Home Sale: Why is Listed Price Different from Bank Value?

How can a home for sale have different values? What is the right price? Let us use a hypothetical home as an example to examine this price confusion.

Here is the Holmes family who currently resides in the inner city suburb of Adamstown. They have outgrown their home and so are planning to purchase a larger house. They need money to pay the deposit for a new home, so they call their bank to arrange for a refinancing of their current home.

They also call a local real estate agent to request for a price appraisal before deciding to list their home. They sell the home using auction. Meanwhile, the family receives a notice in the mail advising them of the current land valuation.

It was while Mrs Holmes was packing their belongings that she noticed that their home had five different “prices”, including the price she and her husband came up with on their own. She’s more than pleased with the outcome but wondered if she had taken another approach, could the results have been different?

So, what is the reason for these different prices?  Why is it so confusing?

The bank value
The bank will value your property if you are going to mortgage it. The lender does this to makes sure the property has sufficient security against the loan, if something happens and you are unable to continue the repayments and the bank needs to sell it to recover its loss.

Hence, it’s not surprising that the value from the bank will typically be conservative, sometimes 10-20% below the present selling prices of similar properties.

In the case of the Holmes’s, the bank valued their home at $520,000.

The price appraisal by the selling agent
Real estate agents are usually approached to provide a market value of the property to help the seller identify who their target market is and how much they may pay.

Before being hired by the seller, the agent will normally inspect the property and look at comparable sales in the local area before providing a written appraisal which is likely an estimation between X and Y.

Sellers can use this as a price guide when deciding what price to market their home.

After conducting an inspection, the Holmes’s agent estimates that their home will sell for between $550,000 – $600,000, based on the good condition of the two bedroom weatherboard home, on a small flat block in Adamstown, close to transport, parks and the local primary school where demand is high.

The sale price
It doesn’t matter whether the property is sold through auction or private sale, the price that the successful buyer is willing to pay, and the seller is willing to accept, on the date of contract signing is the home’s legally binding sale price.

The final sale price can be influenced by a host of factors, including strong marketing, hot demand in the suburb and a huge number of participants at open homes and on auction day.

In the Holmes’s case, eight enthusiastic buyers were among the participants at the auction. From the start, bidding was fierce and the price rapidly went beyond even the agent’s optimistic appraisal. The winning bid was $630,000.

Notice of Valuation from NSW Valuer General
In general terms, this value is used by councils, water and fire authorities to determine the amount that property owners owe them for rates and utilising their infrastructure and services.  

On the Holmes’s Notice of Valuation, the Site Value is $280,000, which is the land value only and does not including buildings.  The Holmes feel to replace their 2 bedroom home on the site would cost $195,000 and so believe the total value to be $475,000.

The homeowner’s valuation
Each homeowner who wants to sell has a “wish price”. Normally, they also have a number that they designate as “the lowest they can go.” Usually, these two prices are based on where the house is located, aspects and features. But sometimes emotion rather than facts influence the valuation of the seller.

Mr and Mrs Holmes have no idea how to price their home when they decided to sell it even after conducting their own research by attending other open homes in Adamstown.

They were relying on a price data for Adamstown, which indicated a $551,500 median price for a two bedroom home in Adamstown within the last 6 months. Mrs Holmes believed that their property’s sale price should be in line with the median price, but Mr Holmes believed that $50,000 should be added to the sale price because of the new pool they built last year.  They felt their dream price would be $601,500, their bottom price would be $551,500 and would accept $576,500.

In the end, the final price will typically be determined by what a purchaser is willing to pay at auction or in a private sale and in this scenario the final price of $630,000 which was $53,500 more than they were expecting.

To find out what your home may be worth in todays market, call Annette directly on 0418447856, email her annettep@oneagency.com.au or request an appraisal here!