After your offer has been accepted, you will usually need to have the home valued for your mortgage. This tells the lender what the home is worth as collateral. If the valuation is lower than the purchase price, you may be able to borrow less and need more of your own money. Keep this in mind when deciding how much to offer on a home.
Why do you need a valuation?
The purchase price is fixed once you and the seller have reached an agreement and the arrangements have been recorded in a binding form. For the lender, that price alone is not enough. The lender wants an independent, substantiated assessment of the home’s market value.
Your maximum mortgage is limited in two ways. The lender considers how much you can responsibly borrow based on your income and financial commitments. In addition, you generally cannot borrow more than 100% of the home’s value. There are exceptions for certain specific purposes, such as particular energy-saving measures.
Your maximum mortgage is therefore not automatically the same as your offer. Even if your income allows for a higher loan, the assessed value of the home may limit your financing.
When should you arrange the valuation?
Arrange the valuation early in the financing process. There is no general legal rule stating that it must take place within a certain number of days after your offer is accepted. Your actual deadline usually follows from the financing condition in the purchase agreement.
This condition states the date by which you must arrange financing. The valuation report must be available well before that date so your mortgage adviser and lender can assess it. Work backwards from the deadline and allow time for questions, additional information or a disappointing outcome.
Before instructing a valuer, ask your mortgage adviser what kind of report is required. Depending on the lender, mortgage type and home, a physical or hybrid valuation may be accepted. For a physical valuation, the valuer visits the home. A hybrid valuation uses a data model, after which a valuer assesses the outcome remotely. In some situations, a physical valuation is mandatory.
How does the valuation process work?
- You confirm the requirements. Your mortgage adviser checks which type of valuation and validation the intended lender accepts.
- You instruct the valuer. The valuer must be independent. For a mortgage with NHG, additional requirements apply to the valuer, the report and its validation.
- The valuer examines the home. For a physical valuation, the valuer visits the home and gathers information relevant to its value.
- The value is substantiated. The valuer compares the home with relevant transactions, among other things, and explains differences in areas such as size, layout, location and condition.
- The report is sent to the lender. If validation is required, the report is first checked by an independent validation institute.
During a physical inspection, the valuer assesses aspects including the interior, location, surroundings and visible condition of the home. The result is a professional estimate of the market value on a particular valuation date. It does not establish the one and only correct price.
A valuation is not a building inspection
The valuer takes visible defects and the home’s general condition into account where they affect its value. This does not mean that every part of the building is technically inspected.
A valuation therefore does not give you certainty about matters such as the foundations, pipes, roof structure or hidden damp problems. If you want to understand the technical risks and likely repair costs, you may need a separate building inspection. Sometimes the valuation report indicates that additional building investigations are needed.
The purchase price and valuation are not the same
The purchase price is the amount you agreed with the seller. It can be influenced by competition, your housing preferences, the conditions attached to your offer and the negotiation process.
The assessed value is the valuer’s independent opinion of the home’s value. It estimates the amount for which the home could be sold in a normal commercial transaction on the valuation date. The valuer must substantiate this estimate.
The two amounts may be the same, but they do not have to be. An accepted offer is relevant information for the valuer, but it does not automatically determine the outcome.
What if the valuation is lower than the purchase price?
A lower valuation can create a financing gap. Suppose you offered €500,000 and the home is valued at €480,000. Based on the standard rule of 100% of the home’s value, you can then generally borrow no more than €480,000 for the home, even if your income is sufficient for a higher mortgage.
In this example, you would need to contribute at least €20,000 more of your own money to pay the purchase price. You would also need to cover the purchase and financing costs that cannot be included in the maximum mortgage.
Discuss a lower valuation with your mortgage adviser immediately. Possible next steps include:
- calculating exactly how much of your own money you need;
- assessing whether you can and want to contribute that amount responsibly;
- trying to renegotiate the price with the seller;
- checking whether another suitable financing structure is possible within the mortgage rules;
- having it assessed in time whether you can rely on the financing condition.
The seller does not have to agree to a lower price. You also cannot automatically cancel the purchase because the valuation is disappointing. Whether the financing condition protects you depends on the exact wording in the purchase agreement. Pay attention to the stated mortgage amount, the deadline and the supporting documents you must provide if you invoke the condition.
If you bought without a financing condition or allow the deadline to pass, you may be responsible for any financing shortfall.
What if the valuation is higher?
A valuation above the purchase price does not mean that you can automatically borrow the difference as freely available funds. The lender also considers your income, the purchase price, the purpose of the loan and its own acceptance criteria. For a mortgage with NHG, the lower of the purchase price and market value is used when assessing the NHG limit. Your maximum loan also depends on factors including the LTV and your income.
Do not treat a higher valuation as extra spending capacity. Ask your mortgage adviser to calculate the amount that can actually be financed.
What should you check now?
- What date is stated in your financing condition?
- What type of valuation report does your lender accept?
- Does the report need to be validated?
- Do you also need a post-renovation value for your plans?
- How much of your own money do you have available if the valuation is lower?
- Do you know which supporting documents are required if you cannot arrange financing?
By confirming these points immediately after your offer is accepted, you can prevent a missing or incorrect valuation report from putting your financing deadline at risk.
