Key perspective
A lender lends against the value it accepts, which may differ from a purchase price, tax assessment or homeowner expectation. Understanding the valuation method and its limitations is crucial when equity is tight.
Common valuation methods
Depending on the lender and property, valuation may involve an automated valuation model, desktop review, drive-by assessment or full appraisal. Commercial and specialized properties often require more extensive reporting.
Appraisal shortfalls
When the appraised value is below the expected value, the borrower may need a larger down payment, a smaller loan, another property as security or a different financing structure. A reconsideration may be possible when material comparable evidence was missed, but it is not guaranteed.
Value is not the only concern
Lenders also consider marketability, condition, zoning, access, environmental risk and whether the property fits their lending mandate.