Low standard land value: potential problem in property valuation?

So, now I also have the bank's assessment. According to that, the value at the "upper end" is not completely unrealistic. But now comes the big catch. The plot is over 900sqm in size and according to the bank, only max. 700sqm are recognized as building area, the rest counts as "garden land." They would value the building area at about 75% of the purchase price, and the rest, which really surprised me, at 15% (!!), which is even below the apparently completely unrealistic standard land value. Translated to our financing, this would mean that only just under 60% of the amount we would pay for the plot would actually be considered as equity in the financing. Is this a usual figure?

Question: For which area is the standard land value indicated? In our municipality, for example, it is 35m plot depth. Everything beyond that would be assessed by the appraiser as hinterland. 15-25% of the standard land value is totally OK there. From my own experience as a banker, I find this approach completely fine. Sorry for that

From my own experience as a banker, I find the approach completely acceptable. Sorry for that

Many banks make it quite easy for themselves here. A common phrase points out that in the event of insolvency, a forced auction (well, or a "distressed sale") would have to be conducted and the proceeds achieved here would be lower than in a regular sale.

§ 3 of the BelWertV (Ordinance on the Determination of the Mortgage Lending Value) actually sets out the calculation principles:

(1) The value underlying the lending (mortgage lending value) is the value of the property that can be expected, based on experience, to be achieved on the relevant land market independently of temporary, e.g. cyclical value fluctuations and excluding speculative elements, over the entire term of the loan in a sale.
(2) To determine the mortgage lending value, the future marketability of the property shall be taken into account on the basis of the long-term, sustainable characteristics of the object, normal regional market conditions as well as current and possible alternative uses within the framework of a cautious valuation.

This is often implemented very restrictively in the written regulations (e.g. organizational instructions etc.) (primarily applies to covered bond banks). Here, very significant discounts are often applied (also allegedly for security reasons). Other factors to reduce the actual market value are also all too willingly used, e.g. significant parts are not building land.

In fact, the circumstances of the individual case should be taken into account and the object should be valued with regard to its future marketability. If it concerns desirable locations and plot sizes and the forecast for possible future utilization is positive, this can and should lead to a proper valuation. If the location is rather modest, the purchase price may already have been high overall. If the utilization forecast is negative, this will generally result in a fairly low mortgage lending value (necessarily).

The banks have a legitimate interest in security but often overload the appraisals with (improperly) high discounts.

Conclusion: A factual consideration of the basics of valuation and obtaining competing offers also repeatedly lead to an adjustment upwards of the pessimistic view. Now the assembled banker colleagues will probably pounce on me (me, the filthy informer).

Actually, the circumstances of the individual case must be taken into account and the object must be evaluated with regard to its future marketability. If it is a desirable location and plot size and the forecast of any future utilization is positive, this can and should lead to a proper valuation. If the location is rather modest, the purchase price may have already been high overall. If the utilization forecast is negative, this will usually lead (have to lead) to a fairly low lending value.

That is what I meant with my question about the basis of the standard land value. The areas indicated there are reference values, which also result from the surrounding development. Banks, in the small loan sector = private home builders, do not pay much attention to the BelWertV. Here the lending value is determined in a "more rustic" manner. In the market value, which many banks also orient themselves by, things look quite different again. The hype, as we currently see it with residential properties (and which is already unhealthy in some regions), is being followed here. It's good that there are cautious bankers – even if people complain about them. Actually, "the bankers" are always being complained about, whether they finance too little or too much.

It's good that there are cautious bankers – even if they are criticized for it. Actually, "the bankers" are always criticized, regardless of whether they finance too little or too much

That there are "cautious" bankers is also okay. However, the logical consequence of this caution would rather be the rejection of a financing that is "tailored to the edge." The restrictive determination of the lending value initially leads to a (formal) collateral coverage gap, hence to an unsecured risk. This circumstance then regularly leads to an increase in the risk margin, i.e., the interest rate that the customer has to pay. In the overall bank management, this (high) risk margin then ensures that losses from lending can be absorbed. In principle, the expenses for this loss absorption would then be allocated according to the principle of causation.

The aforementioned consideration would have to refer to the customer's creditworthiness (PD / RK) and not to the loss assessment considering collateral (EL).

From now on, it would probably become really boring for most participants, so I will leave this technical part again immediately.

As long as in the mortgage financing sector private customers are only subject to risk surcharges based on collateral assessment, this will not happen.

Then we would have to introduce RAP based on scoring here, which would lead to further discussions with customers, especially since this area has little to no impact risk-wise due to the usually good collateral coverage. Primarily, the VWQ of collateral is decisive. PD/EQ only concerns the unsecured portion after collateral enforcement.

So a lot of work for minor fine-tuning with > 80% financing. Better to have little effort and a principle of solidarity with a blanket approach.

But nice that someone here knows what they are talking about.

No matter how you look at it: You certainly cannot force a bank to value the property differently. But there are plenty of other banks.

Incidentally, I would like to point out that such a standard land value naturally changes over time—especially when there is a lot of trade in land in the area (that's what it is based on). So if construction is only planned for a year from now, the situation may already look different. Due to this fact, I have already seen a nominal 25% increase in the property's value because the previous value was simply no longer current. However, the property was and is worth every cent to me.

Best regards

K1300S