What Are Property Valuations for Home Loans?

Property Valuations Determine How Much You Can Borrow

A property valuation is the lender's independent assessment of what a property is worth, and it directly controls your loan amount. Most lenders cap your borrowing at 80% of the valuation without Lenders Mortgage Insurance, or up to 95% with LMI. If the valuation comes in below the sale price, you either need to cover the shortfall with extra deposit or renegotiate the purchase price.

Consider a Border Force officer purchasing in Bentleigh East. The contract price is $950,000, and they've arranged an 80% loan expecting to borrow $760,000. The lender's valuation comes back at $920,000. At 80% loan to value ratio, the approved loan amount drops to $736,000. That leaves a $24,000 gap between what they planned to borrow and what the lender will provide. They need to find that difference from savings, or go back to the vendor.

This scenario plays out more often than you'd expect, particularly when properties are purchased off-market, in rising markets, or when a buyer pays above comparable sales to secure a property in a competitive situation. Knowing how valuations work before you sign a contract puts you in a stronger position to manage the outcome.

How Lenders Conduct Property Valuations

Lenders engage independent valuers who assess the property against recent sales of similar properties in the same area. The valuer looks at location, condition, land size, improvements, and comparable sales typically within the last three to six months. They do not consider what you've agreed to pay, only what the property would reasonably sell for in the current market.

Most valuations for standard residential purchases are desktop assessments. The valuer reviews property data, sales records, and sometimes photos without physically inspecting the property. Full inspections are more common for higher-value properties, rural land, or unusual construction types. The entire process usually takes two to five business days from when the lender orders the valuation to when the report is completed.

If you're working rostered shifts at odd hours, you won't typically need to coordinate access for a desktop valuation. For properties requiring a physical inspection, the valuer will contact the selling agent directly to arrange access, so there's nothing you need to manage during your work blocks.

When Valuations Come in Under Contract Price

A shortfall between contract price and valuation creates an immediate funding gap. You have three options: increase your deposit to cover the difference, renegotiate the sale price with the vendor, or walk away if your contract includes a finance clause.

In our experience, the response depends on how confident you are in the purchase price. If you've paid a premium for a property you genuinely want and can access additional funds, you proceed with a larger deposit. If the valuation suggests you've overpaid and the vendor won't budge, a finance clause lets you exit without penalty. If the valuation is borderline and the vendor is motivated, you meet somewhere in the middle.

The least useful outcome is being surprised by a valuation shortfall three weeks into a settlement period when you have limited room to move. If you're stretching to the upper limit of your deposit, build a buffer into your offer price or ensure your finance clause specifically covers valuation shortfalls, not just loan approval.

Valuation Shortfalls and LMI Calculations

If you're borrowing above 80% and relying on LMI waivers for law enforcement, the valuation affects both your loan amount and your LMI premium. LMI is calculated on the loan to value ratio. A lower valuation increases that ratio, which increases the insurance cost.

Say you're approved to borrow 90% on a property you've contracted at $800,000. You expect to borrow $720,000. The valuation comes in at $780,000. Your loan amount at 90% drops to $702,000, but your LMI premium increases because the insurer now sees a higher risk profile relative to the property's assessed value. Some lenders recalculate LMI automatically. Others may reassess your entire application if the valuation moves your LVR into a different risk bracket.

For Border Force officers with access to LMI waivers up to 90% or 95% depending on the lender, this still applies. The waiver removes the LMI cost, but the lender still uses the valuation to determine the maximum loan amount. A valuation shortfall doesn't void the waiver, but it does reduce what you can borrow under it.

Challenging a Valuation That Seems Wrong

You can request a valuation review if you believe the assessment is incorrect, but lenders rarely overturn a valuation without compelling evidence. The strongest case for a review includes recent comparable sales the valuer missed, incorrect property details such as land size or number of bedrooms, or evidence of recent renovations not reflected in the report.

Most lenders allow you to submit additional information for the same valuer to reconsider, or in some cases order a second valuation from a different valuer. The second valuation is not automatic and may involve another fee. Lenders do not average two valuations if they differ. They typically take the lower of the two, or in some cases the higher if the secondvaluation was ordered specifically to address errors in the first.

If you're certain the valuation is too conservative and you can evidence it with contracts of sale or sold listings, put that forward immediately. If you're just disappointed the valuation didn't meet the purchase price, a review is unlikely to change the outcome. Valuers assess market value, not buyer sentiment.

Using Pre-Approval Valuations to Test Your Price

Some lenders offer indicative valuations as part of home loan pre-approval, particularly if you've identified a property but haven't yet made an offer. This gives you a clearer picture of what the lender will support before you commit to a contract price.

An indicative valuation isn't binding, and the lender will still conduct a formal valuation once you're under contract. But it narrows the gap between what you think a property is worth and what the lender's valuer is likely to assess. If you're weighing up an offer in an area where recent sales data is thin or prices are moving quickly, an early valuation can confirm whether your price expectations align with lending parameters.

Not all lenders provide this option, and it's usually only available once you've submitted a full pre-approval application with supporting documents. It's particularly useful if you're comparing multiple properties at different price points and want to know which one fits your borrowing capacity before you make a formal offer.

Valuations for Off-the-Plan and New Construction

Valuations for off-the-plan purchases and new builds work differently because there's no completed property to assess at the time of approval. Lenders typically use the contract price as the initial valuation but will order a final valuation at or near settlement to confirm the property's value matches the loan amount.

If you're purchasing a house and land package or arranging a construction loan, the lender conducts progress valuations at each drawdown stage to confirm the work completed aligns with the funds released. A final valuation occurs when construction is finished and before the loan converts from construction to a standard home loan.

The risk with off-the-plan purchases is that market conditions change between contract and settlement. If property values drop during the construction period and the final valuation comes in below the contract price, you're in the same position as any other valuation shortfall. You need to cover the gap, renegotiate with the developer if possible, or pull out if your contract permits. That's less common for established property where the gap between contract and settlement is typically 30 to 90 days, but it's a real risk when settlement is 12 to 24 months away.

Call one of our team or book an appointment at a time that works for you. We'll walk through how valuations affect your loan amount, what to watch for in your contract, and how to structure your application so a valuation shortfall doesn't derail your settlement.

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