How Might Bank vs. Market Value Get in the Way of Selling Your Home at the Highest Price?

By: Caron Shaw, ABR, SRS, SRES

How Might Bank vs. Market Value Get in the Way of Selling Your Home at the Highest Price?

Tags: How Might Bank vs. Market Value Get in the Way of Selling Your Home at the Highest Price?

Imagine this: you’ve just accepted the highest offer on your home. You’re thrilled! Selling your home has been such a smooth experience.

But, it’s all a little too good to be true.

The bank valued your home at much less than the accepted offer. Suddenly, the deal has collapsed and you’re putting your house back on the market.

Taking the highest offer isn’t always a dream come true. Sometimes it can be a real estate nightmare.

How do you avoid this?

Learn the two values for your property: market value and bank value.

What is market value?

Market value of your home is dependent on what the buying market is prepared to pay. It heavily relies on emotional and geographical components, as well as comparisons of similar homes on the market.

Market value takes into consideration:

What is bank value?

Bank value of your home is dependent on the physical upkeep and location of your home. The bank also assesses comparable house prices on the market and any risks the bank is taking when loaning money to a Buyer. Here’s what the bank will take into consideration:

What does this mean for you and the buyer?

The bank will only loan a buyer what they’ve valued your home at. Often it can be lower (sometimes much lower!) than market value, meaning that accepting the highest offer may put you at risk.

However, you can add to the bank valuation of your home by ensuring your house is in top shape during appraisal.

Try these tips:

How could this potentially affect you as a seller?

Here is an example of an actual transaction where the bank valuation put the Seller in a sticky situation:

A seller put their house for sale at $719,800.00.

30 showings and multiple open houses later, three registered offers came through.

Here’s what they were:

Offer 1 - $715,000 conditional on finance
Offer 2 - $719,800 conditional on finance and inspection
Offer 3 - $700,000 conditional on finance and inspection

The seller sent back all three offers hoping at least two would come back higher, possibly removing any or all conditions.

Guess what?

All three came back!

Here’s the update:

Offer 1 - $717,500 conditional on finance
Offer 2 - $740,000 conditional on finance and inspection
Offer 3 - $703,000 conditional on finance and inspection

The seller accepted Offer 2 and the buyer took the home at $740,000.

Amazing, right? $20,200,00 over the list price with conditions on financing and inspection.

The inspection went well but, the appraisal came back at $720,000.

That’s a $20,000 discrepancy.

So, what happened?

The offer fell through because of the financial condition.

Unfortunately, the other two offers didn’t play out either. The potential buyers changed their minds and bought elsewhere.

BUT, there were options. Here’s how I resolved it:

The seller agreed to knock $10,000 from the purchase price. The buyer managed to come up with an extra $5,000, thanks to mom and dad (gotta love your biggest fans!), and obtained the house for $735,000 instead of $740,000.

TADA!

Taking the highest offer doesn’t always guarantee a happy ending. In most cases, if the agreement of purchase and sale falls through on a financial condition, the house is put back on the market. This puts a lot of risk on the Seller as the property can quickly become market stale.

Don't put yourself at risk

Are you looking to list your home in the near future?

Let’s connect and get you the best market and bank valuation for your home.