When you apply for a mortgage or refinance an existing loan, one of the most important steps in the process is the bank valuation. Many property owners are often surprised when the bank’s figure doesn’t match what they believe their home is worth—or what a recent real estate appraisal has suggested. Understanding how bank valuations work can, with the help of a property accountant, can help you plan ahead and avoid unwelcome surprises.
What is a Bank Valuation?
A bank valuation is an assessment of your property’s market value, carried out by a qualified valuer on behalf of the lender. Unlike a real estate agent’s appraisal (which often reflects the optimistic price a property might achieve on the open market), a bank valuation is more conservative. The bank’s goal is to ensure the property provides sufficient security for the loan.
Why Are Bank Valuations Important?
- Loan Approval: The bank will lend against the lower of the purchase price or the valuation. If the valuation comes in below the agreed purchase price, you may need to contribute a larger deposit. Of course, your serviceability is also considered – this is where the help of an accountant Melbourne maybe required. Nobel Thomas can assist with ensuring that your income is sufficient to service your desired loan.
- Refinancing: A strong valuation can unlock equity and help you access better loan terms, while a low valuation may limit your refinancing options.
- Risk Management: Banks must comply with lending regulations set by APRA and manage their exposure to market risk. Valuations are a key part of this.
How Do Banks Value a Property?
Valuers consider several factors:
- Comparable Sales – Recent sales of similar properties in your area carry the most weight.
- Property Condition – Structural integrity, maintenance, and presentation affect the valuation.
- Location – Proximity to amenities, schools, and transport can increase value, while noise, traffic, or zoning restrictions can reduce it.
- Market Conditions – A cooling market may lead to more conservative valuations, while a hot market can push valuations higher. A property accountant, like Nobel Thomas, will also have access to data to estimate the value of your property.
- Unique Features – Renovations, extra bedrooms, outdoor living areas, or premium finishes can positively influence the valuation.
Why Might a Bank Valuation Differ from Market Value?
- Conservatism: Banks value cautiously to protect their risk exposure.
- Lagging Data: Valuations are often based on sales from the past 3–6 months, which may not reflect current momentum.
- Objective Approach: A valuer is independent, unlike an agent or seller who may be motivated to achieve a higher price.
What Can You Do If the Valuation is Low?
- Request a Revaluation: Sometimes banks allow you to contest the valuation or order a second opinion. But this option may come at an additional cost (banks are often happy to pay for the first valuation but not any others)
- Provide Evidence: Submitting recent comparable sales can help support your case.
- Shop Around: Different lenders may use different valuers, and results can vary.
- Increase Your Deposit: If the valuation sticks, contributing more equity can still get the loan approved. Again this is subject to serviceability – an accountant Melbourne, like Nobel Thomas, can advise on whether your tax returns are sufficient to service the loan.
Final Thoughts
Bank valuations play a vital role in protecting both lenders and borrowers. By understanding how valuations are determined—and preparing your property and supporting evidence in advance—you can improve your chances of achieving a figure that reflects your home’s true worth. And with the help of a property accountant, like Nobel Thomas, who has access to RP Data (Cotality) reports, we can help you plan before your next trip to the bank.
