Why the Bank’s Property Valuation Can Be Different From What Your Home Is Worth Online
An online property estimate says $950,000. A real estate agent thinks it could sell for $980,000. You believe it is worth around $1 million.
Then the lender values it at $900,000.
That does not automatically mean anyone is wrong. A bank property valuation is produced for a different purpose — helping the lender decide how much it is prepared to lend against that particular property.
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What is a bank property valuation?
A bank property valuation is the value a lender accepts for a property being offered as security for a home loan.
It can be produced automatically using property data, prepared by an accredited valuer using available information, or completed after a physical inspection of the property.
The lender then uses that accepted value for credit decisions, including calculating the loan-to-value ratio, or LVR.
Market value, online estimate and bank valuation are not the same thing
Property owners can see several different values attached to the same home.
These numbers can be close together. Sometimes they are identical. Sometimes the gap is large enough to materially change the loan.
The bank may never need to send someone to the property
Modern lenders use several valuation methods depending on the property, transaction and level of lending risk.
Commonwealth Bank explains that lenders can use automated valuation models and recent market data, while a professional valuer may be used where a formal inspection is required.
Bendigo Bank also describes three common approaches: an automated valuation model, a desktop valuation and a full valuation.
Why can a bank valuation come in lower than expected?
A lower bank valuation does not necessarily mean the valuer thinks your property is undesirable.
It can reflect the evidence available at the time and the way the property compares with recent sales.
A lower valuation can change the loan without changing the debt
This is where the valuation becomes more than an interesting number.
Your LVR compares the amount being borrowed with the value accepted by the lender.
The borrower has not increased the loan by one dollar. The change comes entirely from the lender accepting a lower property value.
That can affect lender choice, interest-rate pricing, available products, deposit requirements, lenders mortgage insurance and whether the proposed loan still fits the lender’s policy.
Our Loan-to-Value Ratio guide explains how LVR works and why those percentage thresholds can matter.
What if the valuation is lower than the purchase price?
This is one of the situations buyers worry about most.
Imagine you agree to purchase a property for $900,000 and intend to borrow $720,000.
At the purchase price, that appears to be an 80% LVR.
If the lender accepts only $850,000 as the property value, the same $720,000 loan is approximately 84.7% LVR.
Exactly what happens depends on the lender, loan, deposit position and property.
This is also why a pre-approved borrowing amount does not guarantee that every property within that price range will automatically be acceptable to the lender.
Valuations matter just as much when you already own the property
A refinance application normally involves the new lender determining what value it is prepared to accept for the existing property.
If that valuation is lower than expected, your LVR may rise.
That can affect pricing, available lenders, equity release and whether refinancing remains worthwhile.
We recently looked at exactly this issue in Falling Property Prices: What They Actually Mean for Your Home Loan .
Before assuming an online property estimate is the number a lender will use, we can look at the current debt, likely LVR and the valuation position across suitable lenders.
Review My Home Loan PositionCan two lenders value the same property differently?
Yes.
Lenders can use different valuation providers, automated models, confidence requirements and internal policies.
One lender might be comfortable using an automated valuation. Another may require a desktop or full valuation.
Even where professional valuers are involved, the evidence available and the lender’s instructions can influence the final result accepted for mortgage purposes.
That does not mean a broker can simply “shop around until someone gives the highest valuation”. The loan still needs to be suitable and the lender still needs to be appropriate for the borrower’s overall position.
So are online property estimates useless?
Not at all.
Automated property estimates can be extremely useful for getting an early sense of value, comparing areas and identifying a possible lending position before a formal application.
Cotality, for example, describes automated valuation models as data-driven tools that use property datasets and predictive modelling to produce valuation estimates for lending and risk decisions.
The important word is estimate.
What can you do if the bank valuation seems too low?
First, work out whether the difference actually changes the lending outcome.
A valuation that is $20,000 below expectation may be irrelevant in a low-LVR loan. The same difference can matter enormously when the lending is already close to a policy or pricing threshold.
If the result appears inconsistent with strong market evidence, there may be circumstances where additional information can be considered.
Useful evidence can include:
- recent comparable settled sales;
- details of renovations or improvements that may not be reflected in available property data;
- correct property attributes where online records are inaccurate; and
- other information relevant to the lender’s valuation process.
Whether a valuation can be reviewed, challenged or replaced depends on lender and valuation-provider policy.
Your current home’s valuation can affect the next purchase too
If you already own a property and plan to use equity toward the next purchase, the value accepted by the lender can affect how much usable equity is available.
That can influence the deposit for the next home, the proposed loan structure and whether selling first or buying first makes sense.
Our Buying Your Next Home guide looks at equity, borrowing power and the wider finance decisions involved when moving from one home to another.
The property can have several values — the lender’s accepted value is the one that affects the loan
An agent appraisal, online estimate and bank valuation can all be useful.
They simply answer slightly different questions.
The bank is primarily interested in the property as security for the proposed loan.
That is why the value it accepts can differ from the number shown on a property website or the price an agent believes could be achieved in the current market.
If you are buying, refinancing, investing or using equity, you can also explore our mortgage and finance services .
Know which property value actually matters to the loan.
Loan Location can help you understand how the lender’s valuation affects your LVR, deposit, refinance position or usable equity.
The useful question is not simply “what is my property worth?” — it is “what does the lender’s accepted value mean for what I want to do next?”
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