Valuation of an apartment for a mortgage in 2021

Why does the bank need this?

Since controversial situations regarding the price of the collateral can arise at any time, even after the loan has been issued, this could potentially lead to refusal to pay. That is, risks increase, which any bank tries to avoid at all costs. As a result, there is a mandatory requirement for potential loans to be assessed. As mentioned above, this rule applies only to those apartments that are provided as collateral in addition to (or instead of) the loaned object.

What does the bank want to know?

In theory, a bank can hire a licensed appraiser (others do not have the right to carry out appraisals). In practice, the services of such a specialist are too expensive. Therefore, the bank requests appraisal reports from clients from accredited appraisal companies and applies adjustments based on them. That is, the bank wants to find out how much the apartment will officially cost, and only then change the cost down (and almost never up) to minimize risks.

Documents for appraising an apartment

To conclude an agreement on appraising an apartment, the appraisal company needs to provide a relatively small package of documents. Some organizations also ask for photographs of real estate from different angles, however, according to the rules, the appraiser is obliged to independently go to the location of the property and personally photograph everything that he may need. As a result, it is better to insist on a personal visit (in some cases, this may lead to an increase in the cost of the company’s services). You need to understand that in fact this has little effect on the quality of the assessment, since the assessment algorithms and general principles are the same in both cases.

For primary housing

When assessing a primary home, the most important documents are:

• Acceptance certificate. It must indicate the postal address of the apartment (and not the construction site).
• Participation agreement.
• Client's passport.

Often, additional documentation is not required, since everything that is needed to draw up a report is in the act and agreement. However, a lot depends on the appraisal company. When signing the contract, it is recommended to check with the representative of the appraisal company what else may be needed to prepare the report.

For secondary housing

When pledging a secondary home, it is assumed that it has already belonged to the borrower for some time and that he has all the required documents. As a result, you will have to provide:

• BTI technical passport.
• Certificate of state registration of real estate.
• Purchase and sale agreement, gift or any other similar document confirming the fact of ownership of the apartment.
• Client's passport.

How is the value of an apartment assessed?

The process of assessing the mortgaged property directly depends on whether the apartment is planned to be purchased using borrowed funds or is owned by the borrower. In the first case, it is mandatory to provide technical and title documents from the property owner; this point should be taken into account when planning the assessment.

The work process of appraisal companies

Table 1 : Sequence of real estate valuation:

The result of the company's work is to provide a report on the assessment of real estate. This is a document that contains an independent examination of the property being purchased and its current value.

The specified amount is the basis for determining by the credit institution the collateral value of the apartment and the loan amount.

The specialist should consider:

• Age and condition of the property;
• Location of infrastructure (hospitals, pharmacies, schools);
• Public transport;
• Apartment parameters (floor, area, ceiling height, etc.).

The cost of appraising an apartment for a mortgage

The cost of services for preparing an apartment appraisal report for a mortgage can vary widely depending on the type of property, its location, the selected appraisal company and the territorial location of the property.

For example, the most expensive assessment options are in the capital and regional centers. The farther you are from them, the lower the prices. On average, one assessment report for a standard apartment located in the city and easily accessible for inspection will cost approximately 5-6 thousand rubles. In some cases, the price may be lower, but it is also very rare to be higher.

What to do if the appraised value of the apartment differs from the mortgage loan amount

Based on the value at which the apartment will be assessed, the bank will determine the size of the loan to be issued. If the appraised value is equal to or slightly higher than the price set by the seller, then the mortgage loan will cover all costs of purchasing a new home. But there are often cases when the appraised value is lower than the amount needed to purchase an apartment and, accordingly, the bank cannot provide a loan for an amount in excess of that indicated in the appraisal company’s report. What to do in this case?

First of all, you can order a re-evaluation from another specialist at your own expense. It is possible that the initial assessment did not take into account all the factors influencing correct pricing.

If, during the re-evaluation, the price is determined within the same limits, then it is possible to provide an additional mortgage for the missing amount.

Also, do not neglect the opportunity to ask for a discount from the seller. Perhaps, seeing a real buyer, he will make concessions.

If there is no additional property, and the seller does not agree to reduce the price significantly, you can take out a cash loan for the missing amount. True, the interest rate will be significantly higher than the mortgage rate.

At whose expense is the apartment assessed for a mortgage?

Real estate appraisal is the responsibility of the client. And he must pay for it at his own expense, without any right to compensation for the costs incurred (even if the bank ultimately refused the loan). Because of this, the bank often independently conducts a preliminary analysis of the proposed property. If the price is satisfactory and there are no other reasons for refusal, only then the client is required to pay for the assessment. In many cases, banks work with individual, so-called accredited valuers. Often, reports from them are accepted without comments. But since the bank cannot by law restrict the client, in theory, the latter can turn to another, unaccredited office. You need to understand that the bank will find fault with every letter, number and comma.

The bank pays for the assessment only in exceptional cases. For example, when you need to sue an unscrupulous client. In such a situation, you need to clearly understand how much the property may cost, and it is unlikely that you will be able to get the problem borrower to pay for the services of the appraisal company, since he does not pay the loan.

Valuation of an apartment for a mortgage - for what purpose and how is it carried out?

It is necessary to take care of the issue of conducting a real estate assessment even before submitting an application for a loan. As soon as the object of interest that is planned to be purchased is found, specialists should be involved. They must provide information about the current market value of the apartment or house.

When deciding to issue funds under mortgage lending, the bank pays significant attention to how much the housing is valued. This is a fundamental point, which is determined by the desire to insure your risks. Indeed, in the event of a client’s loss of solvency, the bank must be able to sell the apartment and return the funds issued as a loan in full.

Ordering services to evaluate the property being purchased is also beneficial for the buyer. This will help you avoid getting into an unpleasant situation in which the seller inflates the price compared to the market price, and the bank issues a loan in an amount equal to the estimated liquid value of the house or apartment. In this situation, the money received may not be enough for the purchase. It is no coincidence that experts recommend inviting an appraiser before the final terms of the transaction are agreed upon.

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Who evaluates apartments?

Only those appraisers who have the appropriate qualification certificate

. Simply put, those who specifically studied for this and can confirm the fact of training. Such persons may work on behalf of the appraisal company or on the basis of a separate employment contract. In the case of real estate valuation for a bank, it is important to divide all such specialists into independent and accredited ones.

Independent specialists

These are appraisal companies that do not meet the bank’s requirements or simply did not want to submit documents for accreditation. This does not mean that they do their job poorly, but it does mean that the bank may not accept their reports for any reason, even flimsy. You can force them to review the report, but it’s easier to contact accredited companies directly.

Bank accredited

This category includes appraisal companies that meet all the bank’s requirements.

, thanks to which they appear on his lists and are recommended by the client. In this case, cooperation is mutually beneficial. The bank receives loyal companies, which are serviced by it and provide reports in the form required. Appraisers, in turn, receive a regular and stable influx of clients. Often there are other agreements, for example, on the deduction of part of the payment as an agency fee to the bank.

How to choose an appraiser?

You need to choose among those companies that are accredited by the bank. A list of them is available on the website of any bank, but you need to remember that the appraiser may not be accredited by all banks. That is, his report may not be suitable somewhere. This is relevant for situations where the client does not yet know where he will take out a loan.

From the presented list of companies you need to choose the one that provides its services at the lowest possible price and in a suitable time frame.

. More important is the price. The term usually plays practically no role, and rarely does it exceed 1 week. Otherwise, there is practically no difference. Everyone works according to the same rules and provides the same service packages. The convenience of choosing an accredited company also lies in the fact that the potential borrower does not need to check the documents on the basis of which the appraiser works. Yes, it’s better to do this, just in case, but it’s not necessary. Conversely, if you contact an unaccredited company, you must check your documents. The bank simply will not accept an appraisal report if it was written by a person who did not have the right to appraise the property.

Possible problems and nuances

Most banks set deadlines for the validity of appraisal reports. They must be ordered in advance

, but shortly before contacting the bank. For example, Sberbank accepts reports drawn up no later than six months before the date of application to the bank. This is true for other banks as well. Depending on the chosen financial institution, the period may vary. It is recommended to clarify this by calling the hotline or directly with specialists.

There is no clear requirement for the appraiser to personally visit the property whose value he must determine. However, the company that independently provides the visit of a specialist usually produces a higher quality result, which the bank is unlikely to find fault with.

The valuation report must clearly state the basis on which it quoted the price. The most common, simple and at the same time accurate option: based on existing offers on the market using correction factors. Usually a selection of three objects is made and the average price per square meter is calculated. Then this price is adjusted depending on how different the examples are from the main object for better or worse, and then the resulting cost is multiplied by the number of square meters of the target apartment. And only if there are no close analogues, the assessment is made according to other, more complex and not so precise principles. Often the report offers several options at once.

Advantages and disadvantages of appraising an apartment for a mortgage

The main and main advantage of real estate valuation is a clear determination of the price of the apartment. Of course, the bank can (and most likely will) reduce its value in order to minimize risks, but to do this it must still start from the real value. As a result, it will not be possible to lower the price too much and thereby force the client to provide another deposit. In addition, the assessment can be used in court, if it comes to it, as confirmation of the fair value of the property. Experts recommend making an assessment even in cases where this is not a mandatory requirement of the bank. This way, a potential or current borrower can protect himself from unreasonable conditions, commissions and penalty payments of the bank.

There is only one drawback: the need to pay. The cost of the services of an appraisal company is not amazing, but 5-6 thousand rubles is a significant figure. That is why it is recommended to choose the company that offers the lowest cost while maintaining high quality work.

Who does and pays for the apartment appraisal?

You can find out the value of a property from appraisers who act on their own behalf and from organizations that provide professional appraisals.
Credit institutions cooperate with similar companies, so there are usually no problems with choice.

The assessment of the apartment is carried out by professionals, who can be:

• Independent firms;
• Accredited specialists of a credit institution;
• Private individuals.

According to current legislation, an individual appraiser or appraisers from an organization must insure their activities for a period of at least one year, regularly pay contributions to the fund and be members of a self-regulatory organization , have a civil insurance policy in the amount of 300 thousand rubles , and also not be closely related to the borrower .

the following criteria should be taken into account when choosing an appraiser :

1. Experience;
2. Company reputation;
3. Reviews about the organization.

It must be borne in mind that credit institutions strive to underestimate the actual cost of the purchased property to ensure their own safety, while borrowers strive to increase it to obtain the maximum loan . Therefore, mortgage lending cannot be done without an independent assessment of mortgage housing; it is in the interests of both parties.

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The assessment report has an official status, so it provides the customer with additional opportunities:

• It is a significant argument when resolving issues regarding the taxable base with the tax office;
• Can be used in court when considering various types of cases (to determine payments in the event of division of property).

The credit institution offers the loan recipient two options for selecting a specialist providing appraisal services:

1. Provide a list that includes trusted accredited appraisal companies;
2. Inform about your preferred criteria (availability of a license, participation in an SRO, availability of an insurance policy, etc.), taking into account which the borrower will be able to independently search for an appraiser.

The client has the right to refuse companies recommended by the bank, but it is better not to do this for the following reasons:

• An appraisal organization from a bank is a reliable and trusted partner;
• Processing of your loan application is expedited.

Formally, the bank does not have the right to limit the borrower’s choice or impose a certain company on him.

However, the following factors must be taken into account:

• By choosing a specialist who is a partner of the bank, obtaining a mortgage is much faster and easier than if you search on your own;
• The client's decision must be agreed upon with the bank.

The owner of a property can sell it without submitting an assessment report to the registration authorities, so payment for assessment activities falls on the borrower .

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