What is a mortgage valuation and how does it affect your loan?

A mortgage valuation is an official appraisal carried out by an approved valuation company supervised by Banco de España. Its main purpose is to certify the value of a property in accordance with the regulatory criteria set out in Order ECO/805/2003. For the banking institution, the property acts as collateral for the loan; therefore, the bank needs to ensure that, in the event of default, the value of the asset is sufficient to cover the outstanding debt.

As a general rule, financial institutions in Spain grant financing of up to 80% of the property's value for a primary residence. However, there is a fundamental rule applied by banks: the financing percentage is not calculated solely on the price agreed between buyer and seller, but on the lower of the two figures: the purchase price or the valuation figure.

For example, if you agree to buy a flat for 200,000 euros and the valuation confirms a value of 200,000 euros, the bank will typically grant 80%, which is 160,000 euros. Your own equity contribution must cover the remaining 20% (40,000 euros) plus the costs associated with the purchase (taxes, notary fees, land registry, and administrative processing), which usually represent an additional 10% to 12%. However, if the technical report assigns a lower value, the amount borrowed will decrease in the same proportion.

Why does a mortgage valuation come in lower than the agreed price?

Discovering a mortgage valuation lower than the price hinders expected terms and often creates uncertainty. It is important to understand that the professional valuer does not judge the emotional value the property holds for the buyer nor the seller's urgency; they apply strictly technical, planning, and statistical criteria.

The main reasons why a valuation may fall below the agreed price are as follows:

• Fluctuations and local market trends: If property prices in an area have experienced rapid increases driven by demand, official statistics from recent sales (comparable sales data) may reflect more conservative figures than the asking prices listed on property portals.
• Condition of the property: A home requiring comprehensive renovation of its plumbing, electrical installations, or structural elements will face penalties in its technical valuation compared to a renovated property in the same building.
• Planning classifications and VPO: In the Comunidad de Madrid, if the property is an officially protected home (VPO) that has not been disqualified or is subject to a maximum legal sale price, the valuer will adjust the figure to the legal cap established by regional regulations, regardless of any private financial agreements between buyer and seller.
• Discrepancies in registry or land registry documentation: If there are differences in square metre measurements between the Land Registry and the Catastro, or if there are unresolved encumbrances, the valuer will adjust the valuation in the official report.
• Valuation prudence principle: Valuation companies are subject to strict regulatory oversight. When faced with uncertainty regarding the future liquidity of the asset or the characteristics of the local environment, they apply financial prudence principles.

Risks of a valuation below the purchase price

When a mortgage valuation lower than the price is formally confirmed, a financing gap is created that must be addressed swiftly. An illustrative example shows the exact impact:

• Agreed purchase price: 250,000 euros.
• Official valuation figure: 220,000 euros.
• Bank financing (80% of the lower value): 80% of €220,000 = 176,000 euros.

With a valuation matching the purchase price (250,000 euros), the mortgage loan would have reached 200,000 euros. With the valuation set at 220,000 euros, bank financing drops to 176,000 euros. Consequently, the buyer must provide an additional 24,000 euros in personal savings to complete the transaction.

The main risk associated with this shortfall is the loss of the deposit paid under the deposit contract (contrato de arras). If a resolutory clause conditional on securing sufficient financing for the expected amount was not included in that contract, a buyer who lacks that extra capital risks losing the deposit or breaching the contract due to circumstances beyond their control.

What to do if the valuation comes in below the purchase price?

Receiving an unfavourable report does not mean the sale must be cancelled. There are several technical and financial courses of action to rectify the situation or restructure the loan terms.

1. Provide additional equity

This is the most straightforward solution when the buyer has sufficient savings. It involves covering the gap between the pre-approved amount and the purchase price by increasing the initial deposit, without altering the structure of the mortgage loan.

2. Renegotiate the price with the seller

The valuation report is an independent, technical document issued by a regulated entity. Presenting this report to the seller makes it possible to demonstrate, using objective criteria, that the property was priced above market reality or the banking regulatory framework. In many cases, the seller agrees to lower the price or find a middle ground to avoid sabotaging the sale.

3. Use a client-provided valuation

Under Law 5/2019 regulating real estate credit contracts, the borrower has the right to submit their own valuation provided it is certified by an approved valuation company recognised by Banco de España and is within its six-month validity period. Banking institutions are obliged to accept this valuation without imposing their own valuer or applying extra fees for doing so.

If material errors are identified in the original report (such as the omission of home improvements, errors in net floor area, or the selection of inappropriate comparable properties), it is also possible to formally request a valuation review directly from the appraisal company.

4. Negotiate a higher loan-to-value ratio (LTV)

If the buyer has high financial capacity and low debt levels, some banks may agree to increase the loan-to-value percentage above the standard 80% (reaching 85% or 90%), or request additional guarantees to bridge the shortfall.

5. Present the transaction to other financial institutions

Although all valuation companies operate under the same regulatory framework, sample selection and appraisal nuances can vary between individual valuers. A second valuation conducted through a different bank may yield a different result that aligns more closely with the agreed price.

The role of the Real Estate Credit Intermediary during valuation discrepancies

Dealing with a valuation shortfall requires swift handling and in-depth knowledge of the mortgage market. This is where professional mediation can mean the difference between losing a property opportunity and successfully closing the deal.

A Real Estate Credit Intermediary (ICI) evaluates financing viability comprehensively. By working with multiple mortgage lenders, an ICI identifies which banks apply more flexible risk criteria, which institutions readily accept external approved valuations, and which offer higher LTV percentages based on the buyer's creditworthiness.

Furthermore, guidance from the start of the process ensures prior review of deposit agreements (contratos de arras) to incorporate protective clauses that prevent the loss of funds if appraisal complications arise.

In the Comunidad de Madrid, where the sale or disqualification procedures for officially protected housing (VPO) impose strict legal caps on sale prices, specialist advice prevents discrepancies between the agreed offer and the official administrative valuation.

Tailored financial solutions with Sky Real Estate

At Sky Real Estate, we offer a comprehensive advisory and brokerage service to resolve any issues that may arise during your mortgage application. We are accredited as Real Estate Credit Intermediaries registered with Banco de España under code D-286, guaranteeing transparent, regulated management aligned with the highest industry standards.

Likewise, the technical strength of our legal team has been recognised in prestigious industry awards, such as the Sky Law European Legal Awards 2023-2025. This expertise enables us to protect your interests with valuation companies and financial institutions, renegotiate purchase contract terms, and find the optimal mortgage structure for your case.

If the valuation of your future home has come in lower than expected, or if you wish to plan your purchase with guarantees before signing contracts, we invite you to consult our real estate credit intermediaries for a personalized analysis of your transaction.