Property valuations: how lenders put a number on your security

In property-secured lending, the valuation is the hinge on which everything else swings. It sets the loan-to-value ratio, decides how much can be advanced and sometimes decides whether a loan goes ahead at all. Yet many borrowers only think about it when a number comes back lower than expected.

Who orders the valuation and why

The lender orders the valuation, almost always from a valuer on its approved panel. The report is addressed to the lender and is designed to answer one question: what is this property worth as security for this loan? That independence is the point. A lender can’t rely on a figure chosen by the borrower, because the valuation protects the lender if the property ever has to be sold.

The cost may be passed on to the borrower, sometimes paid upfront. Ask about this early so it isn’t a surprise.

Types of valuation

Desktop valuation. The valuer uses data, including recent sales, property records and sometimes automated models, without visiting. It’s quick and cheap, and often used for lower-risk residential security or fast short-term loans.

Kerbside or drive-by valuation. The valuer inspects from the street to confirm the property exists, its general condition and its surroundings, then completes the report from data.

Full valuation. The valuer inspects inside and out, measures, photographs and reviews leases or other documents. This is standard for larger loans, commercial property and anything unusual.

Which type is used depends on the lender, the loan size, the property type and the loan-to-value ratio involved.

What valuers look at

Valuers ground their figure in evidence rather than optimism. The main factors are:

• Comparable sales. Recent sales of similar properties nearby carry the most weight.
• Location and demand. How easily the property would sell in that area.
• Size, layout and condition. Including any defects or needed repairs.
• Zoning and permitted use. Particularly important for commercial and rural property.
• Leases. For investment and commercial property, the rent, lease term and tenant quality.
• Special features. Things that add value for one buyer but narrow the pool of buyers overall.

Why valuations often come in lower than expected

An agent’s appraisal is a sales estimate, often pitched to win a listing. A valuation is a security estimate, aimed at what the property would reliably fetch. Valuers also tend to take a cautious view when the market is moving, when there are few comparable sales, or when a property is unusual. A gap of a few per cent between appraisal and valuation is common; a big gap usually has a specific cause.

Helping the valuer get it right

You can’t influence the valuer’s independence, but you can make sure they have the full picture. Provide access promptly, point out recent improvements and when they were done, share any current leases, and mention recent sales you’re aware of that support your view of value. A tidy, well-presented property doesn’t change the land value, but it can help the valuer’s view of condition.

When the number comes in low

If a valuation is lower than you expected, ask the lender to explain the key drivers. If you have strong evidence the valuer missed, such as a very similar property that sold recently for more, the lender may ask the valuer to review it. Some lenders will order a second valuation; others won’t. Alternatively, you might borrow a little less, add a second property as security, or approach a lender with a different appetite for that property type.

Valuations for different property types

Residential valuations are usually the quickest and most predictable, because there are plenty of sales to compare against. Commercial valuations take longer and lean heavily on rent and lease terms, so the same building can be worth quite different amounts depending on who occupies it and for how long. Rural and vacant land valuations depend on zoning, access, water and what can legally be built. If your property is unusual in any way, allow extra time and expect the lender to be more conservative.

How long a valuation stays current

A valuation is a snapshot. Most lenders treat one as current for a limited period, often around three months, after which they may ask for an update or a new report. If your settlement is delayed, or you go back to borrow more later, expect another valuation. It’s also worth knowing that a valuation done for one lender usually can’t simply be handed to another, because the report is addressed to the lender who ordered it. If you’re comparing lenders, ask each whether they’ll accept a report from a shared panel valuer.

Get an early read on your property

Tell us the property’s location, type and what’s owed against it through our short enquiry form. Asking costs nothing and involves no credit check. Your file stays with one team, and a real person will tell you what a lender’s valuation is likely to support before any costs are incurred. Ask about your property.