Bank valuation versus market value
When you apply for a home loan, the lender arranges an independent valuer to assess the property you intend to buy. That figure — the bank valuation — is not the same number as the price you agreed with the vendor. A market valuation is driven by buyer behaviour, consumer confidence and demand on the day. A bank valuation is a risk assessment: it assumes the lender may one day need to sell the property quickly to recover its money, so it is deliberately conservative and usually sits below the market price.
This matters because the loan-to-value ratio (LVR) is calculated against the lower of the contract price and the valuation. If you pay more for a property than the bank is prepared to accept as its own security, you are left with a valuation shortfall. The lender will only lend against the figure it accepts, so the gap falls to you to fund — which can quietly reduce your borrowing capacity at the worst possible moment, mid-purchase. As with most lending questions, the valuation outcome is a policy question first: different lenders use different valuers, order different valuation types, and read the same property differently.
How a valuation is carried out
There is more than one way a lender values a property, and the method chosen affects the figure.
- Desktop or kerbside valuation. A "drive-by" assessment, sometimes called an appraisal or desktop evaluation, based on the exterior and on nearby comparable sales. It is quick and cheap, but the interior is unseen, so it tends to return a lower figure than a full inspection.
- Full valuation. A valuer attends the property in person and inspects it internally and externally. This captures condition, renovations and features a desktop method cannot see.
The difference between a desktop and a full valuation is often in the order of 5% to 10%. Choice Magazine has published an example of how valuations vary for a two-bedroom terrace in Sydney.
In broad terms, a valuer weighs attributes such as:
- General location, council zoning and the property's relationship to schools, public transport, shops and amenities.
- Land size, aspect, topography and the layout of the block.
- Architectural style, building structure and overall condition.
- Number and size of rooms, including bedrooms, bathrooms and kitchen.
- Vehicle access to the property.
- Renovation or development potential.
- Risk ratings, including environmental and market risk.
- Comparable market sales of neighbouring properties.
For a full valuation, the valuer may ask for supporting documents — the contract of sale, plan of subdivision, certificate of title, building plans for new work, a council rates notice, a list of works undertaken, the owner's estimate of market value, local sales results and a real estate agent's market appraisal.
A comprehensive valuation report typically sets out the location and title details, planning, a site and building description, comparable sales, the valuation figure, photographs, any caveats or encumbrances on the title, additional features (particularly relevant in rural areas), and the valuer's disclaimers.
What it costs, and when a full valuation is worth it
Formal valuations generally start around $200 and average closer to $500, though fees vary and some lenders include the valuation at no cost as part of the loan. Whether the lender accepts a desktop figure or insists on a full inspection depends on its policy and the property. Where you can see a meaningful gap coming — for example, an interior that has been renovated well beyond what the street frontage suggests — it is often worth pushing for the full valuation, because the lower desktop figure can otherwise set your LVR.
Challenging a valuation
You can challenge a valuation, particularly where a desktop method has not accounted for the quality of the home. Money spent on interior improvements frequently lifts real value, and that is rarely reflected in a kerbside appraisal.
Having a lender re-value a property after the fact is difficult, so the leverage sits earlier in the process. The practical approach is to make sure the valuer receives relevant information — recent comparable sales, evidence of works completed, the contract — before the figure is issued, rather than disputing it afterwards. This is one of the quieter parts of structuring a purchase well, and it is where a broker who knows which lender to use and which valuation type to order can change the outcome.
Separately, where a property's value appears in a government database for rates or land tax purposes, you can lodge an objection directly with the relevant agency — for example New South Wales, Victoria or South Australia. That is a separate process from a lender's mortgage valuation.
If a valuation is the difference between a clean settlement and a shortfall, it is worth getting the lender and the valuation method right before the order goes in. Book a strategy session and we will work through how to structure the purchase around it.
General information only — not personal financial product or credit advice. Lending is subject to each lender's policy, your full circumstances and responsible-lending assessment. AeFin is an Australian Credit Representative (CR 464548) of Finsure (ACL 384704).