What happens of bidding is over the real value?

fitzykev

What happens if bidders bid a few thousand over the actual value? I have been told the lender might not lend the money. If bidders are going two high should estate agents inform bidders its close to value? 

user1977

fitzykev said:

What happens if bidders bid a few thousand over the actual value? I have been told the lender might not lend the money.

You've been told wrong (or misunderstood). The lender will treat the lower of their valuation and the agreed price as being the value, so if they're only going to lend 90% of the value, their valuation is £100k, but the price agreed is £110k, the most they'll lend is £90k, and the buyer will need to provide the other £20k. But the lender will still lend.

If bidders are going two high should estate agents inform bidders its close to value? 

Not quite sure what you mean - bear in mind nobody will know for certain what the surveyors will value it as (assuming we're talking about England or Wales). If the mortgage valuation means the buyer can't afford it, generally you'd expect them to try renegotiating the price.

Snookie12cat

fitzykev said:

What happens if bidders bid a few thousand over the actual value? I have been told the lender might not lend the money. If bidders are going two high should estate agents inform bidders its close to value? 

If a bidder bids over they just need to be prepared to put more of their deposit into it. Bank lends what they will lend, the buyer makes up the rest.
The agent will never say its close to value, because only a surveyor can say what the actual value is. 

MaryNB

fitzykev said:

What happens if bidders bid a few thousand over the actual value? I have been told the lender might not lend the money. If bidders are going two high should estate agents inform bidders its close to value? 

The estate agents don't know what the bank's surveyor will value it at. They can only do their own valuation. If the bidding goes above their own valuation a wise estate agent would advise the seller to favour the bidder with the higher deposit. It's up to the bidders to judge if they think they can afford it themselves, it's not the estate agent job to advise them, they don't work for the buyer. The agent's concern will be avoiding wasting time with a buyer who is unlikely to secure funding.  

Even if the bank's valuation is below the final bid, as long as the loan amount divided by the bank's valuation doesn't exceed the banks max LTV product (i.e. 90 or 95%) the bank will grant the loan. The buyer may have to pay a higher interest rate if the LTV is higher (because the valuation was lower than expected) but they'll get the funding. If the LTV exceeds this the bidder will have to increase their deposit to bring the LTV down or risk having their mortgage application rejected. 

lookstraightahead

The bank is only interested in their own risk, so any risk a bidder takes by paying over value they will need to fund themselves.

What someone wants to pay for a house is immaterial to the bank. 

This is why bidders need to appreciate its not their own money they're buying with when they need a mortgage. 

74jax

The value of a property is completely different from one person to another. (A property is worth whatever it is worth to that person at that time).

A lender lends 'x' amount, regardless of value to the purchaser (the lender is interested if they can get back what they lend), the purchaser either takes their 'help' and uses their own money to complete the purchase or doesn't.

Ie.... lender provides £100k.  Purchaser uses this and 100k of their own money to buy a property. OR lender provides £100k and purchaser uses £50k of their own money.  In each scenario you always owe £100k but your own money varies. You could resell for £125k - the bank will get their £100k, you lose out. 

Bendy_House

EA auction 'estimates/ guide prices' tend to be quite attractive, don't they?

And 'attract' they do. Which is the whole point.

Cynical, eh?

Having said that, I was at an auction once where the bids were clearly going a bit silly, and 3 groups were trying to out-do each other. The auctioneer warned them; "Ok, there's clearly some idiots in this room with more money than sense. COOL IT, y'all!"

No, that never happened...

TripleH

We offered £420K on a house that to us was worth it (we accepted it was a little over priced) and got a mortgage on it.

A year later using an online tool the estimation for the property is £340K.

Now that online valuation is based on neighbouring properties /nearby houses sold prices but the property we looked at was different to others in the vicinity thus you couldn't do a like for like comparison.

Where we live now there are several houses identical in size and layout to ours (newbuild estate) so comparison should be easier.

comeandgo

fitzykev said:

What happens if bidders bid a few thousand over the actual value? I have been told the lender might not lend the money. If bidders are going two high should estate agents inform bidders its close to value? 

You make the difference up out of your savings, there is never a guarantee a property will be valued for mortgage purpose at the rate you offered on, which is one of the reasons I never entertain first time buyers as they are usually the ones with no back up savings.

lookstraightahead

comeandgo said:

fitzykev said:

What happens if bidders bid a few thousand over the actual value? I have been told the lender might not lend the money. If bidders are going two high should estate agents inform bidders its close to value? 

You make the difference up out of your savings, there is never a guarantee a property will be valued for mortgage purpose at the rate you offered on, which is one of the reasons I never entertain first time buyers as they are usually the ones with no back up savings.

So what you're saying is that you want a gullible buyer. Aren't you limiting your chances somewhat? 

Most people with a lot of equity won't want to waste it (depending on market)

user1977

lookstraightahead said:

comeandgo said:

fitzykev said:

What happens if bidders bid a few thousand over the actual value? I have been told the lender might not lend the money. If bidders are going two high should estate agents inform bidders its close to value? 

You make the difference up out of your savings, there is never a guarantee a property will be valued for mortgage purpose at the rate you offered on, which is one of the reasons I never entertain first time buyers as they are usually the ones with no back up savings.

So what you're saying is that you want a gullible buyer. Aren't you limiting your chances somewhat? 

Most people with a lot of equity won't want to waste it (depending on market)

"Depending on market" being the operative phrase. In many markets you're never likely to buy anything if you refuse to pay more than a conservative valuation.