There are several different approaches to obtaining your property’s value which consider a variety of factors. First, you need to determine why you are looking for a valuation of your property.
People tend to need valuations of their property for three reasons:
But did you know, you can receive multiple bank valuations of the same property which can vary significantly? Meaning if you go straight to your current bank for a valuation you could be missing out on tens of thousands of dollars!
Let’s take a closer look at how this all works.
Bank valuations of property
Bank valuations are conducted to determine loan-to-value ratio (LVR) and assess lending risk. They tend to be conservative, often valuing properties 10-20% below the market value.
This is because banks prioritise minimising risk in case the buyer defaults on their mortgage. The valuations also consider potential resale costs and prioritise loan recovery in varied market conditions.
- To refinance and get a better rate
- To draw equity out of their property to invest in another
- To sell.
But did you know, you can receive multiple bank valuations of the same property which can vary significantly? Meaning if you go straight to your current bank for a valuation you could be missing out on tens of thousands of dollars!
Let’s take a closer look at how this all works.
Bank valuations of property
Bank valuations are conducted to determine loan-to-value ratio (LVR) and assess lending risk. They tend to be conservative, often valuing properties 10-20% below the market value.
This is because banks prioritise minimising risk in case the buyer defaults on their mortgage. The valuations also consider potential resale costs and prioritise loan recovery in varied market conditions.
Types of bank valuations
There are two valuation types which lenders use, and each provide different results. There’s an online valuation (AVM – automated valuation model) produced by statistic modelling of data. This is based on the banks own data, statistics and processes which can cause the difference in valuation between banks because they’re all working with different information. For example, Commonwealth Bank have an extremely large portfolio meaning they’re working with vast amounts of data. As a result, they’ll likely provide more generous valuations than a smaller bank like Macquarie. If the property is in a new development area, there’s not a lot of data which makes an automated valuation model (AVM) difficult to conduct. Likewise, if you’ve done significant renovations to your property an AVM will not take this into consideration. In this scenario, a residential short form evaluation is required. A short form evaluation is when a qualified valuer goes out to evaluate the property in person. Here at Loanscope, if we receive an AVM back from a bank and believe our client could get a better valuation, we’ll often escalate this to a short form evaluation free of charge. Most banks are happy to do this from an accredited broker they get business from, and you can rest assured you gain the best possible valuation for your property.Market value vs Bank valuation
Bank valuations focus on secure lending value, while market valuations are based on current buyer demand and comparable recent sales. Market appraisals are often conducted by real estate agents but are not legally binding and should only be used as a guide to pricing your property. The factors considered in market valuations are:- Property size
- Outdoor spaces
- Number of rooms
- Fixtures
- Potential improvements
- Location
- Building condition.
- Location
- Property condition
- Building faults
- Renovations
- Zoning
- Exposure to extreme weather events.
Looking for better rates? Refinance.
Let’s say you bought a property a few years ago and are looking to refinance to get a better rate. Well, the higher the valuation, the lower the LVR and the better the rate. It’s critical to remember you need 80% to refinance. If you’re at 85-90% it wouldn’t make sense to refinance to save a couple of thousand in interest yet pay ten thousand in LMI. This sounds complicated but working together with a mortgage broker will keep everything straight forward for you. For more information, read our blog on LVR and LMI. If you go to your bank to refinance, you’re going to get one valuation. But what happens if that valuation is low? The answer is obtain multiple valuations and compare the difference. Yes, you can do this at no additional cost, and we advise you to take this approach to get the most out of your property valuation.Real life case study
We recently received multiple valuations for a client. They were all short form valuations for the same property:- $680,000
- $710,00
- $725,000
- $738,000
