In many home sales the price does not match the appraised value. When a property is overvalued, it can be both beneficial and problematic for the buyer. This is the main point in the latest study published by the Alfa Inmobiliaria real estate network, which reminds us that price and valuation only coincide in 20% of cases.
What is the buyer exposed to in each case? What are the pros and cons? We answer these questions:
1. It is obligatory to have a mortgage appraisal
Alfa Inmobiliaria reminds us that a property appraisal certificate is required by financial institutions in order to get a mortgage for the purchase of a home. Its purpose is to assess the real price of the house and ensure that the conditions of sale are in line with the reality of the property.
For this, you need to use a specialised and independent appraiser. This professional property assessor verifies that what is written in the deed coincides with the actual characteristics of the property, and assesses the price of the property according to its size, location, age, the quality of the building materials, its energy efficiency and other factors.
2. What happens when the appraised value exceeds the sale price?
The Alfa Inmobiliaria study argues that this situation, apparently, is ideal for both the buyer and for the bank, but why? The buyer can get a higher mortgage to finance the deal, while the bank ensures stable profits for the duration of the loan.
In this sense, the real estate sector considers that, on average, a buyer should have at least 20% of the price of the home saved up, including operation plus expenses such as notary fees, registration in the Land Registry and taxes such as 10% VAT if it’s a new home. "An appraisal affects the purchase for many years, and that is really the ideal situation," acknowledges the real estate network.
However, there is a caveat to bear in mind. “Although the sale price of a home must be fixed freely by the owner, as established by the principle of autonomy of the will that governs the Spanish legal system with regard to private contracts, the price of the home cannot be less than its tax value. And, in that case, the consequences for the buyer may be a penalty when paying the Property Transfer Tax (Impuesto de Transmisiones Patrimoniales or ITP),” they explain.
3. What happens when the appraisal value is lower than the sale price?
What about if the opposite happens? If the appraiser values the property below the price agreed in the purchase contract, it can be a problem for the buyer. The bank will lend less money to acquire the property, so you should have more savings to make up the difference.
"When the buyer has very limited savings to deal with the operation, our recommendation is that you add to the purchase contract a clause indicating that you will recover your money if you cannot go through with the operation because the valuation has been significantly lower than expected. There is also the possibility of asking for a review of the appraisal or solicit a new valuation," explains the study, which concludes that it is important to have "the advice of an expert real estate agent to help the buyer successfully navigate the process of acquiring a home”.