feedback on this one please. We have in the last few weeks gone sale agreed on a property in Dublin. We entered into a bit of a bidding war during the bidding process with one other bidder in particular upping the bids on us over a period of over a week. After the other bidder reached their max we went sale agreed.

At this point we were happy that we now had reached the point of going sale agreed but I did feel that the current agreed price was probably too much to pay for the property by a margin of at least 10% of the property price compared to properties in this region which have sold in the last couple of years according to the PPR.

Over the last week the bank that we are hoping to lend from did a bank valuation on the property and low and behold he has come back with his valuation on the property and his valuation is about 10% lower than the sale agreed price. We are in a bit of a pickle now as to what to do next because the bank will more than likely only lend to us 90% of the bank valuation rather than 90% of the sale agreed price.

Valetta

Walk away would be my advice.

You have acknowledged yourself that the price is too high.

drunkmonkey

Have you put a deposit down? Lots of fake bidders trying to over inflate values, If there's no money down back out and give it to the other bidder, house will still be there in a few months, offer 20% less than you were willing to pay this time..

There'll be other houses don't worry...

Deise Vu

Jesus, in all fairness where have you been for the last six years? You have probably outbid a genuine bidder with money you haven't got approval for. That is unfair to the other bidder and the vendor who might be back at square one. Plus you have potentially landed yourself in a world of bother with legal issues regarding specific performance.

Is it too much to ask that people know what they are getting into when they bid on a property that they will most likely be paying off over 25 years?

kennyb3

Deise Vu wrote: »

You have probably outbid a genuine bidder with money you haven't got approval for. That is unfair to the other bidder and the vendor who might be back at square one. Plus you have potentially landed yourself in a world of bother with legal issues regarding specific performance.

Where do they say they don't have approval?

They probably have approval in principal from AIB.

They send out a valuer after going sale agreed before issuing the mortgage contract/pack.

The issue here is the price - not approval.

The valuer is clearly saying it's not worth the full amount.

Walshtm

Deise Vu wrote: »

Jesus, in all fairness where have you been for the last six years? You have probably outbid a genuine bidder with money you haven't got approval for. That is unfair to the other bidder and the vendor who might be back at square one. Plus you have potentially landed yourself in a world of bother with legal issues regarding specific performance.

Is it too much to ask that people know what they are getting into when they bid on a property that they will most likely be paying off over 25 years?

Trust me I'm well aware of the property market and how it has gone over the last few years, I'm a long time lurker on thepropertypin, need I say anymore.

Just to clarify we actually got approval for about 100k over the final agreed price but ultimately the bank will only lend 90% LTV i.e 90% of the bank valuation on the property so whatever we got approval for initially for is now pretty much irrelevant.

In terms of the legal issues, there are none, we simply paid a booking deposit to the estate agent and can back out at any time as this is fully refundable.

What i'm looking for really is if anyone has or knows anyone in a similar situation and how this panned out in terms of negotiation etc...

chris85

Walshtm wrote: »

Trust me I'm well aware of the property market and how it has gone over the last few years, I'm a long time lurker on thepropertypin, need I say anymore.

Just to clarify we actually got approval for about 100k over the final agreed price but ultimately the bank will only lend 90% LTV i.e 90% of the bank valuation on the property so whatever we got approval for initially for is now pretty much irrelevant.

In terms of the legal issues, there are none, we simply paid a booking deposit to the estate agent and can back out at any time as this is fully refundable.

What i'm looking for really is if anyone has or knows anyone in a similar situation and how this panned out in terms of negotiation etc...

What negotiation you mean? You clearly know the value is less than your offering price yet you want the bank to allign with you? Wouldnt see them budging here, these LTV are very important to the risk profile of the mortgage agreement.

Henry Ford III

Why did you bid over the value of the property OP?

Walshtm

chris85 wrote: »

What negotiation you mean? You clearly know the value is less than your offering price yet you want the bank to allign with you? Wouldnt see them budging here, these LTV are very important to the risk profile of the mortgage agreement.

Negotiation mainly with the vendor but also to get an idea if the bank stick 100% to the valuation or is there room here in the lending parameters for example 3% above etc?

pwurple

It's unusual for a valuer to do this. Who was the valuation done by, can you speak to them about it?

To put it fairly basically, the value of a property is what someone is willing to pay for it.

We had a valuation done for a bank before, where the valuation came in lower, because they had valued it as a 1 bed, when it was a 3 bed. This was because a dormer conversion did not have planning permission, so on paper, it was a 1 bed. Obviously there is a large difference in value between 1 and 3 bed house.

The vendors had to go off and get retention for their alteration before we could proceed.

Is the different something like this?

kennyb3

Go back to the EA. Unless the other party is a cash buyer - they'll know that the other party will face this problem too.

The other option is a different bank - different valuer. (assuming you've approval with more than one)

Still given you know you're overpaying so i'd reconsider the whole transactions - as the valuer is the only cost to date i'd imagine.

If I was you i'd also try save a greater deposit.

Deise Vu

Walshtm wrote: »

Trust me I'm well aware of the property market and how it has gone over the last few years, I'm a long time lurker on thepropertypin, need I say anymore.

Just to clarify we actually got approval for about 100k over the final agreed price but ultimately the bank will only lend 90% LTV i.e 90% of the bank valuation on the property so whatever we got approval for initially for is now pretty much irrelevant.

In terms of the legal issues, there are none, we simply paid a booking deposit to the estate agent and can back out at any time as this is fully refundable.

What i'm looking for really is if anyone has or knows anyone in a similar situation and how this panned out in terms of negotiation etc...

Apologies, I thought you had just gone off on spec. You need to clarify this with your bank straight away.

This is a completely new one on me. Market value is the price at which there are willing sellers and willing buyers not the opinion of some valuer who 5 years ago said the same property was worth twice as much. If your bank approved uou for €100K more they should not have any issues. It defies belief that there are banks out there who are approving loans of €X but will only lend 90% of what their valuers say. How can anyone confidently bid on a house in that situation?

On the other hand, I would believe anything of our banks these days. As I said, contact your bank and pull out as quickly as you can if there is an issue.

Walshtm

pwurple wrote: »

It's unusual for a valuer to do this. Who was the valuation done by, can you speak to them about it?

To put it fairly basically, the value of a property is what someone is willing to pay for it.

We had a valuation done for a bank before, where the valuation came in lower, because they had valued it as a 1 bed, when it was a 3 bed. This was because a dormer conversion did not have planning permission, so on paper, it was a 1 bed. Obviously there is a large difference in value between 1 and 3 bed house.

The vendors had to go off and get retention for their alteration before we could proceed.

Is the different something like this?

Thanks for your feedback. No this is a different situation, the valuer actually rang me directly to give me a heads up. He outlined exactly his reasons for valuing the property at this price taking into account PPR and sale agreed prices in this area over the last number of weeks/months so there is a lot of data there to work with. I was very confident that he knew what he was talking about, has been in the industry a long time.

pwurple

Deise Vu wrote: »

It defies belief that there are banks out there who are approving loans of €X but will only lend 90% of what their valuers say. How can anyone confidently bid on a house in that situation?

?????

Ok, first off, the bank is not employing a value internally.

The valuer is another estate agent. There is usually a 'panel' of valuers. Two or three valuers who the bank suggests, and you chose and PAY for yourself. You are their client.

Bank have always lent a % of LTV, so I don't know how this is news to anyone.

RainyDay

pwurple wrote: »

It's unusual for a valuer to do this. Who was the valuation done by, can you speak to them about it?

To put it fairly basically, the value of a property is what someone is willing to pay for it.

Where have you been for the last 8 years? Do you reckon that 2 acres in Ballsbridge was ever worth €171 million? http://www.irishtimes.com/business/sectors/commercial-property/91-off-vet-college-site-in-ballsbridge-1.1318186

Supercell

OP the person/s you outbid will likely face the same problem unless they are cash buyers.

Be honest with the seller and show them the valuation so they don't think you are trying to gazump them. Most reasonable people will see sense once faced with the valuation on paper. If not, walk away, you haven't signed yet so no obligation from you to close.

Walshtm

Supercell wrote: »

OP the person/s you outbid will likely face the same problem unless they are cash buyers.

Be honest with the seller and show them the valuation so they don't think you are trying to gazump them. Most reasonable people will see sense once faced with the valuation on paper. If not, walk away, you haven't signed yet so no obligation from you to close.

Thanks Supercell. I'm pretty sure the other bidder would have the same issue as us because I know they had just gotten mortgage approval before the bidding process so they are not cash buyers.

flutered

the lessons of the past will never be learned, no wonder the country is in hock.

pwurple

RainyDay wrote: »

Where have you been for the last 8 years? Do you reckon that 2 acres in Ballsbridge was ever worth €171 million? http://www.irishtimes.com/business/sectors/commercial-property/91-off-vet-college-site-in-ballsbridge-1.1318186

I've been nowhere near flippen ballsbridge, that's for sure anyway!

It's a fairly simple definition. Value = what someone is willing to pay. If you have a new definition I'd love to see it.

I agree with poster above. Approach vendor with your issue and use it to negotiate.

Supercell

I'd say in this case, from the banks perspective valuation is what someone else, not the OP, would pay for it in a default scenario. A pretty crucial difference.

Deise Vu

pwurple wrote: »

?????

Ok, first off, the bank is not employing a value internally.

The valuer is another estate agent. There is usually a 'panel' of valuers. Two or three valuers who the bank suggests, and you chose and PAY for yourself. You are their client.

Bank have always lent a % of LTV, so I don't know how this is news to anyone.

Like I said previously, market value is the price at which there is a willing seller and a willing buyer. In this case we know there were two bidders so presumably there at at least two people who would have paid the final price +/- say €5K. So how can a 'valuer' come along and say this is not the market price?

Obviously the banks need to guard against crazy bids or even fraudulently inflated prices (pity they weren't so stringent about it 10 years ago) but in this scenario I am utterly baffled. Effectively you are sayign you need to agree your bid with your valuer beforehand. You wouldn't want to be making too many auctions at that rate.

khards

pwurple wrote: »

It's a fairly simple definition. Value = what someone is willing to pay. If you have a new definition I'd love to see it.

No, you are clearly wrong, for it is the banks who price property and not the vendor or potential buyer.

Value = What the bank are willing to lend.

You want the house but clearly you have the ability to pay for it, because if you did you would stump up the 10% difference in cash.

I think it is rather sensible of the valuer and bank, because if the bank needs to repossess the house in the future they will need to sell it again to recoup their money. After all it will be mainly the banks house and not yours.

pwurple

khards wrote: »

No, you are clearly wrong

Here is 'Intro to economics' Read the first section entitled 'Value'.
http://en.wikibooks.org/wiki/Introduction_to_Economics
"Something is worth what someone is willing to pay for it"

See also 'Economics for Dummies', or a dictionary.

for it is the banks who price property and not the vendor or potential buyer.

The buyer offers a price. The bank never bids.

You want the house but clearly you have the ability to pay for it, because if you did you would stump up the 10% difference in cash.

I think it is rather sensible of the valuer and bank, because if the bank needs to repossess the house in the future they will need to sell it again to recoup their money. After all it will be mainly the banks house and not yours.

Oh dear lord. I'm not even the buyer. You are extremely confused.

RainyDay

Deise Vu wrote: »

Obviously the banks need to guard against crazy bids or even fraudulently inflated prices (pity they weren't so stringent about it 10 years ago) but in this scenario I am utterly baffled. Effectively you are sayign you need to agree your bid with your valuer beforehand. You wouldn't want to be making too many auctions at that rate.

Part of the problem of our property bubble is that it is in the short-term interest of the banks, or more specifically the bankers, to lend as much as possible. The more they lend, the more interest they earn.

It's strange to see that the penny hasn't dropped for some people yet.

ted1

WE got a mortgage with AIB last year, the valuer we got (from off their list) asked us what the price is, and bingo thats th eprice he came with, he said we wer paying about 20% below market price but that if his value was anyway different it might cause a problem.

perhaps a 2nd valuer will give a better value.

it would have been yourself who sent in the value to the bank, TBH honest you shoudl have noticed the difference and asked the question before hand.

khards

pwurple wrote: »

Here is 'Intro to economics' Read the first section entitled 'Value'.
http://en.wikibooks.org/wiki/Introduction_to_Economics
"Something is worth what someone is willing to pay for it"

See also 'Economics for Dummies', or a dictionary.

If I was an unemployed bum, I have no means to pay for it but I up your bid to a million then is the house worth a million?

I thought not.

Walshtm

ted1 wrote: »

WE got a mortgage with AIB last year, the valuer we got (from off their list) asked us what the price is, and bingo thats th eprice he came with, he said we wer paying about 20% below market price but that if his value was anyway different it might cause a problem.

perhaps a 2nd valuer will give a better value.

it would have been yourself who sent in the value to the bank, TBH honest you shoudl have noticed the difference and asked the question before hand.

The bank chose their own valuer to go and value the property. We had at no point any say in who was doing the bank valuation and we did not send in the valuation ourselves, it was the bank valuer who sends this in. He rang to give me a heads up as to what he was handing into the bank in terms of a valuation.

GreeBo

Walshtm wrote: »

Thanks Supercell. I'm pretty sure the other bidder would have the same issue as us because I know they had just gotten mortgage approval before the bidding process so they are not cash buyers.

I wouldnt bank on that, you have no idea what their circumstances are.
Perhaps they have been saving for 15 years and were only looking for a 70% LTV anyway?
so now it goes up to 80%, makes no odds to them (bar probably a higher rate)

pwurple

Walshtm wrote: »

The bank chose their own valuer to go and value the property. We had at no point any say in who was doing the bank valuation and we did not send in the valuation ourselves, it was the bank valuer who sends this in. He rang to give me a heads up as to what he was handing into the bank in terms of a valuation.

What bank is this out of interest? I've dealt with AIB and KBC in the last few years and they both gave us a choice.

pwurple

khards wrote: »

If I was an unemployed bum, I have no means to pay for it but I up your bid to a million then is the house worth a million?

I thought not.

So explain to me how are you willing to pay in that scenario?

If two starving people get to a sandwich stall in the desert at the same time, with only one sandwich left... the one willing to part with the most cash gets the sandwich. No matter what the price on the tag is.

khards

Basic theory of economics state willing and able to pay.

In this case the potential buyer is not able to pay, regardless of the bank or valuer said x,y,z... Point being if the banks stopped issuing mortgages from tomorrow due to to many defaults then what would the house be worth? It would be worth what you or the other bidder are able to pay for it in cash.