Purchasing an apartment is usually the largest financial transaction you'll make in your lifetime. In most cases, financing for this transaction is based on a mortgage from the bank. The bank, for its part, wants to ensure that the property it's financing is indeed worth the amount it's lending you. This is where the real estate appraiser comes into the picture.
In a regular mortgage process, the appraisal is conducted after signing the contract, as part of the requirements for receiving the money. However, early appraisal is a proactive move where the buyer orders a real estate appraiser (from the bank's list of appraisers) even before signing the purchase contract. The purpose of this move is to receive professional opinion on the property's value, its planning and legal status, and to ensure there are no gaps between the asking price and the appraiser's valuation.
As part of a professional mortgage consulting process, an experienced advisor will know how to identify transactions with potential risk and recommend conducting an early appraisal. This is an action that can save considerable heartache, contract breach, and loss of tens to hundreds of thousands of shekels.
Mortgage banks in Israel are subject to Bank of Israel guidelines that limit the maximum financing percentage that can be obtained:
The critical rule is: the bank calculates the financing percentage according to the lower of the two – the contract price or the appraiser's valuation. If you purchased an apartment for ₪2 million, but the appraiser valued it at only ₪1.8 million, the bank will derive the financing percentage from the ₪1.8 million. The implication? You'll need to cover the difference (₪200,000) plus the proportional part of the financing you didn't receive, with additional equity – money you may not have available.
When you need the maximum possible financing (for example, 75% in mortgage consulting for a first apartment) and you don't have a spare shekel beyond the minimum equity, any deviation in the appraiser's valuation could cause the deal to fall through.
In these properties, there's a high frequency of unauthorized construction additions (pergolas, storage rooms, winter enclosures) that haven't been regularized. An appraiser may deduct from the property's value the costs of regularization or demolition, which will harm the property's value for mortgage purposes.
If the price you're paying is significantly higher than prices of similar transactions recently conducted in the area (for example, due to luxury renovation), there's a risk that the appraiser won't recognize the full value of the renovation and will value the apartment according to the area average.
Apartments that have been divided into housing units (even if there's historical permit or tacit agreement) are a common pitfall. Many banks won't approve a mortgage for a property with substantial deviations, and early appraisal will surface the problem before getting entangled.
It's important to understand that not every appraiser is suitable for the task. For the early appraisal to be acceptable at the bank later (and save you double payment), you must follow these steps:
Note: The cost of early (private) appraisal may be higher than regular appraisal through the bank, but it's a small investment compared to the risk of losing the down payment due to contract breach.
The mortgage process requires precise planning and a broad view of all possible risks. As part of mortgage consulting service, we accompany you from the apartment search stage, through feasibility checking and referral to early appraisal when necessary, until receiving the keys.
Want to ensure your deal is safe? Wondering whether to conduct early appraisal? We're here for you.
