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Property valuations are a vital part of the home loan journey and play an ongoing role long after settlement.
Whether you’re buying your first home, investing, or looking to refinance, understanding how property valuations work can help you make smarter and more confident decisions.
What is a Property Valuation?
A property valuation is an unbiased estimate of a property’s (or land’s) current market value, conducted by a qualified valuer. For most Australians, the most common exposure to valuations is during a home loan application, but valuations are also used for refinancing, investment decisions, equity releases, or even when preparing to sell.
For lenders, a valuation reduces risk: they want to make sure the property is worth the loan amount you’re applying for.
For borrowers, a valuation can affect an array of things, including how much you can borrow, whether you need Lenders Mortgage Insurance (LMI), and what your repayments look like.
Property Valuations During a Home Loan Application
When you apply for a home loan, your lender will usually organise a property valuation. This gives them a clear and independent view of the value of the home you want to buy or refinance. Here’s why it matters:
- Loan-to-Value Ratio (LVR): The LVR compares your loan amount to the property’s value. A lower LVR often means better rates and less risk of needing LMI.
- Deposit Required: If a valuation comes in lower than your purchase price, you may need to contribute a larger deposit.
- Loan Approval: The lender uses the valuation as a key factor in deciding how much they’re willing to lend.
Bank Valuation vs Market Valuation
Generally, there are two ways of seeking an estimate of what your property is worth: an appraisal (a market valuation) or a bank/property valuation.
Bank/Property Valuations
A bank valuation is carried by a lender, bank or independent, certified valuer.
Its main purpose is to help the bank determine their level of risk and how much they’re willing to lend you.
Bank valuations are usually conservative and may be lower than your agreed sale or purchase price.
That’s because banks look closely at recent market movements, property conditions, and potential risks like environmental factors, rather than what a buyer is prepared to pay today.
This approach protects the lender, ensuring the loan isn’t more than the property is truly worth from a risk perspective.
Appraisals (Market Valuations)
On the other hand, a market valuation is common for buyers and sellers. It reflects what’s actually happening in the property market, comparing your home to similar properties sold recently in your area.
Market valuations are usually higher than bank valuations, as sellers are looking to achieve the best possible price, and buyers are often willing to negotiate or wait.
Real estate agents and independent valuers often conduct these market-based assessments to help guide sale prices and set buyer expectations.
Once you own a property, valuations remain important.
Types of Property Valuations
There are a number of different types of valuations depending on the loan type, the property, and who requests the valuation. Here are some typical types:
1. Desktop Valuation
A desktop valuation is done without visiting the property. The valuer uses public records, past sales, and market data to estimate value. It’s usually quick and inexpensive, used for standard properties and lower-risk scenarios.
2. Kerbside (Drive-By) Valuation
While more accurate than a desktop, they don’t go inside the property, rather looking at recent area sales and other criteria.
3. Property Valuation
A full valuation means the valuer will visit and inspect both the inside and outside of the property. They’ll assess the condition, features, recent renovations, and compare to similar properties.
Property Valuations After Purchase
Once you own the property, valuations remain important. Here’s why:
Home Equity
As property values rise and you repay your loan, your equity increases. Equity is the difference between your property’s current value and your remaining loan balance.
Example: If your property is valued at $700,000 and your loan is $500,000, you have about $200,000 in equity.
Building equity can open up options like refinancing, accessing funds for renovations, or using it as a deposit for another property. It’s important to understand the risks and obligations involved. Speak to a mortgage broker or financial advisor before making any decisions.
Refinancing
If you’re considering refinancing, your lender will likely request another property valuation. A higher valuation can mean a lower LVR, potentially unlocking better rates, lower fees, or the ability to borrow more. A lower LVR may help you access more favourable interest rates or reduce the need for Lenders Mortgage Insurance, depending on the lender’s policies.
Example: Refinancing after your property has increased in value could save you thousands by qualifying you for a better deal.
Renovations and Improvements
Renovating can boost your property’s value, but keep in mind that not all improvements deliver the same return. Kitchens, bathrooms, and street appeal can add value, but over-capitalising for your suburb can limit returns.
What If a Valuation Comes in Low?
Sometimes, a valuation is less than expected. In this case, you might need to increase your deposit, renegotiate the purchase price, or consider a guarantor. It’s always helpful to talk with your broker, they can clarify your options and help navigate solutions.
How to Prepare for a Property Valuation
- Present the Property Well: Clean, declutter, and complete minor repairs.
- List Recent Improvements: Share information on any renovations or upgrades.
- Provide Access: Make it easy for the valuer to inspect all areas of your home.
- Know Your Local Market: Be aware of recent comparable sales in your area.
Need Help Understanding Valuations?
Property valuations might seem complicated, but you’re not alone.
We help Australians across the country navigate the home loan and financing process every day. Our experienced mortgage brokers are here to guide you with expert, tailored advice so you get the home loan solution that fits your needs and your local property market.
We’re here to help.
The information is for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial adviser. No material contained herein should be construed or relied upon as providing recommendations in relation to any legal or financial product. Yellow Brick Road Finance Pty Limited ACN: 128 708 109 – Australian Credit Licence (ACL): 393195.
