Do you know how property valuations affect your loan?

Your lender's valuation determines how much you can borrow, not the price you agreed to pay.

When you apply for a home loan, the lender orders a valuation to confirm what the property is worth in their view. That figure sets your loan amount and your LVR. If the valuation comes in below the purchase price, you'll need a larger deposit to make up the shortfall. If you're refinancing, a lower-than-expected valuation can limit how much equity you can access or whether you qualify for the loan structure you want.

Why lenders order their own valuation

Lenders base loan decisions on their assessment of the property's market value, not the contract price. The valuation protects the lender in case you default and they need to sell the property to recover the loan. It also determines your LVR, which affects whether you pay LMI and what interest rate you're offered. A desktop valuation uses recent sales data and algorithms to estimate value. A kerbside valuation includes a brief external inspection. A full valuation involves an internal inspection and detailed assessment. Which type the lender orders depends on the loan amount, LVR, property type, and location.

When the valuation comes in under the purchase price

Consider a buyer applying for a loan on a unit in a suburb where comparable sales are patchy. The contract price is within the suburb's typical range, but recent sales in the same complex are limited. The valuer relies on older data and comparable properties from nearby streets. The valuation comes in $20,000 below the purchase price. The buyer was planning to borrow 90% of the purchase price with a 10% deposit. The shortfall means the buyer now needs to find an additional $20,000 in cash or negotiate a lower purchase price with the seller. Without that, the LVR increases and the lender may decline the loan or require LMI on a higher loan amount than originally calculated.

In our experience, valuation shortfalls happen most often with off-the-plan purchases, properties in areas with limited recent sales, or homes that have been renovated in ways that don't align with the suburb's buyer profile. The contract price reflects what one buyer was willing to pay. The valuation reflects what a range of buyers would likely pay based on recent evidence.

How valuations affect refinancing and equity release

If you're refinancing or applying for an equity release loan, the lender orders a new valuation even if you've owned the property for years. A valuation that comes in lower than expected can reduce the amount you're able to borrow or push your LVR into a higher bracket. That matters if you were planning to access equity to fund a deposit on an investment property, pay for renovations, or consolidate debt. A lower valuation means less available equity, or it might trigger LMI if the new loan amount exceeds 80% of the revised property value.

Some lenders use automated valuation models for refinances on straightforward properties with strong recent sales data. Others require a physical inspection, particularly if the property is in a regional area, has unique features, or the loan amount is high. The valuation method can influence the outcome, and you won't always know which method the lender will use until the application is lodged.

What influences a property valuation

Valuers assess recent sales of comparable properties in the same suburb, usually within the past three to six months. They adjust for differences in land size, dwelling size, condition, street appeal, and proximity to amenities. A property on a main road will typically be valued lower than an identical property on a quiet street. A home with a pool, granny flat, or recent renovation may be valued higher, but only if those features are common and valued in that suburb. Unique or over-capitalised improvements often don't add as much value as the owner expects.

In areas with limited recent sales, valuers widen their search to nearby suburbs or rely on older data, which can result in more conservative valuations. Valuations in regional areas or for unusual property types, such as rural blocks, character homes, or properties with commercial zoning, tend to involve more subjective judgment and can vary between valuers. The condition of the property at the time of inspection also matters. A property that presents poorly due to clutter, deferred maintenance, or incomplete renovations may be valued lower than the same property in better condition.

How to prepare for a valuation when buying or refinancing

If you're buying, review recent sales in the suburb before you make an offer. Your broker can help you assess whether the asking price aligns with recent valuations in the area. If you're refinancing, make sure the property is tidy, well-maintained, and accessible for inspection if a physical valuation is required. Minor presentation issues like overgrown gardens, peeling paint, or visible damage can influence the valuer's assessment, even if they don't affect the structural integrity of the home.

For police officers working shifts, it can be difficult to coordinate access for a valuation during business hours. Let your broker know your roster in advance so they can liaise with the lender and valuer to arrange a time that works. If you've recently completed renovations or improvements, provide photos and receipts to the valuer. Documented evidence of quality work can support a higher valuation, particularly if the improvements are recent and align with buyer expectations in the area.

What happens if you disagree with the valuation

If the lender's valuation comes in lower than expected, you can request a copy of the valuation report. The lender may or may not provide the full report, but they'll usually confirm the figure and the methodology used. You can challenge the valuation by providing evidence of comparable sales that support a higher value, but the lender isn't obliged to accept it. Some lenders will order a second valuation if you can demonstrate clear errors in the original assessment, such as incorrect property details, outdated comparables, or failure to account for recent improvements. A second valuation costs extra and there's no guarantee it will come in higher.

Another option is to switch lenders. A different lender may use a different valuer or valuation method, and the outcome can vary by tens of thousands of dollars on the same property. If you're working with a broker, they can submit the application to a lender more likely to return a favourable valuation based on the property type and location. That approach works better before contracts are exchanged, when you still have flexibility to adjust your deposit or renegotiate the purchase price.

If you're already looking at home loan options or need to understand how your deposit and LVR interact with the lender's valuation process, call one of our team or book an appointment at a time that works for you. We work around your roster and can walk you through what to expect before you apply.

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