Bank Valuation versus Sale Agreed amount

StillWaters

khards wrote: »

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.

That's absolutely irrelevant.

khards

StillWaters wrote: »

That's absolutely irrelevant.

I disagree, because if you are not able to pay for it then it will not sell for what you're offering.
Like I say I could offer a million for it, the bank wouldn't loan me the money and likewise it will not sell for what I am offering.

It is worth what someone is willing and able to pay - that will be what the selling price actually is.

GreeBo

the bank is valuing it as collateral, so the jumped up price it went to is largely irrelevant.
The value the bank is interested in is related to similar prices in the area, etc.


Also it is not worth what someone is willing to pay.
It *was* worth what someone *paid* for it, that is all you can ever say.

killers1

Bank Valuation reports are subjective, there is no formula to work out what a property is worth. Where a mortgage is involved the only person who's opinion matters is the banks Valuer, the seller & buyer can have their own ideas but ultimately it's the valuer who confirms whether or not the property is acceptable to the bank as security at the purchase price agreed. OP, the Valuer has done you a favour in preventing you from going ahead with the purchase of a property that you knew was overpriced. Valuers themselves allow some leeway and have a margin of +/- 5-10% on the price versus comparable properties & market conditions at the time. The fact that the Valuer was unwilling to sign off on the purchase price would lead me to believe one of 2 things, either the house is hugely overpriced or else the Valuer is afraid of their lives of being thrown off that particular banks panel and may have been in trouble with them before over previous valuation reports. The fact that the Valuer has refused to sign off on the purchase price does not necessarily mean you have a tool for renegotiation of the price. Another purchaser may be borrowing a lower ltv which means they have scope to take a lessor valuation report and still buy at the same level or alternatively they may find a Valuer who is willing to sign off on the property at that level. The best advice I can give you is sit on it for a week or two and hope that any previous interested parties have moved on to different properties and then send a copy of the valuation report to the EA and tell them your Bank were unwilling to lend the amount you need because their Valuer is of the opinion that the house is vastly overpriced. I can tell you that in 99% of cases Valuers are willing to sign off at the purchase price so when a Valuer is unwilling it's something you should taking serious consideration over.

drunkmonkey

Walshtm wrote: »

I know they had just gotten mortgage approval before the bidding process so they are not cash buyers.

How did you know that? The estate agent?

Seriously if the Valuer is saying you paid too much take it as he's doing you a favour.
With the property market the way it is at the moment your LTV should be well under 90%.
Your paying way too much, walk away.

If it's a 100k what about the value but if your up in the 200/300k + bracket your not going to have a good time with your mortage.

The_Conductor

Sigh.
Where is the property (general area)?
Bank valuers are currently paranoid of over valuing property anywhere- but their valuations and sale price differences are most pronounced in the Dublin area.
The Dublin property market has decoupled itself from the rest of the country- and in some areas would appear to be rising in double digits- while even with apartments and less desireable areas- its pretty much stabilised. Against this backdrop- you have continuing falls elsewhere in the country (with a few notable exceptions).

OP- the valuer did you a favour- whether or not you realise it. I'd suggest walking- if you are in the market for a property like this one- save a larger deposit- which will lower your LTV requirements, and potentially unlock this property segment, even with lower bank valuations.

Henry Ford III

The lenders concern is realisable value should they need to call in the loan/mortgage.

2 overkeen bidders pushed their offers a good bit above that.

There's your difference. The issue I think is that the bidders lost track of the real value of the property, just like in the boom.

I'd be dissapointed if I paid too much for a tank of fuel these days and utterly horrified if I overpaid for a house.

The_Conductor

We do have boom times in certain very small market segments. For example- 2 reasonable (but not stunning) small enough properties in Sandymount- have recently sold for 200k and 300k over asking prices. It is a tiny market segment- but it is happening. In these instances- its lack of supply being chased by people eager to live in a particular post code.

Henry Ford III

The_Conductor wrote: »

We do have boom times in certain very small market segments. For example- 2 reasonable (but not stunning) small enough properties in Sandymount- have recently sold for 200k and 300k over asking prices. It is a tiny market segment- but it is happening. In these instances- its lack of supply being chased by people eager to live in a particular post code.

Seems to be the case ok, and frankly it's madness, but as the old adage goes "fools and their money are easily parted".

RainyDay

khards wrote: »

It is worth what someone is willing and able to pay - that will be what the selling price actually is.

So you're saying that Veterinary College site in Ballsbridge IS worth €171 million - right?

khards

RainyDay wrote: »

So you're saying that Veterinary College site in Ballsbridge IS worth €171 million - right?

If it was sold for €171 million, then it was worth €171 million at the time.

Next time it sells, if people are only willing and able to pay €100k then that is what it will be worth then.

Ray Palmer

Judging from people arguing about "valuation" and going on about the exact definition in economics terms they may actually missing what economic science is. It is a social science about predicting human behaviour. It's definitions are not real world terms. Like with maths and common language use of probability and possibility.

The bankers valued it by what it is worth to them as they see the market it is not an actual accurate valuation. The purchaser basis their valuation to them. Neither valuation is actually wrong. When you get passed the basics of economics you realise that it is not the basics and their are extra layers to the theory. So a definition of valuation from basics economics is actually not the definition of valuation in the real world. It is a dumbed down version for the purposes examining economic theory not a true world meaning. It is not like the value of gravity or speed of light.

desertcircus

This seems to be the result of two different understandings of what constitutes value. Value in economic terms is what someone is willing to buy for and someone else is willing to sell for. That's not what banks (or indeed most normal human beings) use the word as, though; for us value is something less academic and more concerned with the future. And with good cause: the economic definition is of limited worth in making decisions about whether to buy something.

flutered

property values are similar to car values, a car has a price tag of 10k on the fourcourt as soon as you shell out the 10k it decreaces in value to roughly 7.5k, the same applys to property.

Pawwed Rig

flutered wrote: »

property values are similar to car values, a car has a price tag of 10k on the fourcourt as soon as you shell out the 10k it decreaces in value to roughly 7.5k, the same applys to property.

No it doesn't.
Or can I look forward to my rust bucket increasing in price in the next few years?

The_Conductor

Pawwed Rig wrote: »

No it doesn't.
Or can I look forward to my rust bucket increasing in price in the next few years?

Depends- is it a Delorean?

khards

Pawwed Rig wrote: »

No it doesn't.
Or can I look forward to my rust bucket increasing in price in the next few years?

Then ONLY thing that made prices of old houses rise in the past was credit expansion. The actual house behaves much like a car, but it is the land that gains value when there is credit expansion.

The reason for this is that the supply of land is fixed and when you create more money via mortgages the money is used to bid up the land price.

Since Ireland is currently experiencing credit deflation, expect to see land/propert prices continue their downward drift.

Pawwed Rig

khards wrote: »

Then ONLY thing that made prices of old houses rise in the past was credit expansion. The actual house behaves much like a car, but it is the land that gains value when there is credit expansion.

For that to be true there would be a significant difference between the price of a new house and a second hand house. The evidence just does not exist to back up this assertion.

RainyDay

khards wrote: »

If it was sold for €171 million, then it was worth €171 million at the time.

Next time it sells, if people are only willing and able to pay €100k then that is what it will be worth then.

Sorry, but common sense outweighs economic theory. It was never worth €171 million, regardless of what some fool with more credit than sense paid for it.

berrecka

I was in a similar situation a few years ago OP. It was in the UK, but shouldn't make too much difference. I offered the asking price which was accepted. Then my mortgaging bank came in and valued it at £15k under this price - a huge undervaluation at a time in 2009 when UK Valuers were under pressure for overvaluing houses and were being overly cautious. This meant that, while I had a pretty good deposit, the bank weren't willing to offer me the loan to make up the difference in the original asking price and what they had it valued at. So I went back to the seller, who accepted a revised offer from me, £10k under initial bid and asking price, £5k over banks value, to also include a good deal of furniture, fixtures and fittings which would not have otherwise been included (certainly not worth £5k though).

The difference in our situations is that I knew the original asking price was fair and was happy to offer my original bid. So while I still paid over what the banks suggested it was worth, I was confident I was getting a bargain with the reviewed price.

Talk to the seller and see if you can come up with some sort of deal on this. Banks, rightly in my opinion, wont invest in something that is overpriced. Not for you or for anyone else looking for their assistance in buying this house.

Ray Palmer

khards wrote: »

Then ONLY thing that made prices of old houses rise in the past was credit expansion. The actual house behaves much like a car, but it is the land that gains value when there is credit expansion.

The reason for this is that the supply of land is fixed and when you create more money via mortgages the money is used to bid up the land price.

Since Ireland is currently experiencing credit deflation, expect to see land/propert prices continue their downward drift.

That just isn't true. There certainly is not just one cause and never will be. It is more accurate to say the credit expansion was caused by increasing house prices and demand. Wages, employment and population increased first.

Property normally increases with inflation at least. In cities the increase in population drives the prices up without any credit expansion. That is why Dublin house prices will recover first and increase higher amounts in the future. It certainly is not like a car where they deprecate the minute you drive off the lot.

It appears you are just making the statement as a sound bite without actually thinking about it