Valuation

Valuation is a professional assessment of a property or asset's market value, conducted by a licensed valuer. Lenders require valuations before approving loans to ensure the property provides adequate security for the amount being borrowed.

How Valuations Work

A bank valuation determines what a property is worth in the current market—this may differ from the purchase price or your own estimate.

Key purposes:

• Confirms the property is worth what you're paying
• Determines maximum loan amount (based on LVR limits)
• Protects lender from over-lending on overpriced properties
• Required for purchases, refinancing, and equity releases

Types of Valuations

1. Bank Valuation (Most Common)

Ordered by your lender during loan approval process.

Characteristics:

• Cost: $200-$600 (paid by borrower)
• Turnaround: 3-7 business days
• Method: Usually desktop (using comparable sales) or kerbside inspection
• Report: Short-form, goes to lender only
• Purpose: Lending purposes only

Example:

• Purchase price: $750,000
• Bank valuation: $730,000
• Lender uses: $730,000 for LVR calculation
• 80% LVR loan: Maximum $584,000 (not $600,000)

2. Full Valuation (Detailed Inspection)

Valuer conducts thorough internal and external inspection.

Characteristics:

• Cost: $600-$1,200
• Turnaround: 7-14 days
• Method: Full property inspection, detailed report
• Report: 20-40 pages, includes photos, comparable sales analysis
• Purpose: Complex properties, commercial, legal disputes

When required:

• Unusual properties (heritage, rural, architect-designed)
• Commercial properties
• Properties over $2M-$3M
• Litigation or family law matters
• Construction loans (multiple valuations during build)

3. Desktop Valuation

Valuer assesses property without physical inspection, using data and photos.

Characteristics:

• Cost: $150-$300
• Turnaround: 1-3 business days
• Method: Online property data, comparable sales, street view
• Accuracy: Within 5-10% typically
• Purpose: Standard residential properties in metro areas

When used:

• Refinancing (property already known to lender)
• Standard homes in established suburbs
• Low-risk loans (LVR under 70%)

4. Kerbside Valuation

Valuer inspects property from the street only, no internal access.

Characteristics:

• Cost: $250-$400
• Turnaround: 3-5 business days
• Method: External inspection + comparable sales
• Accuracy: Within 3-7%
• Purpose: Standard properties, quick assessment

When used:

• Property is tenanted (hard to access internally)
• Refinancing existing loans
• Pre-approval estimates

What Valuers Consider

Property Factors

Physical characteristics:

• Land size (square metres)
• House size (square metres)
• Number of bedrooms and bathrooms
• Garage/parking spaces
• Condition and age
• Renovations and improvements

Location factors:

• Suburb and street appeal
• Proximity to amenities (schools, shops, transport)
• Views and aspect (north-facing = premium)
• Flood zones or environmental risks

Market factors:

• Recent comparable sales (last 3-6 months)
• Market trends (rising, falling, stable)
• Demand in the area
• Days on market for similar properties

Comparable Sales Analysis

Valuers primarily use recent sales of similar properties within 1-2km.

Example: Valuing a 3-bed home in Brisbane

Subject property:

• 3 bed, 2 bath, 2 car
• 450m² land, 180m² house
• Renovated kitchen, good condition

Comparable sales (last 3 months):

1. 3 bed, 2 bath, 2 car, 420m² land, 170m² house: $685,000
2. 3 bed, 2 bath, 1 car, 500m² land, 190m² house: $710,000
3. 4 bed, 2 bath, 2 car, 480m² land, 200m² house: $750,000

Valuer's assessment:

• Subject property is better than #1 (larger land, larger house)
• Subject property is similar to #2 (extra garage adds value)
• Subject property is smaller than #3 (fewer bedrooms)
• Valuation: $720,000

When Valuations Are Required

Purchase Loans

Always required when buying property with a mortgage.

Timeline:

• Apply for loan (week 1)
• Lender orders valuation (week 2)
• Valuation completed (week 2-3)
• Formal loan approval (week 3-4)

Cost: Paid by borrower, $250-$600 depending on property location and type.

Refinancing

Usually required when switching lenders or increasing loan amount.

Example:

• Original purchase (2019): $650,000, loan $520,000
• Current value (2025): $780,000, loan paid down to $470,000
• Refinancing to access equity: $150,000
• New loan: $620,000
• Lender orders valuation: Confirms property worth $780,000
• 80% LVR approved: $624,000 maximum

Desktop valuation often sufficient if property is standard and LVR is low.

Equity Release

When borrowing against property equity without selling.

Example:

• Home value: $850,000
• Current loan: $400,000
• Equity available: $450,000
• Want to borrow: $200,000 for investment property deposit
• Lender orders valuation: $850,000 confirmed
• New loan: $600,000 (70% LVR, approved)

Construction Loans

Multiple valuations required:

1. Land valuation (before purchase)
2. Plan valuation (proposed build value)
3. Progress valuations (at each construction stage, 4-6 times)
4. Completion valuation (final as-built value)

Total valuation costs: $2,000-$4,000 over construction period.

Dispute Resolution

When valuations are contested:

• Family law property settlements
• Estate distributions
• Council rates disputes
• Challenging bank valuations

Process: Engage independent valuer for second opinion.

Valuation vs Market Price

When Valuations Come In Low

Scenario:

• Purchase price: $820,000
• Bank valuation: $780,000
• Shortfall: $40,000

Impact on your loan:

• You wanted 80% LVR: $656,000 loan
• Bank approves 80% of $780,000: $624,000 loan
• You need extra $32,000 deposit (to cover $40,000 shortfall)

Options when valuation is low:

1. Renegotiate purchase price with vendor
2. Increase your deposit by the shortfall amount
3. Accept higher LVR (pay LMI)
4. Get second valuation (challenge the bank's valuation)
5. Walk away if you can't proceed

Example: Renegotiation

• Original contract: $820,000
• Valuation: $780,000
• Offer to vendor: "Bank valuation came in at $780K, can we adjust price to $790K?"
• Vendor accepts: $790,000 (saves you $30,000)

When Valuations Come In High

Scenario:

• Purchase price: $650,000
• Bank valuation: $680,000
• Surplus: $30,000

This is good news:

• Instant equity of $30,000
• LVR is better than expected
• May avoid LMI or get better rate

Example:

• Purchase: $650,000 with $65,000 deposit (10%)
• Loan: $585,000
• Expected LVR: 90%
• Actual LVR: $585,000 ÷ $680,000 = 86%
• Result: Lower rate tier, potentially avoid LMI depending on lender

Who Pays for Valuations?

Purchase Loans

Borrower pays:

• Upfront fee: $200-$600
• Included in loan application costs
• Non-refundable (even if loan doesn't proceed)

Lender arranges:

• Selects the valuer from their panel
• You can't choose the valuer
• Valuation property of the lender

Refinancing

Sometimes free:

• Many lenders offer "free valuation" as refinancing incentive
• Desktop valuations often included in refinance packages

Example:

• Lender A: $0 valuation, 5.79% rate
• Lender B: $400 valuation, 5.69% rate
• Lender B saves $833/year on $600K loan (worth the $400 fee)

Contesting a Valuation

If you believe bank valuation is too low, you can order independent valuation.

Process:

1. Order private valuation from licensed valuer ($600-$1,200)
2. Submit to lender with evidence (recent sales, unique features)
3. Lender reviews and may:
   • Accept your valuation
   • Order second valuation
   • Maintain original valuation

Success rate: 30-40% of challenges result in higher valuation.

Example:

• Bank valuation: $700,000
• Your valuation: $740,000
• Evidence: Three sales in last month at $730K-$760K for similar properties
• Bank orders second valuation: $725,000
• New loan amount: Extra $20,000 (80% of $25K increase)

Valuation Methods

1. Comparable Sales Approach (Most Common)

Used for residential properties.

Method:

• Identify 3-6 recent sales of similar properties
• Adjust for differences (size, condition, features)
• Weight toward most comparable sales

Example:

• Subject: 4 bed, 2 bath, 600m² land, renovated
• Comp 1: 4 bed, 2 bath, 550m² land, unrenovated: $650,000 (+$50K for reno, +$15K for land)
• Comp 2: 4 bed, 2 bath, 650m² land, renovated: $720,000 (-$10K for smaller land)
• Comp 3: 3 bed, 2 bath, 600m² land, renovated: $680,000 (+$20K for extra bedroom)
• Valuation: $700,000-$715,000 range, valuer selects $710,000

2. Income/Capitalisation Approach

Used for investment properties and commercial.

Method:

• Calculate annual rental income
• Apply capitalisation rate (market yield)
• Value = Annual Rent ÷ Cap Rate

Example: Commercial property

• Annual rent: $85,000
• Market cap rate: 6.5%
• Valuation: $85,000 ÷ 0.065 = $1,307,692

3. Cost Approach

Used for unique properties or new construction.

Method:

• Land value + building replacement cost - depreciation

Example:

• Land value: $450,000
• Replacement cost: $380,000
• Depreciation (10 years): -$50,000
• Valuation: $780,000

When used:

• Unique properties (no comparables)
• Heritage buildings
• Special-purpose properties (churches, schools)

Common Valuation Issues

1. Market Volatility

Problem: Valuations are point-in-time assessments.

Scenario:

• Apply for loan in January 2025: Valuation $750,000
• Settle in March 2025: Market drops 5%
• Actual value at settlement: $712,500
• Your LVR is now higher than expected

Solution: Get pre-approval with valuation valid for 90 days.

2. Regional/Rural Properties

Problem: Fewer comparable sales, wider valuation ranges.

Example:

• Regional property purchase: $550,000
• Only 2 comparable sales in last 12 months
• Valuation range: $510,000-$580,000
• Valuer conservative: $520,000
• Need extra $30,000 deposit

Solution: Provide evidence to valuer (recent interest, unique features, pending sales).

3. Off-the-Plan Purchases

Problem: Valuing a property that doesn't exist yet.

Method:

• Valuation based on plans + comparable new developments
• High uncertainty (market may change during construction)

Example:

• Buy off-the-plan apartment: $680,000
• Construction: 18 months
• Plan valuation: $660,000
• Lender approves: 80% of $660,000 = $528,000
• You need: $152,000 deposit (22% instead of 20%)

4. Overimproving Your Property

Problem: Spending more on renovations than you add in value.

Example:

• Property value: $650,000
• Spend on renovations: $150,000
• Post-renovation valuation: $720,000
• Value added: $70,000 (lost $80,000)

Solution: Consult valuer or real estate agent before major renovations.

Tips to Maximize Valuation

Before the Valuation

1. Provide comparable sales

• Research recent sales in your area
• Email agent with sales evidence showing higher values

2. Highlight improvements

• List recent renovations (kitchen $45K, bathroom $28K)
• Provide receipts if significant

3. Presentation

• Clean and declutter
• Mow lawns, tidy gardens
• First impressions matter (especially for full inspections)

During Desktop Valuations

Ensure online info is accurate:

• Update property listing photos if old/poor quality
• Correct any errors on realestate.com.au or Domain
• Add recent improvements to property records

If Valuation Is Low

Challenge with evidence:

• Obtain recent sales data
• Highlight unique features
• Provide photos of improvements
• Request review or second valuation

Valuation for Different Property Types

Standard Residential (Houses/Units)

• Method: Comparable sales
• Cost: $200-$400
• Turnaround: 3-5 days
• Accuracy: ±3-5%

Luxury/Prestige Properties

• Method: Full inspection + comparable sales
• Cost: $800-$2,000
• Turnaround: 7-14 days
• Accuracy: ±5-10% (fewer comparables)

Rural/Acreage

• Method: Full inspection + cost approach
• Cost: $600-$1,500
• Turnaround: 10-21 days
• Accuracy: ±10-15% (limited comparables)

Commercial Properties

• Method: Income approach + comparable sales
• Cost: $1,200-$5,000+
• Turnaround: 14-28 days
• Accuracy: ±5-8%

Final Thoughts

Valuations are a critical part of the lending process—they protect lenders from over-lending and help you understand true property value.

Key takeaways:

• Budget $200-$600 for purchase loan valuations
• Valuations can come in below purchase price (have buffer in your deposit)
• Desktop valuations are common for refinancing (often free)
• You can challenge valuations with evidence
• Construction loans require multiple valuations ($2K-$4K total)

Before purchasing:

• Research recent sales in the area
• Ensure purchase price aligns with market (get pre-purchase appraisal)
• Allow 1-2 weeks for valuation in your finance timeline
• Have extra 5-10% deposit buffer in case valuation is low

When refinancing:

• Check if lender offers free valuation
• Consider requesting revaluation if property has increased significantly
• Higher valuation = lower LVR = better rates

Speak to a NIK Finance broker if you're concerned about valuations—they can guide you to lenders with realistic valuation approaches and help navigate low valuations with alternative lenders from their panel of 100+ lenders.

A realistic valuation protects you from overpaying and ensures your loan is properly secured—work with the process, not against it.