What is the lending value of a property?

The lending value of a property is fundamentally about determining how much a lender is willing to provide as a mortgage loan based on the property's assessment. The correct answer indicates that this value is defined as the property’s selling price or the appraised value, whichever is lower.

This approach reflects a conservative lending strategy. If the selling price exceeds the appraised value, lenders prefer to base their lending value on the latter since it represents a more objective assessment of the property’s worth in the current market. This helps mitigate risk for the lender in case the borrower defaults, as the property can be sold for the appraised value.

In contrast, if the selling price is higher than the appraised value, lending based on the higher selling price could expose the lender to greater financial risk. Thus, utilizing the lower of the two figures—selling price or appraised value—ensures that the lender remains within a safer margin.

Options that present other interpretations, such as basing the lending value solely on the selling price regardless of appraisal or using the appraised value only if it exceeds the selling price, do not align with typical lending practices designed to protect against overvaluation in a fluctuating market.