Property Appraisals Help Banks But They Help You More

The moment Naresh Rana, 33, laid his eyes on this property, he made up his mind he was going to buy it. Coming along with all modern amities, the 3BHK apartment in Noida was just what Rana has been looking for. The seller demanded Rs 65 lakh for the property, and after some haggling agreed to sell it for Rs 63 lakh. Rana was ready with the down-payment — Rs 12.6 lakh or the 20 per cent of the total value; the remaining amount will be provided by the bank.

Everything went fine till the appraisal team of the bank told Rana the value of the house was much less than the expected mortgage amount of Rs 50.4 lakh; the bank would provide him only Rs 40 lakh as loan.

For the uninitiated, house appraisal is done by financial institutions to estimate the value of the asset before issuing loans. This is done to protect the interests of the bank in case the loan turns bad and the property has to be sold by the bank to recover losses.  

The house was too lovely to let go of. Rana thought of ways to bridge the money gap and buy the property. Taking a personal loan coule be an option, he thought. Taking a loan against his life insurance policy or taking a loan from his family are other options in front of him. But then, he will have to pay the stamp duty and registration charges, too. In Noida, you have to pay seven per cent of the value of the house in stamp duty and one per cent as registration charges. No matter how hard he tried, Rana could not think of a way to bridge this wide gap, and postponed his home buying plan, feeling much unhappy about the fact that he could not get hold of a house he so liked.

Those who know better will tell Rana the immediate disappointment has saved him from major troubles that he would have encountered had he invested in a property by somehow arranging the finances.  

What would happen if you plan to sell this property in future? The same process might follow, the bank may again find the real worth of the property much less and reject the buyer's loan application. This, however, should not be your only concern.

Depending on several factors, banks appraisal teams decide the value of the house. This includes the physical condition of the house, the prices of similar properties in the vicinity, etc. Now, why would you buy an overvalued property when you can find similar properties in the same area?

Those like Rana realise it soon enough that the bank appraisal actually did them a favour by stopping them from investing in such a property which was not actually worth it.

But then, you had signed on a sale agreement and it did not look nice to backtrack on that, is it not? This is the reason why a condition must be inserted in the sale agreement that the realisation of the deal would depend on the property appraisal by the bank.