They are the same technical exercise, but they do not share the same purpose, the same client, or many times, the same final figure. That is why an owner can hold two credible reports, both signed by qualified valuers, showing different values for the same property. It is not a contradiction. It is purpose.
1. The short answer
| Property valuation | Bank (mortgage) valuation | |
|---|---|---|
| Who commissions it | Owner, buyer, heirs, company, court | The lending institution |
| Who it serves | Whoever decides about the property | The lender, to calibrate risk |
| Question it answers | "What is this property worth?" | "What could be recovered if this loan fails?" |
| Time perspective | Market value at the valuation date | Value sustainable over the loan term |
| Practical consequence | Price, estate division, tax, accounts, litigation | Loan amount and loan-to-value |
Every mortgage valuation is a property valuation. The reverse is not true.
2. Why the numbers differ
A mortgage valuation is prudential by design. The bank is not buying the property; it is accepting it as security. That changes three things.
Caution about the exceptional. A designer finish, a bespoke concrete pool or a high-end kitchen can add real money in a sale to a buyer who wants them. As security they count for little: the lender reasons about the average buyer in an enforcement scenario, not the enthusiastic one.
An implicit liquidity discount. Market value assumes a normal marketing period. Security assumes a possibly forced sale, in a short window and in an unfavourable part of the cycle. In thin markets where prime houses, estates, atypical assets this is the single largest source of divergence.
Only what is legal and documented gets valued. A basement converted into living space, an outbuilding without a permit, a floor area that does not match the property register: on the open market these may still attract demand; in a mortgage valuation they are treated as non-existent or as a regularisation liability. This is where most of the divergence owners read as error actually comes from.
Rule of thumb: the more atypical the property and the more misaligned its paperwork, the wider the gap between market value and the value accepted as security.
3. What a valuer actually does
Whoever pays, the method is the same and it must be auditable.
- Identification and framing — description, property register and tax records, use permit, technical housing file, approved drawings and applicable planning regime.
- On-site verification — inspection with dated photographs, confirmation of areas, state of repair, orientation, noise, access, parking and building management.
- Market analysis — evidence from completed transactions, not listings: asking prices are not achieved prices.
- Application of methods — sales comparison, income and cost, according to the asset and the question.
- Reconciliation and reasoning — the methods rarely agree; the report must explain how they were weighted.
- Assumptions and limitations — whatever was not verified (concealed structure, untested services) must be stated in writing.
4. The three methods
Sales comparison. For ordinary residential property. Its quality depends entirely on the quality of the comparables: same area, same type, same condition, same period. Without explained adjustments where for floor area, level, views, condition the method is just an average dressed as rigour.
Income approach. For assets that produce revenue: shops, offices, income buildings, licensed short-term rentals. It works from sustainable net rent and a capitalisation rate consistent with the asset's risk. A 0.5-point move in that rate shifts value more than almost any improvement works.
Cost approach. For assets with no comparable market or plant, special-purpose buildings and for recent construction. Land value plus replacement cost, less physical and functional depreciation. Used alone on ordinary housing, it systematically overstates.
5. In Madeira, topography enters the calculation
In a region where the land dictates the outcome, three factors weigh more than gross floor area:
- Slope and accessibility. Two adjoining plots of identical area can carry very different construction costs. Retaining walls, rock excavation and machinery access translate directly into value.
- Views and orientation. Sea, hillside and morning sun carry real, measurable value — but their permanence must be checked: an undeveloped plot downhill can erase them.
- Legality accumulated over time. Much of Madeira's building stock grew in phases, outbuildings, roofed terraces and extensions. Each phase needs valid title before it can be valued.
6. If the mortgage valuation came in low
Before disputing it, check the essentials:
- Areas. Does the private gross area used match the property register and the approved drawings?
- Comparables. Are they completed transactions in the same area and period, or current listings?
- Condition. Were recent works documented with invoices, drawings and before-and-after photographs?
- Legality. Is there any discrepancy between what is built and what is licensed?
- Assumptions. Was a limitation assumed. No access to part of the property, missing permit that can now be cleared?
A request for review only works with new evidence: certificates, drawings, permits, works invoices, documented comparables. Disagreeing with a figure, without proof, does not change reports.
7. Which valuation to ask for, by decision
- Selling or buying — market value, with comparables and a negotiation range.
- Applying for credit — the bank commissions the valuation from a registered valuer; an independent valuation beforehand manages expectations and surfaces paperwork problems in time.
- Estate division and inheritance — market value at the relevant date, reasoned robustly enough to withstand challenge between parties.
- Accounting, insurance and corporate purposes — the basis of value is set by the applicable standard; it is not always market value.
- Litigation or court — a report written to be cross-examined, with assumptions and sources fully disclosed.
Closing note
The right question is not "what is my property worth?" but "for which decision do I need this value?". The answer determines the method, the basis and the degree of caution and explains, without mystery, why two different figures can both be correct.