Written and professionally reviewed by the Ailon Financing Solutions team
Why the assessment can change the entire budget
The contract price is the amount that the buyer and seller agreed on. The appraiser's assessment is a professional estimate that the bank uses to examine the collateral and the financing rate. The Bank of Israel clarifies that the value for the purposes of the financing rate is determined according to the price of the property or an appraiser's assessment in accordance with the bank's determination, and when the assessment is higher than the purchase price, the financing rate is determined according to the price.
The main risk is created in the opposite direction. If a contract is signed for an apartment at a price of NIS 2,000,000 and the appraiser values it at NIS 1,800,000, a 75% loan may be calculated for only NIS 1,800,000. In such a case, the theoretical ceiling is 1,350,000 NIS and not 1,500,000 NIS, and an equity gap of 150,000 NIS is created.
This is an illustration only. The actual financing rate depends on the classification of the purchase, the borrowers' data, the property and the bank's approval.
What a real estate appraiser checks
The inspection can include the location, area, floor, condition of the property, attachments, planning, permits, registered rights, restrictions, construction anomalies and comparison transactions. The appraiser also evaluates the marketability and the ability of the bank to realize the collateral if necessary.
An appraisal is not a full legal, engineering or design approval. A lawyer checks rights and obligations, an engineer or home inspector checks the physical condition, and a surveyor checks areas and boundaries. Do not substitute one test for another.
When early assessment is especially important
An assessment that is performed before an irrevocable commitment can reduce uncertainty in the following cases:
- The transaction requires a financing rate close to the ceiling
- The price is significantly higher than similar deals in the area
- There are construction additions, closures or unusual internal divisions
- The rights are not registered as a regular apartment in Tabu
- This is a unique property, a private house, an estate or a property with few comparable transactions
- Part of the payment should come from a bridging loan or from the sale of another property
- There is no equity cushion to absorb a gap in the assessment
Even a pre-appraisal does not guarantee that the bank will approve the loan. It mainly checks the property and the value, while the approval also depends on the income, the liabilities, the credit data and the underwriting policy.
Order only after coordination with the bank
As part of the process, the bank submits a reference and a list of appraisers it accepts in the area of the property. Ordering a private appraiser before receiving the instructions may end up with a report that the bank does not accept. Therefore, you must first obtain approval in principle, request the list of appraisers and find out if the report can be used in comparison with other banks.
The Bank of Israel established a mechanism whose purpose is to allow the use of a property appraisal made following a referral from one bank also in another bank, subject to the conditions and the fact that there is no reasonable reason for refusal. Before relying on the report, you must get permission from the bank to which you intend to transfer the request.
This is how we prepare before the visit
It is advisable to prepare for the appraiser the purchase contract or draft, tabu draft or confirmation of rights, blueprint, building permit, plans, information on linkages and documents regarding additions or changes. A missing document can delay the report or cause a reservation that affects the process.
If an anomaly, inconsistency in the field or difficulty in registration is discovered, do not try to "solve" the issue through an optimistic assessment. The finding must be forwarded to the lawyer and the financing consultant and the significance checked before moving forward.
Checking the funding gap before signing
A careful scenario can be performed with Maximum mortgage calculator: Enter the conservative value and not just the contract price. Then use theThe full cost calculator for buying an apartment To make sure that the equity also covers tax, lawyer, brokerage, renovation and related expenses.
Before contacting the banks, it is recommended to prepare Approval in principle and gather the data bSummary of needs for consultation. In this way, the assessment gap can be examined as part of the entire transaction and not as a separate number.
What to do if the assessment is low
First, the report and the base data are checked: area, linkages, planning status and the comparison transactions. If there is a factual error, it is possible to transfer documents and request an examination in accordance with the procedure of the bank and the appraiser. Disagreement with the result alone does not prove error.
If the appraisal remains low, the alternatives may include increasing equity, reducing the transaction price, changing the payment structure, looking at another property or looking at alternative financing that matches the ability to repay. An expensive loan to make up the difference can increase the return and risk ratio, so it should not be considered an automatic solution.
