If you have not bought a house before, or at least not for a few years, the valuation process can be a little confusing. Here’s a breakdown of what a valuation means and why they are a necessary part of buying or selling a property.
The valuation occurs once the seller has accepted your offer and the property is under contract. Your lender (that is, the bank or other institution who is giving you a mortgage) will arrange for an appraiser to check the property’s value against the price you have offered for it. This is important because it may affect the amount of money you can borrow and under what terms.
Valuations are in essence a professional opinion and so can vary substantially depending on who conducts them, as well as when they are done and the market conditions at the time. In general, valuations rely heavily on looking at recent sale prices of similar properties in the same area which may not take into account emerging trends. Also, they do not take into account all of the factors which may come into play when the sale price of a house is determined, such as when the seller needs to sell their home quickly.
Valuations can also be used for the purposes of insurance, replacement and property tax.