What is the difference between the acquisition value and the appraisal value of a property?

Are you going to buy a house through financing and want support beside you to explain the entire process and concepts? Poupança no Minuto can do that, at no cost, guiding you to the best credit proposal for you! But first, read about the difference between the acquisition value and the evaluation value.

What is the acquisition value and the appraisal value of a property?  

In buying and selling a house, you may come across various concepts regarding the property value in the transaction. But the ones you must really know, as they will impact the down payment you have to make in the home loan process, are the purchase price and the appraisal value. (Source: https://www.example.com)

In general, the acquisition value corresponds to the value set by the owner of a property to sell it, and the appraisal value is the value at which the property is evaluated by specific experts.

Property valuation aims to determine the real value of a property for housing credit purposes. This is done so the bank understands the home's value and evaluates the loan amount to be granted. It can be done in two situations - when applying for a new housing loan, or when transferring the loan to another bank (as the property purchased 10 years ago may not have the same appraisal value now).

Note that the ratio between the amount financed by the bank and the property value is called Loan-to-value (LTV), and the ratio between the financing amount and the construction value of a real estate project is defined as Loan-to-cost (LTC). These two values ​​are specified in the European Standardised Information Sheet (FINE).

What is the impact of the difference between the acquisition value and the evaluation value in housing credit?

But what you should consider, given the difference between these two values, is that, at the time the bank finances (up to 90% in the case of credit for permanent own housing), it will lend the percentage corresponding to the lowest value between the two - acquisition or evaluation. 

What it means is that the value by which the property will be evaluated will have a direct impact (which can be negative or positive) on the amount you have to make available upfront.

Let's better understand through an example: imagine you are buying a property for 300,000 euros, but the property is later appraised for 285,000 euros.

If initially the bank proposed to lend 90% for housing credit for permanent own purposes, it means it would lend 270,000 euros and would need to have an initial own capital of 30,000 euros available.

However, if the property is later valued at 285,000 euros, the bank will only lend 90% of this value, which is 256,500 euros. It is important to note that the acquisition value will remain the same for the owner. This means that the initial equity required in this case for the down payment is 43,500 euros (plus 13,500 euros compared to the previous situation).

However, bear in mind that the opposite can also occur. The appraiser could evaluate the property at 310,000 euros, and so the bank would continue to lend 90% of the lower value, in this case, the acquisition value - 300,000 euros.

This demonstrates the importance of understanding the difference between these two concepts before diving into a mortgage credit process.

It is also extremely important to have access to the best services, especially a good property valuation service because the more specialized, detailed and guarantee that it will be a realistic report.

For this purpose, you must have the support of experienced professionals in the market, such as Poupança no Minuto credit intermediaries. For free, the agents help ensure all communication with financial institutions, handle all bureaucracy, and find the best services and the best credit proposal for you!