An essential home-buying step is to have a valuer appraise the market value of your property. Without a legally binding property valuation report fixing the price, many lenders won’t accept your home loan application. This is because the property value acts as a security against your loan, so without it, a lender won’t feel comfortable lending you the loan amount you need.
So how does property valuation work in Australia? Let’s break down what you need to know.
What is a property valuation?
A property valuation is a legally binding report declaring the estimated value of a property. A qualified valuer undertakes the assessment and considers many factors, such as market conditions, the local area, and the house's condition.
It is often a mandatory part of any home loan application to have a house valuation completed.
What factors affect a property valuation report?
A valuer will consider many factors when issuing an independent valuation of a property. Some of the most common include:
- The type of property, i.e. house vs. unit.
- The size, style, age, accessibility, and condition of the property.
- Any value improvements such as renovations or energy-efficient features.
- Recent sales of similar properties in the area.
- The local property market trends.
- Land area, planning restrictions, and council zoning.
- Location and nearby amenities.
These can all give a valuer an idea of the property’s market value.
Is a property valuation the same as a property appraisal?
A property valuation is not the same thing as a property appraisal. Whereas the first is a legally binding report, the latter is an informal market value estimate, usually conducted by a real estate agent instead of a qualified valuer.
A property appraisal can still be a helpful first step in selling or buying a property since it can set a price guide. However, lenders will only accept a property valuation as a formal part of a home loan application.
How much does property valuation cost?
Property valuation can cost anywhere from $200 to $600, depending on your lender and the organisation doing the valuation. Many home loan lenders offer to cover property valuer fees up to a certain amount as part of their services or offer free property valuations outright.
While it shouldn’t be the deciding factor when comparing home loans, property valuation is an essential cost to consider, along with stamp duty, interest rates, and repayments.
Does a property valuation give you the sale price?
A property valuation can be done by an independent valuer at any point, regardless of whether the property is up for sale. Therefore, the estimated value of the property isn’t necessarily the same as the final sale price. It just tells you what your home is worth.
A number of things can influence the sale price of a property, whether it’s sold via private negotiation or public auction. Emotion plays a role in home buying, after all.
Property valuations tend to be conservative, as well, so the sale price may exceed it. (This is most common in popular property markets like Sydney, NSW).
Do I need a property valuation when refinancing?
Yes, you will usually need to show a lender a recent property valuation report when refinancing your home loan. This is because your new lender will want to establish your equity and loan-to-value ratio (LVR), both of which need an estimated market value of the property.
While your property valuation won’t change the overall loan amount, it can affect how much of your property you own. For example, if a property valuation shows your home’s value has risen since you took out your initial loan, you may have more equity than you thought. More equity means a lower LVR, which makes you an attractive borrower and potentially eligible for lower interest rates.
If you plan to refinance, consider hiring an independent valuer to assess your home. This can help inform which home loans and lenders may suit you best since you’ll know your home and loan’s value.
Who can do a property valuation?
One of the leading property valuation bodies in Australia is the Australian Property Institute (API). Property valuers from the API are certified experts who can drum up detailed reports of what your property is worth.