A valuation is an assessment of what your home (or a home you’re looking to purchase) is worth. A valuation is conducted by a professional valuer.

Typically, a lender requires a valuation report whenever a property is purchased or refinanced.

Lenders normally require an acceptable valuation as a part of the unconditional approval of your home loan.

Types of Valuations

Desktop Valuation

For this type of valuation, the valuer will not physically visit the property in question. The valuation is based on comparable sales data.

Curbside Valuation

For a curbside valuation, a valuer will physically visit the site but will not enter the property. This might be the case if the property is under lease. This is often done in conjunction with a desktop valuation.

Full Valuation

A full valuation is done when the valuer physically visits the site and is also able to enter the property. This is the preferred type of property valuation, and also the most common.

The purpose of a valuation from the bank or a lender is to get an accurate idea of what a particular property might be worth when sold on the open market. This is done to protect the lender and ensure that the buyer isn’t overpaying for the property, which would represent a risk to the lender.

The amount you’re looking at borrowing (or refinancing), and also the location and nature of the property, will determine what type of valuation method a lender is likely to accept.

Typically, the lender will order the valuation, and potentially, the homeowner will only have to pay the cost of the valuation.

Valuation Risk

One of the most important aspects of the property buying process is understanding how the valuation can impact your finance.

An unconditional approval is based on the bank valuation. When a market is hot, bank valuations can often come in under what you might have paid for a property. That’s common in the case of auctions that have seen a property sell well over the reserve and other comparable sales.

That puts the buyer in a situation where they will need to contribute additional funds, as a bank will only lend based on the valuation received.

For example:

If you buy a property at auction for $1 million and you intend to get a 90% LVR loan, you would need to put down a $100,000 deposit.

However, if the valuation comes in at $950,000, the bank will only lend 90% of the valuation amount, which is $855,000. That means your total deposit increases to $145,000 instead of $100,000, so you would need to find an extra $45,000 for settlement.

Your options are to come up with those additional funds out of your own pocket, negotiate with the real estate agent, or walk away if you’re in a cooling-off period. If you bought at auction, you have no choice but to honour the contract.