Avoid These 5 Property Valuation Mistakes on Home Loans

A lender generally bases your loan on the lower of the contract price and its valuation. A low valuation can leave a gap to fill, but a high valuation will not increase the amount you can borrow. If you plan your finances around the price alone, a low valuation can leave you with a gap to fill.

This guide is for Brisbane buyers and owners who are about to apply for a home loan or refinance. It covers the five valuation mistakes that most often affect your plans.

What Is a Bank Valuation and Why Does It Matter for a Home Loan?

A bank valuation is an assessment of what a property is worth, which the lender uses to decide how much it will lend against it. The lender is protecting its own security, so it generally relies on the lower of its valuer's figure and what you agreed to pay.

The valuer usually looks at recent comparable sales, the condition of the property, its size and its location. The result is one input into your home loan approval, alongside your income, expenses and credit history. A valuation does not measure what the property means to you. It measures what a lender could recover if it ever had to sell.

Mistake One: Assuming the Valuation Will Match the Purchase Price

A valuation can come in at, above or below the contract price, so your funding plan should allow for the chance it lands lower. When it is lower, the lender generally works from the valuation figure.

Consider a buyer who plans to borrow 90% of the purchase price. The valuation comes in 5% under the price, so the lender applies its loan to value ratio (LVR) limit to the lower figure. In round terms, if the price is 100 units, the planned loan is 90 units. The valuation is 95 units, and 90% of that is 85.5 units. The buyer is now short by 4.5% of the purchase price, and that amount has to come from savings.

In a scenario like this, the buyer has three choices. They can ask the agent or seller to renegotiate towards the valuation, cover the gap with extra savings, or have a broker test another lender whose valuer may reach a different figure. Suppose the buyer asks for a price reduction, backed by the valuation and the comparable sales behind it. The seller agrees to meet partway, which shrinks the gap, and the buyer covers the rest from savings. The deal settles with no surprise on the day.

The trade-off is time. Renegotiating or switching lenders can push back your finance approval date, so raise it early if your contract has tight deadlines.

How Valuation Affects Your LVR and Lenders Mortgage Insurance

Your LVR is your loan amount divided by the lender's assessed value, which for a purchase is generally the lower of the contract price and the valuation. A higher LVR can mean extra costs. Depending on the lender, a higher LVR can attract Lenders Mortgage Insurance (LMI) and may limit the products you can access.

Because the valuation sits under the LVR calculation, a lower figure raises your LVR even if your loan amount does not change. A buyer who expected to sit just under a lender's LVR cut-off can end up above it. That is why it helps to build a buffer into your deposit rather than aiming for the exact cut-off. LMI is a cost that normally gets added to what you pay, so ask your broker to quote it before you commit.

If you are buying your first property, the first home buyers page explains how deposit size and available support can interact with LVR.

Why Online Estimates Are Not a Formal Valuation

An online estimate is a general guide. A lender relies on its own valuation, which may be a valuer's inspection or, with some lenders and loans, the lender's own automated valuation model. Online tools can be useful for a rough starting point, but they often cannot account for renovations, layout or condition.

Use an estimate to shape your expectations, then confirm with your broker how the lender plans to value the property. Some lenders use automated valuations in certain situations and send out a valuer in others. The method can depend on the lender, the loan size and the LVR, so ask which applies to you.

Refinancing and Valuation: How Much Equity Can You Actually Use?

When you refinance, the lender's valuation decides how much equity you can access, so an owner's own estimate can overstate it. Equity is the difference between the property's value and what you owe, and lenders then limit how much of the value they will lend against.

If you are thinking about moving lenders, the refinancing page outlines the process. If you only want to know where your current loan stands, a loan health check is a sensible first step. Before you apply, remember that a refinance valuation can also come in lower than you hoped. That may reduce the cash you can draw out or push your LVR higher than expected.

Preparing Your Property and Your Numbers Before the Valuer Visits

You cannot control the valuer's opinion, but you can give them accurate information and avoid presenting a poor first impression. Keep the following in mind:

• Provide records of recent renovations or improvements that add to the property.
• Keep the property tidy and the maintenance up to date.
• Be ready with any recent comparable sales your agent or broker has found.

On the finance side, check your borrowing capacity before you make an offer. Then use the loan repayment calculator to test the repayments at the loan amount you might end up with if the valuation falls short. Knowing both numbers in advance means you can keep your options open when the figure arrives.

A valuation is one part of a bigger picture that includes your deposit, your loan structure and your long-term wealth plans. Getting that picture right early helps you build equity with confidence.

Call one of our team or book an appointment at a time that works for you. We will work through your valuation risk and your loan options before you commit to a purchase.

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