How do property valuations work?

family walking into their new home

A property valuation is an essential step in your home buying journey. When it comes to buying a house, it’s important that your lender knows how much the property is worth – this enables them to ensure that the value of the property is more than the loan amount you’re wanting to borrow from them. It’s also important for you to know what the right price is to pay for the property.

If you’re looking to refinance, knowing how much equity you have on your current property will help determine if it’s the right time for you to refinance your home loan. The following article outlines what you need to know about property valuations. 

What is a property valuation?

A valuation of a property (or land) is a professional opinion by a professional and certified valuer of its dollar value for the purposes of a planned transaction, like a sale, a mortgage or for refinancing. Real estate transactions need these sorts of evaluations because every property is unique, including its current condition, which is a key factor in setting the value. 

What are the different types of valuations?

You can get an estimate of what your property is worth in two ways – through an appraisal (which looks at the market valuation) or a formal valuation. 

Appraisals are usually intended as a guide to pricing. They’re usually given by a real estate agent using information about recent sale prices in the area. Typically, no fee is charged for an appraisal.

A formal valuation on the other hand, gives a more accurate estimate of the property’s value, and is done by a certified Valuer. A formal valuation will consider:

  • The location of the property
  • The building structure and its condition
  • Building/structural faults
  • Features of the home
  • Caveats or obstructions on the property
  • Local Council zoning
  • Additional features of the property (particularly relevant in rural areas)
  • Recent sales


The cost of a formal valuation varies significantly, so it could be good to shop around for a good deal. Some lenders offer free house valuations as part of a home loan – at Pepper Money we include the valuation fee as part of the establishment fee.

The difference between a property valuation and a market valuation

market value

Market value

Market value is basically the highest estimated price a buyer would pay and that a seller would accept in an open and competitive market – market value generally relies on buyer’s emotions to drive up price.
property valuation

Property valuation

Whereas a property valuation - generally carried out by a bank, lender or independent agent - is data driven. A valuer will physically assess your home’s key features as well as comparable sales to arrive at a value, which they believe the property would sell for.

How to get your property ready for a valuation

Property valuers look at comparable sales and market data to determine the value of your property, however, there are things you can do to help your property stand out. Ensuring your property is in tip top condition is a great start; a lick of paint and replacing any broken appliances or tired fixtures can make a real difference. A well-maintained garden can also do wonders to increase a property's marketability. To take it a step further you could look at small enhancements to add to the value to the property; such as an outdoor deck or new carpets.

While this may not drastically change a bank's valuation, it could increase real estate valuations and your chances of achieving a sale at a higher price.

What can you do if the valuation of your property is too low?

If you believe that valuation of your property is incorrect, first try to understand why. Speaking to your lender or agent could be a good idea to understand this. You can also submit a formal written objection in your state - see the links below:

Sometimes you may be faced with a valuation shortfall which means that a valuation is less than the price that has been paid or estimated for a property. This may lead to a lender declining to fund a loan for the full amount you need to proceed, leaving you with a potential shortfall.

If you are ever facing a shortfall, there are a couple options you can consider:

Either cover the shortfall difference yourself. Or look for an alternative lender who can lend you a higher Loan to Value Ratio (LVR) which could provide you with enough funds to cover the shortfall.


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