How much is my home (or potential home) actually worth?
It’s a good question – one that can be answered through a bank property valuation.
In a nutshell, a bank property valuation is the value of a property determined by a lender (though it’s often done by a third-party independent valuer).
And there are a few things to know about this important step, because your property valuation can ultimately impact the decisions you make or where you purchase.
Tell me, what is a bank valuation on a property? And why does it matter?
A bank valuation determines the value of a property in the eyes of the lender (which, when you think about it, is a pretty big deal in the property buying world).
In most cases, a property valuation is arranged by a lender and done through an independent valuer.
It’s an important step, because knowing how much your property is worth can impact the financial decisions you make, like whether to buy, refinance, sell or make another financial investment.
A property valuation can be handy for other calculations, too
… Like loan to value ratio (LVR). A loan to value ratio is a simple way to measure how much of a property is being financed with a loan. It’s calculated by dividing the loan amount by the value of the property.
So, say your house is worth $800,000 and your loan amount is $640,000 – that would be a LVR of 80%. The higher your loan to value ratio, the more money the bank has loaned you (and the more ‘risky’ it’s considered for the bank).
This leads us to another point – Lender’s Mortgage Insurance (LMI). This is a specialist insurance a lender takes out, usually when you’re borrowing more than 80% of a property’s value, in case things go south. Even though LMI protects the lender (not you), the costs are covered by you.
And lastly, if you intend to convert the property to an investment at some point, a property valuation can help determine a theoretical rental return (how much rent you could expect from the property per week, month or year).
So to sum it all up, a property valuation is useful beyond *just knowing what your home is worth* – it’s used for a range of calculations that’ll impact your decision making.
Now, let’s look at how it works.
What is the property valuation process?
The process is pretty straightforward –a property valuation is arranged through your lender during the lending process, and they’ll take care of it for you (usually through an independent valuer).
Regardless of whether you’re buying or refinancing, a good mortgage broker (we’re blushing) will take care of the back-and-forth with the lender for you. So more often than not, you can sit back and wait for your valuation to come through.
When do I need a bank property valuation?
The most common scenario when a bank property valuation is required is when you’re either buying or refinancing.
When you’re buying, the property valuation will be done after you’ve purchased it (not before). We often get asked by buyers if they can order a bank valuation before purchasing (particularly before an auction) – buuuut unfortunately, it’s not possible at this point since you don’t yet have a ‘legal interest’ in the property.
When you’re refinancing, a bank property valuation will give you an updated figure of what your home is worth (because we all know, the market can move quickly). Knowing your property value can determine if you’ve built up any equity from property appreciation, and can also help determine your shiny new loan details (learn more about the benefits of refinancing). This usually happens after a lender is chosen (this will reduce the number of property valuers traipsing through your home).
If you’re building, you’ll need a draft building contract before a valuation can be arranged. The valuer will assess the current value of the land or existing dwelling, plus the value of the proposed additions, and then provide an ‘on completion’ valuation. However, be aware that some banks will only value the finished product using the existing value plus the value of the building contract (which might differ from the valuers ‘on completion’ estimation).
Other scenarios that call for a valuation might be making a will, making other big financial decisions, selling your property, or if you bought a home off the plan a few years ago, the bank might request an updated value before you move in. In certain cases that aren’t related to the lending process, you may need to arrange a valuation directly with a property valuer yourself.
Types of bank property valuations
Not all valuations follow the same process, but there are three main ways valuers go about it: desktop, kerbside and full valuation.
- Desktop – as the name suggests, this type of valuation is done without leaving the comfort of a computer chair. It’s done using information that’s available online, like property data, recent sales in the area and market trends.
- Kerbside – this type of valuation uses a combination of information found online and a “drive-by.” This means the valuer will hop out of their computer chair to inspect the property from the outside.
- Full valuation – like the whole shebang, a full valuation will look at all the information available online, as well as a full inspection inside and outside of the property. They’ll be looking for any issues or details related to the overall condition.
The bank property valuation method used is ultimately up to the bank – and it often depends on the property, location and your financial situation.
For example, a full valuation is usually reserved for more ‘risky’ loans (like if your loan to value ratio is higher than 80%), whereas a desktop valuation might be considered suitable for a lower risk loan.
Who does a bank property valuation?
A bank property valuation is arranged through a lender, but it’s usually performed by an independent valuer on the lenders behalf. In most cases, you won’t have contact with the valuer.
What do they look for?
There’s a lot that goes into a property value. A valuer will look at things like:
- Location, location, location
- Property and land size
- Number of bedrooms and bathrooms
- Recent sales in the area
- Market trends
- Zoning, planning and restrictions
- Upgrades and features
- Fixtures and fittings
- Visible issues or damage
- Anything else that might affect the value
If there’s visible damage to the property that needs repair, the lender may also request evidence that you either have sufficient funds for the repair. Alternatively, they might want to see a quote that could be funded through the loan (often the lender would want to control these payments directly with the supplier).
Do different banks use different valuers?
In a word, yes. Banks often have relationships with certain valuers, like their ‘go-to’ people.
It’s important to note, there may be slight variability amongst valuers, but a good broker (that’s us!) will provide guidance) which will best suit your situation.
Bank property valuation – common questions
What if I don’t agree with a bank property valuation? Can I challenge it?
Technically, you can’t challenge it. The value is the value. But you CAN request a second opinion from another lender who might work with a different valuer OR you can work with your broker to point out specific information that hasn’t been acknowledged in the valuation report. If this is you, speak with your broker (at Finspo, we’ve got a good grasp on where to go for the best chance of success).
How much does a bank valuation cost?
They’re often free (phew), unless it’s a small lender or a niche property type that requires a comprehensive full valuation. A good broker will let you know whether there are any upfront costs from the lender in this situation.
What’s the difference between a valuation and an appraisal?
An appraisal is an estimate, based on the market, usually performed by a real estate agent as a free service (in the hope that you will list and sell your property with them). A valuation, on the other hand, is a more comprehensive and accurate picture, often taking into account legal, financial and physical factors. Therefore, a valuation holds more weight with lenders and helps determine your purchasing power, loan to value ratio, and guide any future decision making.
Ready to order a bank property valuation?
Great! It’s an exciting step – because knowing how much your property (or potential property) is worth can guide your decisions.
While it’s arranged by a lender and independent valuer, a mortgage broker is your go-to person in the process.
They’ll liaise with the bank on your behalf, keep you informed along the way, and help guide your decision once your valuation comes through.
Meeting with a Finspo broker is free (and you’ll thank yourself later).
It’s as easy as 1, 2, 3
- Book a chat with a friendly Finspo expert (online, phew!)
- Tell us about yourself and provide any additional info
- We’ll do the heavy lifting and present you with some loan options and a recommendation
