Property Valuation in Australia: What Do I Need to Know?

What is a property valuation and how can it affect my purchase of a home?

A property valuation is an independent assessment of the current market value of any kind of property - whether it be residential, commercial or otherwise. Basically, it is an estimate based on a number of determining factors on how much a home is worth. This is different from the valuation a real estate agent might provide you with.

A valuation is considered a legal document accepted by lenders and is used as the legitimate worth of the home. So, when looking to borrow money for your home, it is important to achieve a positive property valuation to secure your mortgage. 

Residential valuations take around 48 hours and are organised by the lender you have made the loan application to. Your mortgage broker will coordinate with the bank to understand when the valuation is taking place and will provide a report or feedback to you after it has been completed.

There are three kinds of property valuations or appraisals:

1. Automated price estimates through online platforms such as Real Estate Australia (REA). You might use this to get an efficient but general understanding of how much a property is worth, but it cannot be used in a legal sense to procure a loan or make a sale.

2. Appraisals and privately ordered evaluations may be obtained from owners when thinking about selling their residence in the near future or for taxation reasons. These valuations also won’t be considered legitimate by a lender.

3. Bank valuations are used to determine what is called the loan to value ratio or LVR. In the context of home loans, the LVR is simply the home loan or investment loan amount divided by the value of your property. These valuations are what is needed to secure a home loan.

What factors are considered in a property valuation?

Different lenders have varying points of value that they consider. For example, if you’re looking to build a home, they will look at other homes in the suburb or area and assess their value from recent sales to help determine if your new build will meet that value.

Other factors may be: 

• Location

• Size of the property

• Number and type of rooms

• Fixtures and fittings

• Areas for improvement

• Building structure and condition (including faults)

• Standard of presentation and fit-out

• Ease of access, such as good vehicle access and a garage

• Planning and restrictions and local council zoning

• Recent sales in the area and other market conditions

How can a valuation affect a successful loan application?

If a bank or lender determines that the value of the property you are trying to build or buy falls under the amount you are looking to borrow, they might determine that the risk of the loan is too high and therefore not a viable application for them. 

It is important to remember that different lenders have different perspectives and conditions on what they consider value and risk. If one bank advises a low valuation on a property (valuation on the property comes back lower than the contracted value or customer’s estimated value), another bank may find it does. 

When working with a mortgage broker at Allen Finance, if a low valuation comes through from a bank on a property you are looking to build or buy, they will source an alternative lender for a second try at the application. 

Work with Allen Finance Mortgage Brokers to understand your loan application and the different steps involved in securing a mortgage.

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