When it comes to taking out a home loan, there are two valuation methods that are commonly used – agreement value and market value. While the two methods may sound similar, each has its own unique advantages and disadvantages. In this article, we’ll take a closer look at these two valuation methods and help you determine which one is the right choice for you.
Agreement value
Agreement value, also known as circle rate or guidance value, is the value that is determined by the local government authorities. This rate is usually lower than the market value, as it is used as a benchmark for calculating stamp duty and registration charges. The agreement value is also used to determine the maximum loan amount that a bank can provide you with.
Advantages of agreement value
One of the biggest advantages of using agreement value is that it is a more stable and consistent valuation method. This is because it is determined by the government authorities and is not subject to market fluctuations. Additionally, since the agreement value is lower than the market value, the stamp duty and registration fees that you will have to pay will be lower as well.
Disadvantages of agreement value
The biggest disadvantage of using agreement value is that it may not be an accurate reflection of the true market value of the property. This means that if you are expecting to sell the property in the near future, you may not be able to get a fair price for it. Additionally, since the agreement value is used to determine the maximum loan amount, you may not be able to get a loan that is sufficient for your needs.
Market value
Market value is the actual price at which a property can be bought or sold on the open market. This value is determined by various factors such as location, amenities, and demand among others. The market value is usually higher than the agreement value, as it is based on the actual market conditions and demand.
Advantages of market value
The biggest advantage of using market value is that it gives you a more accurate reflection of the true value of the property. This means that if you are planning to sell the property in the near future, you will be able to get a fair price for it. Additionally, since the market value is used to determine the loan amount, you may be able to get a loan that is more suitable for your needs.
Disadvantages of market value
The main disadvantage of using market value is that it is subject to market fluctuations. This means that if the market conditions change, the value of the property may decrease, and you may end up with a property that is not worth the amount you paid for it. Additionally, since the market value is higher than the agreement value, the stamp duty and registration charges that you will have to pay will be higher as well.
Conclusion
Choosing between agreement value and market value can be a difficult decision. However, it is important to consider your long-term goals when making this decision. If you are planning to sell the property in the near future, it may be better to go with market value. However, if you are looking for a stable and consistent valuation method, agreement value may be the right choice for you. Ultimately, the decision will depend on your individual needs and goals.