What Is a Property Valuation and How Does It Work?

Quick Answer

A property valuation is a professional assessment of what a property is worth at a specific point in time. Valuations are used by lenders to confirm a property is worth the purchase price before approving your loan. They are also used for stamp duty calculations, family law settlements, estate purposes and capital gains tax assessments. An independent registered valuer conducts the assessment and prepares a written report.

Why Valuations Matter When Buying

When you apply for a home loan, your lender will order a valuation of the property you want to buy. They do this because they are using the property as security for the loan — they need to know that if you default, they can recover their money from a sale.

The lender's valuation is a risk management exercise. It reflects what a reasonably informed buyer would pay in a normal market transaction. It is not necessarily the same as the price you agreed to pay.

If the lender's valuation comes in below your purchase price, the lender will only advance funds based on the lower value. This creates a shortfall you need to cover from your own savings, or renegotiate the price to close the gap.

Types of Property Valuations

There are several types of valuations you may encounter:

Lender Valuation (Bank Valuation)

Ordered by your lender as part of the loan approval process. It is a conservative, risk-focused assessment. You do not commission this — the lender arranges it and pays for it (though the cost is sometimes passed on to you).

You may not receive a copy of this report. The lender uses it to confirm their loan amount; they are not required to share the details with you. Your broker can sometimes obtain a copy.

Independent Valuation

Commissioned by you from a registered valuer. An independent valuation gives you an objective market assessment before you make an offer or exchange contracts.

Independent valuations typically cost $300–$700 for a residential property and take a few days to a week. They are useful if you want to verify you are paying a fair price, particularly for unusual properties or those without clear comparable sales.

Automated Valuation Model (AVM)

A computer-generated estimate based on comparable sales data and property characteristics. Banks often use AVMs for straightforward properties in data-rich suburbs. AVMs are fast and cheap but can be inaccurate for atypical properties.

If your property is unusual, in a thin market or has been significantly improved, an AVM is unlikely to capture its value accurately.

Kerbside (Drive-By) Valuation

A valuation where the valuer inspects the exterior of the property but does not enter. Used for lower-risk loan applications (typically where the LVR is low). Less accurate than a full internal inspection.

How a Valuation Works

A registered valuer will:

1. Inspect the property (internal and external, unless it is a drive-by or AVM)
2. Review recent comparable sales in the area — similar properties in similar condition
3. Assess the property's attributes: size, condition, aspect, improvements, location
4. Prepare a formal written report with their assessed market value

The valuer is looking for the price a willing buyer and willing seller would agree on in a normal transaction. They are specifically not trying to determine the highest possible price or account for above-market offers driven by emotional attachment.

What Can Cause a Low Valuation?

Valuations come in below purchase price for several reasons:

• Overpaying: You agreed to a price above market value, possibly in a competitive bidding situation
• Unusual property: The property has characteristics that limit its appeal — unusual design, location, size, or zoning
• Limited comparable sales: In thinly traded suburbs, valuers have fewer reference points and tend to be conservative
• Recent market movements: If the market has moved quickly upward, historic comparable sales may understate current prices
• Condition issues: Significant deferred maintenance or structural issues can reduce the assessed value

What to Do If the Valuation Is Low

A low valuation is a problem, but it is not automatically fatal to your purchase. Options include:

1. Make up the difference: Cover the gap from your savings
2. Renegotiate with the vendor: Use the valuation as evidence to request a price reduction
3. Order another valuation: A second opinion from a different valuer (at your cost) may come in higher
4. Choose a different lender: Different lenders use different valuers and may reach a different figure. A broker can help you explore this
5. Walk away: If you have a finance condition, a low valuation can be grounds to withdraw if your lender declines to fund the full amount

Realistic Example

Lena is buying a two-bedroom apartment in Brisbane for $580,000. Her lender orders a valuation as part of her unconditional approval process. The valuer assesses the property at $555,000 — $25,000 below the purchase price.

Her lender will only advance 80% of $555,000 ($444,000), whereas Lena expected to borrow 80% of $580,000 ($464,000). The shortfall is $20,000.

Lena has three options: find $20,000 in additional savings, ask the vendor to reduce the price to $555,000, or ask her broker to try a different lender whose valuer might reach a higher figure. She chooses to approach the vendor, who agrees to $560,000 given the valuation evidence. The lender's figure and the purchase price are now closer to aligned.

Checklist: Understanding Your Valuation

• Understand that your lender will order their own valuation — you do not choose the valuer
• Ask your broker whether the lender uses an AVM, drive-by, or full internal inspection for your property type
• Consider commissioning an independent valuation before exchange if the property is unusual or comparables are limited
• Have a savings buffer available to cover a potential shortfall between valuation and purchase price
• If the lender's valuation comes in low, ask your broker to explore other lenders before accepting the shortfall
• Use comparable sales research through Marketli to develop your own view of value before making an offer

Key Takeaways

• A lender's valuation protects the bank, not you — it reflects conservative market value, not the highest achievable price
• If the valuation is below your purchase price, the lender will reduce the loan amount accordingly
• Options for a low valuation include making up the gap, renegotiating the price, or trying another lender
• Independent valuations cost $300–$700 and can be valuable for unusual properties or where comparables are limited
• Automated valuations are fast but may not be accurate for atypical properties or thin markets

FAQ

Do I have to pay for the lender's valuation? Some lenders absorb the cost; others pass it on as part of the loan application fee. Ask your broker what to expect before you apply.

Can I use my own valuation instead of the lender's? Generally no. Lenders require their own independently ordered valuation as part of their risk assessment. Your independent valuation can be useful context but will not replace the lender's process.

How long does a valuation take? A lender-ordered valuation typically takes three to ten business days after the valuer accesses the property. In busy markets or with complex properties, it can take longer. Factor this into your finance condition timeframe.

Does a higher valuation mean I can borrow more? Not directly. The lender advances a percentage of the valuation, capped at your approved loan amount. If the valuation is higher than the purchase price, it does not increase your borrowing limit — it just confirms the property is adequate security.

Run a Free Property Analysis on Marketli

Understanding comparable sales before you make an offer gives you the best chance of pricing accurately and avoiding a valuation shortfall. Use Marketli to research recent sales in your target suburb and go into negotiations with a clear view of market value.