Whether you’re selling, looking to buy or simply wanting to refinance, you need to know the value of the property in question.
The catch? Everyone—from banks to real estate agents to potential buyers—seems to have a different take on what that value might be. It’s helpful to know how and why these differ and what the different valuations are used for.
Bank Valuations
When a bank conducts a valuation, expect a more cautious estimate compared to a real estate agent’s market valuation. Why? The bank’s primary focus is safeguarding its investment, ensuring that if you ever default on your loan, they can recoup the loan amount by selling the property. Therefore, their valuation often comes in 10 to 20 percent below market valuations. Their valuation depends on factors like location, building condition, renovations, and council zoning, with risky areas prone to natural disasters usually seeing lower estimates.
For properties bought off-the-plan, understand that the bank will only appraise the completed building, which might fall short of your purchase price if the market dips while it’s under construction.
Market Valuations
Real estate agents offer market valuations that reflect current market conditions and serve as a “best guess” of what a property could go for. These are influenced by the agent’s desire to facilitate a sale and factors like the property’s size, condition, and features. Plus, there’s always the unpredictable element of what a buyer may willingly pay—sometimes well above market expectations—if they fall for a property.
Why Valuations Differ
Valuations can vary widely because they rely on changeable market data—trends, sales of similar properties, area desirability, and rental rates—all of which fluctuate over time. The individual valuer’s subjective interpretation of this data can also impact the result. If you can choose when to schedule a valuation, timing can work to your advantage.
A valuation that is lower than the purchase price isn’t good news, which is why some people contest this. One of the benefits of working with a financial advisor Melbourne is we can speak with other lenders who may decide the property is worth more and be happy to lend the funds to you.
What Happens If Your Valuation Falls Short
A lower bank valuation than the purchase price can wreak havoc on a buyer’s loan approval process. But don’t worry, there are paths forward: you might be able to increase your deposit, tap into existing equity, or bring in a guarantor to back your loan.
If you’re buying, always check the pre-purchase valuation to avoid surprises. For sellers, boosting your property’s appeal through renovations might raise its value—though results can vary, so proceed with care.
On occasions where a valuation doesn’t meet your expectations, consider your options. Working with a broker can open doors to other lenders who might appraise your property more liberally and offer appropriate financing.
Remember, every property and financial situation is unique. Reach out to explore loan opportunities tailored to your needs. Our expertise can help you navigate the valuation landscape with confidence.
To learn more about financial security, speak to our qualified team of financial planners and wealth creation experts.
Contact us online or call us on 03 9427 0855.
