Bank valuations may differ from the price you pay for your property, and for good reason. Here, we look at the factors making up your bank’s valuation, and how it affects what home buyers can afford to borrow.

If you’re buying a property and taking out a mortgage, the first thing you should know is that bank valuations are different to market valuations and sale prices.

This matters because a bank valuation is used to calculate the loan to value ratio (LVR), which can affect how much you can borrow. A higher LVR means you’re borrowing more of your home’s value, which might leave you vulnerable to rising interest rates.

Bank valuations play a big part in determining your home loan, and whether you’ll be required to pay lender’s mortgage insurance, which protects your lender when you take out a home loan where there’s an increased risk.

 

What is a bank valuation?

A bank valuation, as the name implies, is a valuation of a property determined by your bank.

The valuation takes into account a number of factors, including the condition of the property and comparable prices in the suburb.

The bank uses the valuation to determine the risk it takes in lending you money. If the bank valuation is much lower than the purchase price, you may have to borrow more for your home loan. You may then need to find extra funds or take out lender’s mortgage insurance.

Bank valuation vs. market valuation

It’s important to note that neither of these are the same as the price you pay, the market rate, or other property valuations, such as an estimate from your real estate agent, or automated price estimates you might find on property-related apps or websites.

Where a market valuation helps you determine a property's actual selling price, a bank valuation helps a lender determine their risks.

Bank valuations

  • are intended for use by banks only 
  • may be lower than the purchase price
  • take into account a range of risks, including recent market movements and environmental factors such as proximity to industrial areas, petrol stations and high transmission power lines as well as the likelihood of flood and bushfires.

Market valuations

  • are designed for buyers and sellers
  • are generally higher. reflecting that sellers typically want the best price possible and buyers will be prepared to wait until they find a suitable price
  • reflect what’s going on in the market, comparing with other similar properties.

Remember to check the terms and conditions of your home loan with your lender and mortgage broker before you take out a home loan.

You can use AMP home loans tools and calculators to help work out how much you might be able to borrow and what repayments might look like.

Why do banks use their own valuations? 

Banks use their valuations to work out the value of your property that will act as security against your home loan. While they’re generally called bank valuations, banks usually use an independent valuer, rather than making the estimate themselves.

That’s because they want an unbiased and independent estimate of the market value of the property.

How banks value properties

Several elements go into making a valuation.

These include:

  • size of the property and land
  • number of rooms
  • location
  • recent sales in the area
  • fixtures and fittings.

Different types of property valuation

Full valuation

This is the most comprehensive method, and usually used if there’s a higher perceived risk to the bank. The valuer inspects the property inside and out, and writes up a report for the bank including photos, the age of the property, its condition and zoning restrictions.

Full valuations account for around half of valuations, depending on each individual lender’s policies and risk appetite.

Kerbside valuation

As the name suggests, this is an external inspection. It may take into account recent sales in the area but not special internal features, such as renovations.

Desktop valuation

Is based on comparable sales data. It doesn’t involve a physical inspection of the property. However, it’s still completed by an independent and qualified valuer. These account for around a third of valuations.

Automated valuation model

This is a system-generated, statistically-based valuation, using the property attributes and comparable sales data. They account for around 10%-20% of valuations.


How much does a bank property valuation cost and how long does it take?

Costs vary depending on your lender, the property, and how much you want to borrow. In general, you can expect to pay from $200 to $600, although the bank may cover the valuation on your behalf.

The time it takes for a valuation to be completed depends on your bank (and the availability of its valuer), how quickly the vendor allows access to the property, and whether a full valuation is required.

A straightforward kerbside or desktop valuation may take a day or so. If a full valuation is needed, this could take up to seven working days.

Pre-qualify for your home loan

Could you borrow the amount you want?

Important information

This information is provided by AWM Services Pty Ltd (ABN 15 139 353 496), is general in nature only and hasn’t taken your circumstances into account. Before deciding what’s right for you, and making a decision about this product, it’s important to consider your particular circumstances and read the relevant product disclosure statement or terms and conditions available from AMP at amp.com.au or by calling 131 267.

All information on this website is subject to change without notice. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive relating to products and services provided to you. AWM Services is a part of AMP group.