Let’s face it – whether you’re buying your dream home, thinking about selling your current one, or just exploring refinancing options, understanding your property’s value is significant.
But what exactly goes into determining that value? And why do different people come up with different numbers? Let’s break down the mysteries of property valuations so you can make informed decisions with confidence.
Bank Valuations: The Lender's Lens
Imagine you’ve found the one – the perfect house! The bank now wants to know how much they’re comfortable lending you for it. That’s where a bank valuation comes in. It’s essentially a professional valuer’s opinion on what your property is worth under the guidelines the bank has provided, so essentially the value from the bank’s perspective.
It’s all about managing their risk, as they don’t want to lend you more than the house is worth, just in case things don’t go as planned (fingers crossed they won’t!).
How do bank valuations work?
Depending on the bank’s risk assessment of property type and location, whether it’s a refinance or a purchase and the proposed amount to be borrowed against the property, the valuation may be done a number of ways:
- Automated system valuation – estimate based on property data from external providers like Corelogic and in some cases the bank’s own internal information around property values
- Contract of sale reliance – where the bank assesses the risk that you’re overpaying for a property as low, and usually where you have a substantial deposit to contribute, they will not require a valuation at all.
- Full Valuation with inspection – the valuer will physically visit your property, compare it to similar homes that have recently sold in the area, and factor in any quirks or features that might affect its value.
It’s important to remember that banks tend to be a bit conversative with the requirements they give to valuers, such as only relying on recent sales and providing a realistic value that the bank would get if they needed to sell your property quickly. They’re looking to protect their investment, so their valuations, especially full valuations, may be slightly lower than what you might get on the open market.
Market Valuations: The Buyer's Buzz
Now, let’s switch perspectives and see things from a buyer’s point of view. The market valuation is what someone is actually willing to pay for your home right now. It’s a bit more exciting because it’s influenced by factors like emotions, competition, and the overall vibe of the market.
How do real estate agents figure out the market value?
They’ll look at recent sales of similar properties, current market trends (think interest rates and the economy), and any unique aspects of your home.
Why might it be higher than a bank valuation?
Think of it like this: the market valuation reflects what buyers are excited about and willing to pay for to secure a home, rather than a lender’s more cautious estimate not driven by emotion. While we don’t see valuations coming in below sale price often at the moment, this can happen when a market starts to settle after a period of sustained price growth.
What if the Bank's Valuation is Lower Than the Purchase Price?
This can feel like a bump in the road, but don’t panic! You’ve got options:
- Challenge the Valuation: You can provide evidence that supports a higher value, like comparable sales or recent renovations. In some cases, where for example an automated valuation or a desktop valuation has come in low, requesting a full valuation and providing all relevant information to the valuer upfront can help secure the valuation needed. A full valuation where the property has been inspected by a valuer is much harder to challenge and may mean looking at options with other lenders.
- Get a Second Opinion: Another lender or valuer might see things differently. This may mean applying with another lender, so this option may take a little time to follow through on.
- Boost Your Deposit: If you can, put down more money to bridge the gap.
- Renegotiate: Use the lower valuation to try to get a better deal on the purchase price.
Conclusion
Understanding these different types of valuations is your key to making smart decisions in the property market and getting your finance over the line. Whether you’re buying, selling, or investing, being informed empowers you to take control.
Need help navigating the ins and outs of property valuations and securing the right financing?
We’re here to help! Contact Affinitas Finance today for personalised advice and guidance.