Mortgage valued house lower than agreed price - what to do next?

Thrugelmir

lookstraightahead said:

fezster said:

Crashy_Time said:

fezster said:

A lenders mortgage valuation is not an indication of price, though. For starters, it would never be valued higher than an offer price. 

It's used by the lender to ascertain that what they're lending is indicative of the asset price based on historical data and current market trends - should the asset need to be sold, they want to reduce the risk of them losing their capital. If a buyers asking price is higher than the valuation, this might be an indication they are paying too much. On the other hand, if 5 other buyers are lined up behind them offering the same, then the valuation is too low. It's certainly not an exact science.

You could argue that every house is overvalued - in fact, that's what many people believe. That the property market is over inflated. This was being said 20 years ago, yet we've not seen prices collapse. 

Not really, not if those buyer`s lenders also "down-value", what buyers offer and what sellers think they can get is pretty meaningless if borrowed money is involved, especially in the very tricky economic environment at the moment.

How is an evaluation arrived at? Or put another way - why do valuations increase? What factors dictate a "rising property market"?

Supply/demand and matching seller prices to buyer prices will always dictate what a property is "worth". Valuations will never reflect to 100% certainty the current "worth" of a property. 

The problem is that most of this is 'borrowed' money and the banks are 'under' valuing because they don't take the risk with their own money,

Banks don't use their own money either. They leverage their balance sheets using fractional reserve banking. Under the BOE's stress tests part of the remit is to withstand a sharp and sudden fall in property values. 

Crashy_Time

lookstraightahead said:

fezster said:

Crashy_Time said:

fezster said:

A lenders mortgage valuation is not an indication of price, though. For starters, it would never be valued higher than an offer price. 

It's used by the lender to ascertain that what they're lending is indicative of the asset price based on historical data and current market trends - should the asset need to be sold, they want to reduce the risk of them losing their capital. If a buyers asking price is higher than the valuation, this might be an indication they are paying too much. On the other hand, if 5 other buyers are lined up behind them offering the same, then the valuation is too low. It's certainly not an exact science.

You could argue that every house is overvalued - in fact, that's what many people believe. That the property market is over inflated. This was being said 20 years ago, yet we've not seen prices collapse. 

Not really, not if those buyer`s lenders also "down-value", what buyers offer and what sellers think they can get is pretty meaningless if borrowed money is involved, especially in the very tricky economic environment at the moment.

How is an evaluation arrived at? Or put another way - why do valuations increase? What factors dictate a "rising property market"?

Supply/demand and matching seller prices to buyer prices will always dictate what a property is "worth". Valuations will never reflect to 100% certainty the current "worth" of a property. 

Agreed - except in these time of weirdness it's a bit like the toilet paper fiasco - sellers thinking they can get whatever they like and buyers paying whatever they can get their hands on without thinking.

The problem is that most of this is 'borrowed' money and the banks are 'under' valuing because they don't take the risk with their own money, unlike buyers who appear to have no concept of what they are doing and don't weigh up what these ridiculous amounts might cost them in the future.

Yep, even small rate rises will put pressure on many who loaded up on debt.

Crashy_Time

Thrugelmir said:

lookstraightahead said:

fezster said:

Crashy_Time said:

fezster said:

A lenders mortgage valuation is not an indication of price, though. For starters, it would never be valued higher than an offer price. 

It's used by the lender to ascertain that what they're lending is indicative of the asset price based on historical data and current market trends - should the asset need to be sold, they want to reduce the risk of them losing their capital. If a buyers asking price is higher than the valuation, this might be an indication they are paying too much. On the other hand, if 5 other buyers are lined up behind them offering the same, then the valuation is too low. It's certainly not an exact science.

You could argue that every house is overvalued - in fact, that's what many people believe. That the property market is over inflated. This was being said 20 years ago, yet we've not seen prices collapse. 

Not really, not if those buyer`s lenders also "down-value", what buyers offer and what sellers think they can get is pretty meaningless if borrowed money is involved, especially in the very tricky economic environment at the moment.

How is an evaluation arrived at? Or put another way - why do valuations increase? What factors dictate a "rising property market"?

Supply/demand and matching seller prices to buyer prices will always dictate what a property is "worth". Valuations will never reflect to 100% certainty the current "worth" of a property. 

The problem is that most of this is 'borrowed' money and the banks are 'under' valuing because they don't take the risk with their own money,

Banks don't use their own money either. They leverage their balance sheets using fractional reserve banking. Under the BOE's stress tests part of the remit is to withstand a sharp and sudden fall in property values. 

They certainly didn`t in 2008.

Crashy_Time

Any updates OP?