What Are Property Valuations for Home Loans?

What Is a Property Valuation for a Home Loan?

A property valuation is the lender's independent assessment of what your property is worth. A lender will order a valuation to determine how much they'll lend you based on their loan to value ratio policy, not the price you've agreed to pay or what you think it's worth.

The valuation protects the lender. If you default and they need to sell, they want to know they can recover the debt. That's why the figure matters more to your loan approval than the contract price. A valuation coming in under the purchase price means you'll need a bigger deposit or the vendor will need to drop the price. A valuation at or above contract price clears one of the final hurdles before settlement.

As a builder, you'll sometimes see quirks in how valuers assess properties you've worked on or are buying to renovate. The valuer doesn't know what you know about the workmanship, the materials used, or the renovation potential. They're working from comparable sales, a site visit, and the information the lender provides.

How Lenders Choose a Valuer

The lender picks the valuer, not you. Most lenders use a panel of accredited valuers who work to Australian Property Institute or similar standards. The valuer is independent and has no incentive to inflate or deflate the figure. They're assessing market value based on recent sales of similar properties in the same area, the condition of the property, and any factors that might affect saleability.

Some lenders use desktop valuations for lower-risk loans, where the valuer doesn't physically inspect the property and instead relies on data, photos, and comparable sales. Others require a full inspection, especially for construction loans for tradies or properties in regional areas where sales data is thin. You won't always know which method the lender will use until the valuation is ordered.

The cost of the valuation is usually between $200 and $600, depending on the property type and location. Some lenders roll it into the application fee. Others charge it separately. Either way, you're paying for it, and you don't get a refund if the valuation comes in low or the loan doesn't proceed.

Why Valuations Come in Under Contract Price

A valuation lower than the purchase price happens more often than buyers expect. The valuer isn't bound by what you've agreed to pay. They're looking at what similar properties have sold for in recent months, adjusted for condition, location, and any unique features. If you've bought in a rising market or paid a premium for a specific feature the valuer doesn't think adds equivalent value, the valuation can fall short.

Consider a builder purchasing a weatherboard cottage in a suburb where most recent sales have been renovated. The contract price is based on the buyer's knowledge of what the property will be worth after a renovation they plan to do themselves. The valuer assesses it as-is and finds only two comparable unrenovated sales in the past six months, both lower than the purchase price. The valuation comes in $40,000 under contract. The buyer now needs to find an additional $40,000 in deposit or negotiate a price reduction with the vendor. The lender won't bridge that gap.

How Valuations Affect Your Loan Amount

Lenders calculate your maximum loan amount based on the lower of the purchase price or the valuation. If you're buying at $650,000 and the valuation comes in at $620,000, the lender will use $620,000 to determine your loan to value ratio. At 90% LVR, that's a maximum loan of $558,000, not $585,000. You'll need to cover the $92,000 shortfall out of your deposit and costs.

This is where finance for tradies gets specific. If you're buying a property to renovate and live in, the valuation reflects the current state, not the potential value after your work. Some lenders will consider a 'proposed valuation' or 'as-if-complete' valuation for renovation loans, but that requires detailed plans, costings, and a quantity surveyor's report. Most standard home loans for tradies don't allow you to borrow against future value.

If the valuation affects your LVR, it also affects whether you'll pay Lenders Mortgage Insurance. A purchase price of $650,000 with a $585,000 loan sits at 90% LVR. A valuation of $620,000 pushes the same loan to 90% LVR on the new figure, but your deposit as a percentage of purchase price has shrunk. LMI is calculated on the valuation, not the contract price, so a lower valuation can sometimes reduce your LMI premium, though that's little consolation if you're scrambling to find extra deposit.

What Valuers Look for During an Inspection

A valuer inspects the property to confirm its condition, layout, and any factors that might affect value. They'll note the number of bedrooms and bathrooms, the land size, the building materials, the age and condition of major elements like the roof and stumps, and any structural issues, unapproved extensions, or damage. They'll also assess the location within the suburb, proximity to main roads or industrial areas, views, and access to amenities.

Builders often assume a quality renovation or extension will automatically lift the valuation in line with the cost of the work. It doesn't. The valuer assesses market value, not cost value. If you've spent $80,000 on a renovation but comparable sales in the street only support a $50,000 increase in value, that's what the valuer will report. Overcapitalisation is a real risk, especially in suburbs where the market has a price ceiling regardless of how much you've spent.

You can't attend the valuation or speak to the valuer directly in most cases. The lender manages that relationship. If the valuer requests additional information, the lender or broker will contact you. If you've done recent renovations or extensions, make sure the lender knows before the valuation is ordered so that information can be passed on. Photos, council approval documents, and receipts for major works can all support the valuation, but only if the valuer receives them in time.

Challenging a Valuation That Seems Wrong

If the valuation comes in lower than expected, you can ask the lender to review it. You'll need evidence, not opinion. Recent comparable sales that the valuer may have missed, contracts of sale for similar properties, or evidence of recent renovations not noted in the report can all support a review. The lender will send your information back to the valuer, who will either amend the report, provide additional explanation, or stand by the original figure.

A second valuation is possible but not guaranteed. Some lenders will order one if the first valuation is contentious. Others won't. If they do, you'll usually pay for it, and the lender will take the lower of the two figures if they differ. A second valuation is not an opportunity to shop for a higher number. It's a cross-check on the first valuer's methodology.

In our experience, most valuation disputes come down to the buyer's expectation not aligning with market evidence. If you've paid above recent comparable sales, the valuer is doing their job by reporting that. If the property has unique features or recent high-quality work that isn't reflected in the valuation, that's where a review with supporting evidence can make a difference. But if the market data supports the valuation, no amount of arguing will shift it.

Valuations for Off-the-Plan and New Builds

Off-the-plan purchases and new builds are valued differently. For off-the-plan, the valuer assesses the proposed property based on the plans, the contract price, and comparable sales of similar new units or townhouses in the area. The risk for buyers is that valuations for off-the-plan properties are often done close to settlement, sometimes two or three years after the contract was signed. If the market has softened or comparable sales have dropped, the valuation can come in under the original contract price, leaving the buyer short at settlement.

For new builds, including house and land package loans for tradies, the lender will usually require a valuation at practical completion before releasing the final drawdown. The valuer will inspect the finished build and compare it to recent sales of new homes in the estate or suburb. Builders constructing their own home need to be aware that the lender's valuer will assess the market value, not the cost to build. If you've built a high-spec home in an area where the market doesn't support that level of finish, the valuation may not reflect your costs.

When a Valuation Affects Settlement

A low valuation close to settlement can derail a purchase. If the valuation comes in $30,000 under contract and you don't have the extra deposit, you'll need to renegotiate with the vendor or walk away. Most contracts include a finance clause that allows the buyer to terminate if they can't obtain loan approval, but that clause usually has a deadline. If the valuation is ordered late and comes in low after the finance clause has expired, you're exposed.

Getting loan pre-approval doesn't include a valuation in most cases. Pre-approval is based on your income, deposit, and credit history. The valuation happens after you've found a property and gone unconditional or close to it. That's why it's worth ordering a pre-purchase building and pest inspection at the same time, even though they serve different purposes. If either the inspection or the valuation reveals a problem, you want to know before the finance clause expires.

If you're refinancing, the same valuation rules apply. The lender will order a valuation to confirm the current value of your property before approving the new loan. If property values in your area have dropped since you bought, the valuation might come in lower than you expect, which can affect your borrowing capacity or whether you'll need to pay LMI on the refinance. Check your suburb's recent sales before assuming your property has increased in value.

Call one of our team or book an appointment at a time that works for you. We'll make sure your loan structure matches the valuation reality, not the price you've agreed to pay.

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