Bank Valuations: What’s the Deal?

Have you finally found the house you’ve been dreaming of?

Or are you selling your home to move on to the next adventure, whether that’s downsizing, upsizing, or relocating?

Before the bank hands over a loan to help you buy a place or help a buyer buy yours, they’ll want to know one thing—what’s the house really worth? 

Here’s the catch: it’s not the same as what you, your agent, or the market thinks. 

That difference can impact a buyer’s borrowing power and deposit, as well as a seller’s sale price and how quickly their property will sell.

So, what is a bank valuation? 

What Is a Bank Valuation?

A bank valuation is an independent assessment of a property’s value to determine its worth as security for a home loan.

A qualified valuer conducts this assessment on behalf of the bank. 

If the borrower can’t repay the loan, the bank wants to know how much it could reasonably sell the property to recover the outstanding amount.

A bank property valuation is not the same as a real estate agent’s appraisal of the property’s market value, which is based on buyer demand, recent sales, and potential selling price under ideal conditions.

A bank property valuation is typically lower because it focuses on the property’s resale value in a quick-sale scenario rather than its potential in a competitive market.

What Bank Valuations Mean for Buyers

If you’re a buyer, the loan amount you can secure all depends on LVR.

Loan-to-Value Ratio (LVR) is the percentage of the property’s value—as valued by the bank—that the bank is willing to finance. 

For example, let’s say a property’s purchase price is $750,000, and the bank valuation matches this price.

If the bank is prepared to lend you 90% of the property’s value ($675,000), that would leave you to pay a $75,000 deposit to cover the remaining 10%. 

If the bank valuation matches or exceeds the property’s purchase price, your loan is more likely to be approved.

However, if the bank were to value that property at $730,000 instead, they would only lend you $657,000 (90%), meaning you’d need a $93,000 deposit to cover the remaining 10%. 

This scenario is known as a “valuation shortfall”, where the bank valuation is lower than the property’s purchase price.

You would then need to increase your deposit, renegotiate the price with the seller, apply with another lender, or consider options like a guarantor. 

A lower valuation can also raise your LVR, which may result in the bank requiring Lenders’ Mortgage Insurance (LMI)—an extra cost for borrowers with less than a 20% deposit.

What Bank Valuations Mean for Sellers

A bank valuation can directly impact how smoothly the sale of your house goes. 

While the buyer and real estate agent may agree on a purchase price, the bank’s valuation determines how much the buyer can actually borrow.

If the bank values the property at the agreed price, everything moves forward as expected. 

If the valuation is lower, it can create problems that may delay or jeopardise the sale.

For example, the buyer might not get the loan amount they need, forcing them to increase their deposit, negotiate a lower price, find another lender, or back out of the deal altogether.

If multiple buyers face the same issue, you may struggle to get the price you expect for your property.

To reduce the risk of house valuation issues

• Price the property realistically. An overly ambitious listing price may not align with the bank’s valuation.
• Prepare the property for valuation. Make a good impression on the valuer by presenting your house well and highlighting recent renovations.
• Be prepared to negotiate. If a valuation shortfall occurs, flexibility on price or contract terms could help keep the deal together.

Sellers who understand that a bank valuation isn’t about market hype but rather what the bank thinks the property is worth as loan security can better manage expectations and avoid surprises during the sale.

What Do Bank Valuers Look at?

• Location: Proximity to schools, public transport, shopping centres, and employment hubs can influence value. High-demand suburbs and areas with strong infrastructure usually receive higher valuations.
• Recent Comparable Sales: Valuers look at similar properties that have sold in the area within the last few months to gauge a realistic selling price. 
• Property Type and Size: The type of dwelling (house, apartment, townhouse), the land size, and the floor plan all impact valuation. Larger properties with functional layouts often hold more value.
• Property Condition and Age: Well-maintained homes with quality materials and modern finishes tend to receive higher valuations. Older properties with structural issues, wear and tear, or outdated designs may be valued lower.
• Improvements and Features: Renovations, landscaping, pools, solar panels, and other enhancements can add value, but only if they are well-executed and desirable in the local market.
• Zoning and Development Potential: Future zoning changes, council restrictions, and subdivision potential can influence value, particularly for investors.
• Market Conditions: If property prices are declining or demand is weak, valuers may take a more cautious approach to avoid overvaluing the property.

Bank Valuation vs. Market Value vs. Agent Appraisal

Need Help With Your Property Finances?

What is a bank valuation?

It’s just one piece of the property puzzle.

Understanding how it fits into your financial big picture will help you make better decisions, whether you’re buying, selling, or refinancing.

The financial experts at Pherrus will guide you through your property journey, from loan structuring to tax planning and investment strategies.

The destination? Reaching your financial goals!

Contact us today to book a FREE consultation at our office in Bella Vista, Sydney.

📞Call (02) 9099 9109

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📩Email admin@pherrus.com.au

FAQs About “What Is a Bank Valuation?”

What Happens if a Bank Valuation Is Less Than an Offer?

If a bank property valuation is lower than a buyer’s offer, the bank may lend the buyer less than expected, leading to a valuation shortfall.

The buyer may need to increase their deposit, renegotiate the price, apply with another lender, or use a guarantor to secure the loan.

How Long Does It Take for a Bank Valuation?

A bank valuation of a property can take two to seven business days, depending on the lender, property type, and location. 

How Do I Prepare My House for a Bank Valuation?

1. Clean and declutter your home.
2. Complete minor repairs, such as fixing leaky taps, cracks, and damaged fixtures.
3. Provide details of renovations, upgrades, and extensions.
4. Mow the lawn, trim hedges, and clean outdoor areas.
5. Gather relevant documents, such as council approvals, renovation receipts, and recent sales comparisons.