Valuations v What House sells for

Lord Trollington

Just a quick question - looking at buying a house in the coming months.

Where were are looking, houses seem to be going for much more than what they are initially being advertised for, in some cases 80-100k more.

For example, If a house is listed for 500k and ends up going for 580k, are banks willing to cover the extra 80k over the initial asking price, I would presume that is what the house was valued at initially and went for 80k more due to demand.

Would the mortgage lender cover the extra 80k or are you expected to? say if you have approval for 600k?

How does it work in this scenario, what valuation of the property is accepted by the bank?

.......

This post has been deleted.

jon1981

It's pretty simple. The bank will approve you for a mortgage for an amount based your income. It's up to you to find a house that falls within the mortgage you're approved for.

Or at least that's who it works for me and everyone i know...

If you think the house is worth 20% more then ensure you have approval for that amount.

wench

If you get into a bidding war, and go past the market value, you will have to make up the extra with a larger deposit amount. Even if it is below your approval amount.

If in your example, when the bank gets the valuation done it comes in at 550, they will lend based on that value. So they would give you say 80% of that, you'd then add the deposit and the extra 30 to bring you up to your bid.
Or you go back to the seller, and try to negotiate down.

They won't just go with your bid amount as the value, because if they need to sell it, their security needs to be covered by what the market will bear, not just two overenthusiastic bidders.

theboringfox

I would imagine it is a rare event the valuation is lower. The bank tells the valuer the price being paid so that must guide them. And they are just being asked to confirm the market price and thats what the bid is.

wench

It happened to a friend of mine earlier this year. They had bid a house up to 290ish where all comparable sales were in the 230 - 250 range.
They had to renegotiate to reduce the price a bit and increase their deposit to meet in the middle.

The valuer has to provide 3 comparable properties in the same price range, they can't just say whatever was agreed is grand.

awec

wench wrote: »

If you get into a bidding war, and go past the market value, you will have to make up the extra with a larger deposit amount. Even if it is below your approval amount.

If in your example, when the bank gets the valuation done it comes in at 550, they will lend based on that value. So they would give you say 80% of that, you'd then add the deposit and the extra 30 to bring you up to your bid.
Or you go back to the seller, and try to negotiate down.

They won't just go with your bid amount as the value, because if they need to sell it, their security needs to be covered by what the market will bear, not just two overenthusiastic bidders.

I am sure that in the current market people go above the "market value" all the time and do not have to put in a larger deposit.

I'd guess this is a very rare occurrence, like if your winning bid is completely out of whack with what the bank are seeing elsewhere in the same area.

Lumen

awec wrote: »

I am sure that in the current market people go above the "market value" all the time and do not have to put in a larger deposit.

I'd guess this is a very rare occurrence, like if your winning bid is completely out of whack with what the bank are seeing elsewhere in the same area.

I think what it means is: if you get mortgage approval for 400k + 100k deposit (80% LTV), and the price goes up to 600k, you'll need to find additional 20k deposit to keep the LTV ratio the same.

My own experience was that the bank gave me approval for the max they would lend me, not the asking price of the house I was bidding on. So I had some breathing room.

It gets complicated when there are different interest rates applied to different LTV bands. In my case (Ulsterbank) I just needed to keep it under 80%, there wasn't a different rate for <60%, <50% etc.

awec

Lumen wrote: »

I think what it means is: if you get mortgage approval for 400k + 100k deposit (80% LTV), and the price goes up to 600k, you'll need to find additional 20k deposit to keep the LTV ratio the same.

My own experience was that the bank gave me approval for the max they would lend me, not the asking price of the house I was bidding on. So I had some breathing room.

It gets complicated when there are different interest rates applied to different LTV bands. In my case (Ulsterbank) I just needed to keep it under 80%, there wasn't a different rate for <60%, <50% etc.

But he said even if the final price is within your original approval amount, which I don't think is correct.

Lumen

awec wrote: »

But he said even if the final price is within your original approval amount, which I don't think is correct.

Yes, well the idea that you'd be asked for more deposit because you are "overpaying" for a property isn't right. There is a bank valuation process but from what I understand that's more about thwarting outright fraud (e.g. buy a shed from brother for €1m, default, go bankrupt, split the proceeds) than enforcing any concept of good value.