Bank Valuation vs Market Value: A Buyer's Guide to Property Value

"How much is that Costa del Sol home worth?"

Doesn't it seem like there should be one, simple answer to that question?

Unfortunately there's not; it just depends on who you ask. And if you're not originally from Spain, you can get very confused about the difference between the bank valuation and the market value.

Here's what you need to know!

Understanding the Market Value of a Costa Del Sol Home

There are a lot of reasons to move to Costa Del Sol. Maybe you like the nightlife, or you have business there.

The market value is based on supply and demand. The number of Euros that someone is willing to sell a Spanish home for is influenced by how many people want the home and what they are willing to pay.

If the right buyer isn't available at the right price, the homeowner may decide to keep the house and wait until the market value is better.

The market value is always in flux and constantly changing. However, it is not related to the amount a bank says the home is worth.

What Is the Bank Valuation?

The bank valuation is the amount the bank decides the home is worth for mortgage purposes. A bank is not interested in lending you more for a home than they decide it's worth.

Generally, a bank decides a home's value based on the land value, the improvements, and the size of the home. Other factors include how much the home was previously sold for and may also involve looking at how much similar homes have sold for in the past.

The bank's goal, if the buyer defaults, is not to get stuck with a large mortgage and a home in Costa del Sol that won't sell for enough to cover it.

Why Is the Bank Valuation so Far from Market Value?

Like much of the world, the banks in Spain suffered significantly during the collapse of 2008 - 2010. Banks were valuing homes at high values and borrowers were taking mortgages they couldn't afford.

With the collapse of the market, homes couldn't sell for anywhere near the value of the mortgages, and the banks took huge losses.

Today, Spanish banks are very, very conservative with home assessments. They do this so that they make sure that they don't get stuck in the situation they were in during 2008.

What to Do About Spanish Bank Valuations

The key to buying property in Spain is to have a significant amount of the home's purchase price available in cash.

Spanish banks will lend non-residential borrowers about 60-70% of a home's bank valuation. This means that you could be on the hook not only for the 30 - 40% remaining but also for any amount above the valuation.

There are Spanish mortgage options that are based on the purchase price, rather than the bank valuation as well. So you may want to look specifically for those if you're concerned about the gap.

Are you looking for a home in Costa del Sol? We'd love to help you find the perfect property. Contact us for more information today!