Understanding property valuations
What is a property valuation?
A property valuation is a requirement for any property purchase or sale. But not all valuations are the same. What the lender values a property may be different from how much it is being sold for. Here’s what you need to know about property valuations and how they can affect your home loan.
What is a property valuation?
A property valuation is used to identify the approximate value of a property for a planned transaction such as a new home loan, a home loan refinance or ‘top-up’, or a sale. It is done by a certified valuer who calculates the property value by considering key factors such as size, condition, market trends and the like.
Why do you need a property valuation for a home loan?
Lenders use a property valuation to determine the loan-to-value ratio (LVR). The valuation may not be the same. Before applying for a home loan, you can get an idea of a property’s value by getting a free property report.
How much does a lender valuation cost?
Lenders will complete their own valuation on a property. This valuation usually costs between $200 to $600 for a typical property in a metro location, and this cost can increase for more unique properties in rural locations.
This cost depends on your location and the rates of the accredited valuer. In some cases, a lender may offer to pay for some or waive all of the valuation cost as part of applying for a home loan with them.
What happens if the lender's valuation and purchase price aren't the same?
Your lender may value the property at a lower price than what the house is selling for on the market. This often occurs because of the different purposes of the valuations.
A real estate agent or property seller will want to use the higher end of the valuation range to make sure they are getting the best price for the property sale. On the flip side, a lender will want to take a more conservative approach, typically to ensure they lend responsibly to their customers and do not lend more than the property is worth.
When this difference occurs, you may need to come up with a larger deposit to help bridge the gap.
What factors influence a property valuation?
Values of similar properties or properties in the same suburb can differ significantly depending on a few factors, such as:
- Demand: A property in an in-demand location, like the CBD or a popular holiday destination, could garner a higher property value. Supply and demand will generally always influence the value of an asset, and property is no different.
- Location: A house and land, close to a capital city, with access to public transport, good schools and small businesses like cafes and restaurants, will most likely be worth more than the same size house and land in a remote town.
- Condition: The physical structure of a property is a key determinant of its value. Age, materials and size of the property will all influence its overall value. The same goes for features like pools, gardens, or other features.
- Layout and size: A property with more than one bathroom, multiple bedrooms and a functional overall layout could be viewed as more appealing and valued higher.
What’s the difference between a property valuation, a market valuation, and an appraisal?
A property valuation determines the estimated value of a certain property based on its features, condition, and location. It is conducted by an accredited valuer and has a formal report. Property valuations can be used for home loan applications.
Meanwhile, a market valuation estimates the highest price a buyer would pay for that property based on lifestyle and current buyer sentiments.
An appraisal, on the other hand, is often given out for free by real estate agents who will estimate the value of a property using previous market data. Appraisals can’t be used for home loan applications.
The appraisal or market valuation aren’t always going to align with how a lender values a property.
If you’re looking for a home loan that’s right for you, check out our competitive home loans or chat to our lending specialists to help you get into the property market.
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About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
