A Comprehensive Guide on Property Valuations

Whether you’re selling, looking to buy or simply wanting to refinance, you need to know the value of the property in question.

The tricky thing is there can be a distinct difference in values depending on who assesses the property – whether it’s the bank, council, insurance company, a real estate agent or even a potential buyer. It’s helpful to know how and why these differ and what the different valuations are used for.

Bank valuations

Valuations undertaken by a lender will generally be more conservative than a market valuation provided by a real estate agent and can be as much as 10 to 20% under market valuations. This is because the bank or lender’s valuation informs how much they will be prepared to lend you. The bank also needs to ensure they are covered in the event you can’t make your loan repayments and they need to sell the property to recover the money they have lent you.

Valuers hired by a bank take into consideration the location and condition of the building, upgrades and renovations and council zoning. Valuers can also price a property based on the bank’s preferences, with location often being a major factor. Areas prone to floods or fires tend to result in a more conservative valuation than other locations, for example.

With an off-the-plan purchase, it’s important to be aware that a lender is only able to value the finished property, which can result in the valuation being lower than your purchase price if property values have decreased during the build.

Market valuations

On the other hand, real estate agent valuations take into consideration local market conditions, are not legally enforceable and are a ‘best estimate’ which can be a little optimistic whether you are a buyer or seller, given that the agent wants the sale. Agents will evaluate the size, condition and location of the property and things like the number of bedrooms, fixtures and fittings etc.

The other thing to consider is the ‘unknown factor’ which is what someone will pay. It’s not uncommon for a potential buyer to pay way above the odds for a property they have fallen in love with.

Why valuations differ

While valuations differ between the parties providing the valuation, there are also multiple factors as to why a market valuation will differ even from the same source. As valuations take into consideration market data – such as trends, sales of similar properties, the strength of a location, and rental rates – these are of course subject to change. This is worth keeping in mind if you have the choice as to when to have the valuation done (which understandably isn’t always possible).

There is also an element of subjectiveness when it comes to valuations, depending on how the person who is doing them interprets the market data.

If the valuation is lower

If the bank valuation comes in less than the purchase price, as a buyer, this can make it more difficult to get your loan application approved. There are fortunately some options if this is the case, such as adding money to your deposit if possible, leveraging any existing equity you may have or getting a guarantor.

With this in mind, it also means that as a potential buyer, it’s wise to see the pre-purchase evaluation before you bid – that way, you won’t be caught unawares.

If you are selling your property, there are also things you can do to try to increase its value, such as making home improvements. You want to do these within reason though, as there is no guarantee these will make much difference to the final value.

A valuation that is lower than the purchase price isn’t good news, which is why some people contest this. One of the benefits of working with a broker is we can speak with other lenders who may decide the property is worth more and be happy to lend the funds to you.

To find a loan for your unique circumstances, reach out so we can help you explore the options available.

Important information – Oracle Advisory Group makes no representation or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek their own professional advice. Past performance is not a reliable indicator of future performance. The information provided in the document is current as the time of publication.