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 by your side to explain the whole process and concepts to you? 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 appraisal value.

What is the acquisition and appraisal value of a property?  

In buying and selling a house, you may come across several concepts regarding the property value in the transaction. However, those that you should (really) know, as they will impact the down payment you have to make in the process if you resort to a housing loan, are the acquisition value and the appraisal value.

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 assessed by specific experts.

The property appraisal aims to determine the real value of a property, for the purpose of housing credit. This is necessary for the bank to understand the value of the property and assess the loan amount to be granted. Therefore, it can be done in two situations - when contracting a new housing credit, or when transferring the credit to another bank (as if the property was purchased 10 years ago, it will 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 detailed in the European Standardised Information Sheet (FINE).

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

But what you must pay attention to, given the difference between these two values, is that at the time the bank finances (at most, 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 this 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 initially upfront.

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

If initially the bank proposed to lend 90% for the housing credit for permanent own purpose, 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 was later appraised at 285,000 euros, because it is the lower value, the bank will only lend 90% of this value, which is 256,500 euros. However, note that the acquisition value will remain the same for the owner. This means that the initial equity the owner must have available as a down payment in this case is 43,500 euros (an additional 13,500 euros compared to the previous situation).  

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

This shows 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 to a good property evaluation service because the more specialized it is, the more detailed and the greater the guarantee that it will be a realistic report.

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