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Home Loan Variable: 5.20% (5.24%*) • Home Loan Fixed: 5.48% (6.24%*) • Fixed: 5.48% (6.24%*) • Variable: 5.20% (5.24%*) • Investment IO: 5.78% (6.81%*) • Investment PI: 5.58% (6.62%*)

How is the Home Loan Valuation Determined?

When you apply for a home loan your lender will get an independent valuer to assess the bank valuation of the property you wish to buy. For the bank, property valuation risks are their main priority, so the bank valuation is a conservative estimate of the property’s value and is different to a market valuation. The market valuation is generally higher than the bank valuation because a market valuation is driven by buyer behaviour, consumer confidence, and property demand, while the bank evaluation is orientated towards a risk assessment. The bank valuation assumes they may need to sell the property quickly to recover losses, thus it is on the lower side.

The bank’s valuation is very important. If you pay more for a property than the bank is prepared to accept as its own value, you’ll be left with an LVR shortfall that will potentially cause issues with your capacity to borrow the required funds.

Valuations versus Appraisals

A bank will value a property based on a ‘drive-by’ or street “kerb” valuation (or “Appraisal”), often also referred to as a “desktop evaluation”, while at other times an individual might be required on-site to inspect the property (a formal “Valuation”). The former tends to return a lower amount than the latter method because the exterior of a property, or nearby similar prices, may not reflect the internal standard of the property.

Generally speaking, a bank will value a property based on the following attributes:

  • General location and council zoning.
  • Overall size and number of rooms.
  • Vehicle access to the property.
  • Building structure and condition.

Since this information is generally made available through various

A valuer may require the following documents if conducting a valuation:

  • Contract of sale.
  • Plan of subdivision.
  • Certificate of title.
  • List of any work/s undertaken.
  • Building plans (if new).
  • Council rates notice.
  • Owner’s estimate of market value.
  • Local paper and newspaper sales result.
  • Market appraisal for a local real estate agent.

Some attributes of your property that will be evaluated include the following:

  • Architectural style.
  • Aspect, topography and layout of the block.
  • Condition.
  • Land size.
  • Location in relation to schools, public transport, shops and amenities.
  • Number of rooms including bedrooms, bathrooms and the size of the kitchen.
  • Renovation and/or development potential.
  • Size and layout of the residence.
  • Risk ratings for things like environmental risks as well as market risks.
  • Comparable market sales (neighbouring properties).

A comprehensive valuation might include the following:

  • Description of the location.
  • Title details.
  • Planning.
  • Site description.
  • Building description.
  • Comparable sales.
  • Valuation figure.
  • Photos of the property.
  • Disclaimers.
  • Caveats or encumbrances on the property.
  • Additional features of the property (particularly relevant in rural areas).

The difference in property value between a desktop or kerbside valuation and a full valuation might be between 5% and 10%. Choice Magazine provides an example of how valuations may vary for a two-bedroom terrace in Sydney.

Valuation Cost

Formal valuations start around $200 and usually average at around $500, although it’s worth shopping around as you may be able to get it for less. Some lenders will also offer free valuations as part of a home loan. There are times where a bank will require a full evaluation, while sometimes their desktop evaluation will be sufficient. If it is clear that there will be a significant discrepancy between the two it’s often worth pursuing a full evaluation.

Challenging Valuations

You may challenge the valuation provided by a bank, particularly if the desktop evaluation didn’t consider the quality of the home. It’s not uncommon to spend some money on interior improvements that can significantly improve upon the value, and these improvements are rarely reflected in general appraisals.

The chance of having a bank reevaluate a property is slim so you’ll want to engage with a mortgage broker that makes the appropriate inquires, and provides a valuer with relevant information, before an evaluation is issued.

In cases where property values are listed in Government databases you may submit a request directly to that agency.

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